Silicon Valley Bank’s (SVB) collapse is “an early step” towards a more rational market environment, according to Oaktree Capital founder Howard Marks. However, fresh problems might arise from bank exposure to commercial real estate, Marks writes in his latest memo, Lessons from Silicon Valley Bank.
While the American investor and writer doesn’t expect the failures of Silicon Valley Bank and other US lenders as bringing on a credit crisis, it seems “inescapable” that financial institutions will be forced to rein in their provision of credit.
“Notable defaults on office building mortgages and other CRE loans are highly likely to occur. Some already have…No one knows whether banks will suffer losses on their commercial real estate loans, or what the magnitude will be. But we’re very likely to see mortgage defaults in the headlines, and at a minimum, this may spook lenders, throw sand into the gears of the financing and refinancing processes, and further contribute to a sense of heightened risk. Developments along these lines certainly have the potential to add to whatever additional distress materializes in the months ahead.”