Commercial banks are likely to lose the equivalent of 90% of the loan loss reserves they have set aside for commercial real estate loans, according to a new report from Deutsche Bank.
DB also estimates that CRE losses could wipe out 9% of tier one capital at banks, but calls the hit “survivable” but “not good.”
Meanwhile, analysts at the firm predict that depositories in the year ahead may turn to investing in Government National Mortgage Association MBS because the yields are attractive and the risk capital set aside is zero.
“If U.S. banks struggle with their more than $1.34 trillion in commercial real estate loans over the next few years, look for rising interest in MBS,” writes DB analysts Steven Abrahams, Mustafa Chowdhury and others.
