Charlie Munger, the 99-year-old investor and vice chairman of Berkshire Hathaway, has expressed concerns over the US commercial property market. In an interview with the Financial Times, Munger stated that US banks are filled with “bad loans” that will become vulnerable as property prices fall and “bad times come”. Munger acknowledged that the current situation is not as bad as it was in 2008, but warned that trouble can happen to banking just as it can happen in any other industry.
Munger’s warning comes at a time when US regulators have asked banks for their best offers for First Republic, the latest in a series of tumultuous events for midsized US banks. Following the failure of Silicon Valley Bank in March, attention has turned to First Republic as the weakest link in the American banking system. The bank’s shares fell 90% last month and further collapsed after the bank disclosed how dire its situation is.
Berkshire Hathaway, which Munger serves as vice chairman, has largely kept its distance from the crisis, despite its history of supporting American banks through times of turmoil. Munger suggested that Berkshire’s restraint is partially due to risks that could emerge from banks’ numerous commercial property loans. “A lot of real estate isn’t so good anymore,” Munger said. “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.”
In conclusion, Munger believes that the US commercial property market is facing trouble ahead due to banks being packed with bad loans. While the situation is not as bad as it was in 2008, Munger warns that bad times are ahead and that banking is vulnerable just like any other industry. Berkshire Hathaway has mostly remained on the fringes of the crisis despite its history of supporting American banks through times of turmoil. The risks that could emerge from banks’ numerous commercial property loans have kept the company at bay.
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