Insurance companies hold the third largest exposure to US property debt and have $666bn of CRE exposures.
Last but not least, shadow banks are financial institutions without a banking license and thus less impacted by strict financial regulations.
“They have been the biggest lender to the opaque and obscure private equity and venture capital space. In fact, private equity was the space that benefitted the most from the zero interest rate policy, post the global financial crisis. The shadow banks hold a gargantuan $250tn of assets. (2021).”
As the age-old adage goes, monetary policy tightening is like dynamite fishing: when the blast hits, it decimates everything in the vicinity.
The small fishes rise to the surface first. But it can take some time for the whales to show up.
With the unwind of the major banks (Silicon Valley Bank, Signature Bank, First Republic Bank) during the first half of the year, it is clear that the aftershock of the US Federal Reserve's policy tightening is starting to be felt.
But should we see these banks as whales or small fish? At this stage, it is very difficult to answer this question.
However, we believe that we have entered a new period of uncertainty. And CRE could very well be the whale of 2023.
Charles-Henry Monchau is the chief investment officer at Bank Syz
