Charlie Munger Raises Concerns Over Troubled Commercial Property Loans at US Banks – In an interview published on April 30, 2023, Charlie Munger, the well-known investor and vice chairman of Berkshire Hathaway, talked with the Financial Times about concerns that may impact the banking system in the United States. In the past, Berkshire Hathaway provided financial support to Bank of America and Goldman Sachs during the financial crisis.
However, the interview with FT revealed that the holding company has not taken similar actions during recent events, such as the recent failures of Silicon Valley and Signature Bank. “Berkshire has made some bank investments that worked out very well for us,” Munger stated. “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,” the investor added.
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The challenges encountered by financial institutions today were discussed by a 99-year-old American businessman, who particularly emphasized the amount of commercial property held by U.S. banks. As per reports, American banks possess approximately $1.5 trillion in debt that is expected to mature by the year 2025. The declining worth of this property has led to concerns, further compounded by ten successive federal funds rate hikes since last year.
“A lot of real estate isn’t so good any more,” Munger remarked. The Berkshire vice chair added: “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.” Following the publication of Munger’s interview, Jim Bianco, the president of Bianco Research, tweeted about the investor’s remarks. Bianco stated that “Buffett is the GOAT largely because he has invested in banks for over 50 years.”
“No one understands them better. So, I have noted his absence in all the happenings in the regional banks in the last two months. He is not investing, and, to me, this speaks volumes.” Bianco added: “Munger may have said the reason why.” In addition to undercapitalization and failure to meet obligations, loan quality is a crucial aspect for American banks.
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Making excessive bad loans can lead to substantial financial losses, as was evident during the 2008 financial crisis. Despite the challenges faced by the economy, Munger conveyed optimism during his interview with FT, suggesting that the current situation would not be as severe as it was in the past.