“Shark Tank” star Kevin O’Leary predicted that a commercial real estate crisis caused by high interest rates on “worthless” properties would hammer regional banks.
S&P Global downgraded Associated Banc-Corp., Comerica Inc., KeyCorp, UMB Financial Corp. and Valley National Bancorp in August, while also giving two other banks a negative rating. O’Leary noted that past interest rate increases by the Federal Reserve, driven by efforts to combat inflation, would hit the banks hard.
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“It’s going to cause rates in current accounts in the regional banks to get up 10, 11% for an average family business which is not a AAA-rated business,” O’Leary told Fox Business host Larry Kudlow. “People forget, there is a very powerful effect occurring here, 60% of the economy. I’ve been banging the table on small business for a while.”
“Regional banks have a horrible situation with these rate increases around commercial real estate portfolios, most of them office, which are practically worthless now because nobody is in them.,” O’Leary continued. “I think this will start cracking in Q4, right in the middle of the presidential election cycle, so these issues will trickle to the top.”
Several regional banks have already failed, some due to stock prices collapsing. Federal regulators shut down First Republic Bank early in morning of May 1 and sold it to J.P. Morgan Chase weeks after it received a $30 billion infusion from multiple lenders in order to stave off contagion following the sudden collapse of Silicon Valley Bank and Signature Bank in March.
O’Leary noted during a March appearance on Tucker Carlson’s Fox News show that people were already moving to the larger banks due to the failures of Silicon Valley Bank and Signature Bank.
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