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Charlie Munger Warns That The Fall Of Property Values With Banks Full Of Bad Loans

Berkshire Hathaway distanced itself from Silicon Valley Bank and Signature Bank with history supporting instable banks.

Berkshire Hathaway Inc. Vice Chairman Charlie Munger made a startling comment about the ongoing banking crisis in the U.S. during a recent interview.

In an interview with the Financial Times that was published on Sunday, Munger warned that a storm is brewing in the U.S. commercial property market, with American banks “full of bad loans” as property prices fall. 

Warren Buffett (L), CEO of Berkshire Hathaway, and Vice Chairman Charlie Munger attend the 2019 annual shareholders meeting in Omaha, Nebraska, May 3, 2019. Munger had stated that the American banks were full of bad loan that devalued the properties. JOHANNES EISELE/BENZINGA

“A lot of real estates isn’t so good anymore,” Munger told the publication. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.”

Other Commercial buildings have gone vacant since the lockdown of the start of the COVID-19 pandemic forcing businesses to work from home.

“Every bank in the country is way tighter on real estate loans today than six months ago,” he added.

While noting that the current market is not as bad as it was in 2008, Munger said “trouble happens to banking just like trouble happens everywhere else.” 

Munger’s warning comes as federal regulators recently asked banks for their takeover offers for First Republic Bank.

Berkshire has a history of supporting U.S. banks through periods of financial instability but has distanced itself from the Silicon Valley Bank and Signature Bank collapse.

“Berkshire has made some bank investments that worked out very well for us,” Munger told the Financial Times. “We’ve had some disappointment in banks, too. It’s not that damned easy to run a bank intelligently; there are a lot of temptations to do the wrong thing.”

As of Monday, First Republic Bank assets were taken over by the FDIC and was closed by the California Department of Financial Protection and Innovation citing a high portion of unsecured deposits. The bank had a clientele of high net worth individuals. 

JPMorgan Chase won the auction for $10 billion purchasing nearly all of its assets from the FDIC.

The sole owner of First Republic Bank was one of few banks that included Wells Fargo, Bank of America, Citigroup, and Truist Financial to deposits $30 billion to the troubling bank.

First Republic Bank is the second troubling bank that JPMorgan Chase has purchased since acquiring Washington Mutual in 2008.

“It’s not nearly as bad as it was in 2008,” Munger said about the current situation with the banking crisis. “But trouble happens to banking just like trouble happens everywhere else.” 

Stocks closed for First Republic Bank at $3.51 as shares had declined since the bank received the $30 billion deposit.

The Dodd-Frank Act was enacted in 2010 that would further regulate the banking industry. In 2018, former President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act raising threshold from $50 billion to $250 billion. The bill also eliminated the Volcker Rule for small banks less than $10 billion in assets. The bill repealed parts of the Dodd-Frank Act.


Produced in association with Benzinga

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