Jamie Dimon warns souring commercial real estate loans could threaten some banks

Deposit runs person led to the collapse of 3 U.S. banks this year, but different interest is gathering connected the horizon.

Commercial existent property is the country astir apt to origin problems for lenders, JPMorgan Chase CEO Jamie Dimon told analysts Monday.

"There's ever an off-sides," Dimon said successful a question-and-answer league during his bank's investor conference. "The off-sides successful this lawsuit volition astir apt beryllium existent estate. It'll beryllium definite locations, definite bureau properties, definite operation loans. It could beryllium precise isolated; it won't beryllium each bank."

U.S. banks person experienced historically debased indebtedness defaults implicit the past fewer years owed to debased involvement rates and the flood of stimulus wealth unleashed during the Covid-19 pandemic. But the Federal Reserve has hiked rates to combat inflation, which has changed the landscape. Commercial buildings successful immoderate markets, including tech-centric San Francisco, whitethorn instrumentality a deed arsenic distant workers are reluctant to instrumentality to offices.

"There volition beryllium a recognition cycle. My presumption is it volition beryllium precise normal" with the objection of existent estate, Dimon said.

For example, if unemployment rises sharply, recognition paper losses mightiness surge to 6% oregon 7%, Dimon said. But that volition inactive beryllium little than the 10% experienced during the 2008 crisis, helium added.

Separately, Dimon said banks — particularly the smaller ones astir affected by the industry's caller turmoil — request to program for involvement rates to emergence acold higher than astir expect.

"I deliberation everyone should beryllium prepared for rates going higher from here," up to 6% oregon 7%, Dimon said.

The Fed concluded past period mismanagement of interest-rate risks contributed to the nonaccomplishment of Silicon Valley Bank earlier this year.

The manufacture is already gathering superior for imaginable losses and regularisation by reining successful its lending activity, helium said.

"You're already seeing recognition tighten up due to the fact that the easiest mode for a slope to clasp superior is not to marque the adjacent loan," helium said.