Hedge fund firm Man. Jonathan Gollan, Group Portfolio Manager.
“There are parts of the market that we think are in very serious trouble,” he said. “More banks are coming under scrutiny, more banks are being victimized, and some banks in the U.S. and Europe are may go into default.” The investment-grade bond fund he manages outperformed 99% of its peers last year, according to data compiled by Bloomberg.
Investor concerns about U.S. commercial real estate are already spilling over into global markets. Shares of stocks such as NYCB, German financial institution Deutsche Pfandbriefbank (PBB) and Japan’s Aozora Bank have fallen sharply, with traders watching closely to see what’s next.
“In Germany and Scandinavia, exposure to commercial real estate as a percentage of tangible equity is in the 400%, 500%, 600%, 700% range. If there were to be write-downs, these banks would not only be non-investment grade, they would be insolvent,” Golan said. He explained that this example is a perfectly reasonable, if not basic, scenario for write-down rates.
German real estate-focused PBB bonds have slumped this week after Morgan Stanley analysts advised clients to sell senior debt issued by PBBs. The bank increased its provisions due to the “sustained downturn in the real estate market.” Stock prices hit a new record low on the 9th.
Bloomberg Intelligence (BI) said that U.S. commercial real estate loans represent less than 1% of banks’ assets and do not pose a major threat to major European banks such as Deutsche Bank, HSBC Holdings and BNP Paribas, but some points out the risks of financial institutions.
Germany’s “Arial Bank’s exposure is 16% and PBB’s 10%, indicating that PBB’s 2023 loan loss provision guidance increase is not yet fully reflecting the downturn in the real estate market,” BI said. Thomas Nortzel, senior analyst at , analyzed this in a report.
Golan declined to comment on the names of the companies or the performance of the funds, but said shorting securities is attractive.
“We’ve been focused on identifying sectors and individual stocks that are trading well above their intrinsic value. But we’re at a very late stage in the valuation cycle, so we’re looking to be both offensive and defensive. ” he said.
Despite recent turmoil, Golan sees some promise in the banking sector. “There are some very strong financial institutions with modest exposure to commercial real estate, differentiated business models, strong profitability, solvency and liquidity. “There are people in these fields, but we need to be really selective.”
Original title:Bank Default Risk Is Spreading to Europe, Man Group’s Golan Says(excerpt)
2024-02-09 12:38:07
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