Post by Admin/YBB on Mar 29, 2023 5:47:49 GMT -6
There is lot of negative news on the CRE exposures of smaller banks. The 3 US bank failures so far had high exposures to US Treasuries (HTM*, AFS*) and had industry concentrations in tech (private-equity, venture-capital) and cryptos. No US bank has failed yet for the CRE exposure, but if that happens, that may be the max negativity for CREs. Affected may be quarterly-liquid T-REA and illiquid/nontraded-REITs - BREIT, SREIT (typical limits 2% per month, 5% per quarter), etc.
Story is similar. The HTM portfolio is NOT marked-to-market. While that is "legal" and "allowed" by the accounting rules, it was clear to the "market" (but not to regulators?) that IF the HTM Treasuries were marked-to-market, the equity (the book values) of the failed banks would have been wiped out. When the bank runs happened, the HTM and AWS distinction basically disappeared. In the CREs, the revaluations are slow (e.g. T-REA), or not even done (some nontraded-REITs).
Another concern is that the HTM and AWS practices are also found among insurance/annuity companies and pension funds, not just among banks, credit unions, brokerages.
*HTM - Hold-to-maturity (these are not marked-to-market), AWS - Available-for-sale (these are marked-to-market)
Story is similar. The HTM portfolio is NOT marked-to-market. While that is "legal" and "allowed" by the accounting rules, it was clear to the "market" (but not to regulators?) that IF the HTM Treasuries were marked-to-market, the equity (the book values) of the failed banks would have been wiped out. When the bank runs happened, the HTM and AWS distinction basically disappeared. In the CREs, the revaluations are slow (e.g. T-REA), or not even done (some nontraded-REITs).
Another concern is that the HTM and AWS practices are also found among insurance/annuity companies and pension funds, not just among banks, credit unions, brokerages.
*HTM - Hold-to-maturity (these are not marked-to-market), AWS - Available-for-sale (these are marked-to-market)