(Bloomberg) — Fears of broader bank turmoil are overdone and the risks are already baked into the credit ratings and share prices of most lenders, according to the CEO of Axos Bank, which holds the mortgage on Trump Tower.
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“There isn’t really some big credit bank crisis coming down,” Chief Executive Officer Greg Garrabrants said in an interview. “Whatever is embedded in the stock price — for credit, for banks — is well overblown for what I think it’s going to be.”
Concerns about commercial real estate soared this week after New York Community Bancorp slashed its dividend and stockpiled reserves, sending its shares plunging and dragging down other lenders. NYCB’s shares dropped a record 38% Wednesday after announcing the decisions and slumped 11% more on Thursday. Moody’s Investors Service warned it may cut the bank’s credit rating to junk.
US commercial real estate has been hit by a combination of rising interest rates and higher vacancies for offices, sparking increases in delinquencies and loan defaults.
Axos, which has more than half of its loans to commercial and multifamily properties, typically provides low loan-to-value debt for commercial real estate, Garrabrants said. The 2022 Trump Tower loan, for example, was $100 million on a prime Fifth Avenue property in Manhattan leased to tenants such as Gucci parent Kering and the Trump Organization, he said, adding that the loan is current and generating income in excess of debt-service coverage requirements.
The story for lenders to other offices is different, he said.
“If you’re exposed in office and things like that in the wrong markets, you’re going to have some gnarly losses,” Garrabrants said.
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Lenders in California, New York City and other high-cost housing markets suffered losses because the yields on home loans held on their books were lower than yields they paid for deposits.
Debt on commercial, multifamily and single-family real estate made up $14.2 billion of Axos’s $18.9 billion in loans as of Dec. 31, according to a presentation on the website of parent company Axos Financial Inc. Its allowance for credit losses climbed to $251.7 million — about 1.3% of its portfolio — from $170.9 million three months earlier.
New rent control regulations in New York City have caused particular concern about prospects for real estate loans. But Garrabrants said that isn’t a problem for Axos.
“We never do rent control because I didn’t trust what the government would do,” he said. “All of our loans and multifamily are full recourse,” which means they have a claim on their borrower’s assets if they default.
Axos last year acquired a Signature Bank $1.25 billion commercial real estate and multifamily loan from the Federal Deposit Insurance Corp., which the company bought at a discount for $790 million.
Credit quality was mixed last quarter, with an increase in nonperforming assets that was primarily driven by a single-family mortgage loan totaling $14.3 million, Wedbush analysts led by David Chiaverini wrote in a note in January.
Six analysts raised their target price estimates for Axos after it reported results Jan. 30.
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