When markets are in ‘seek and destroy’ mode, like the last dragon in Game of Thrones, it’s fruitless to guess where they might attack next. Silicon Valley Bank’s excess of deposits was not in itself a signal of distress. Credit Suisse’s balance sheet was stronger than those of many other leading European banks. Deutsche Bank is a lot better-managed than Credit Suisse. But still investors swarm in search of weaklings.
And their next focus – alongside the impact on bond portfolios of fast-rising interest rates, as in SVB’s case – will be the most traditional of all causes of banking crises: commercial property. America has $20 trillion worth of it. The Green Street Commercial Property Price Index, a leading indicator, is down 15 per cent in a year across the sector, with the biggest falls in urban office values, where space stands empty as working from home takes permanent hold. Institutional investors are shunning real estate for higher yields at lower risk on government bonds. And that leaves lending banks, especially US regionals but also some foreign ones, allegedly including Deutsche, dangerously exposed.
Who knows what the market dragon’s breath may scorch next. But I predict the next banking calamity will be all about old-fashioned office blocks.
Sheikh out
The resignation of Ammar Al Khudairy, chairman of Saudi National Bank, following a $1 billion loss on its stake in Credit Suisse is a parable of picking words carefully. SNB became the largest shareholder in the tottering Swiss bank in November by buying 9.9 per cent for $1.5 billion, but has kissed goodbye to most of that in the emergency takeover by UBS. It was Al Khudairy’s answer when asked by Bloomberg last month whether SNB might increase its holding – ‘Absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory’ – that precipitated the terminal crash of CS’s share price.
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