More US Regional Bank Failures May Be Coming

More US regional bank failures could be on the way thanks to what Pacific Investment Management warns is a “very high” concentration of troubled commercial real estate loans on their books. “The real wave of distress is just starting” for lenders to everything from malls to offices, says Pimco’s John Murray. Recent turmoil has been particularly felt by regional lenders, which boosted commercial real estate exposure that (in many cases) is now worth only a fraction of their value at its peak. Smaller banks have continued to worry investors ever since last year’s mini-collapse. Earlier this year, New York Community Bancorp slashed its dividend and stockpiled more cash for potentially bad loans, sending shares into a tailspin that ended in a capital injection. US Bancorp increased its provisions for credit losses in the first quarter. Shares of Axos Financial slumped last week after a short seller took aim at what it called the bank’s “glaring” property loan problems. Uncertainty over when the US Federal Reserve may cut interest rates has exacerbated challenges faced by commercial real estate, where high borrowing costs have hammered valuations and triggered defaults, leaving lenders stuck with tough-to-sell assets. The landscape looks to be getting grimmer.

The dollar is rising toward a new high for the year on speculation that tomorrow’s US inflation reading and a Fed policy decision will increase demand. The Bloomberg Dollar Spot Index rose Tuesday for a fourth straight session, climbing a total of 1.1% amid help from last week’s report of US jobs growth and political turbulence in Europe. The gauge now trades about 0.4% below this year’s peak reached on April 19. Meanwhile the S&P hit a new record and bonds were higher after a solid $39 billion Treasury sale triggered—you guessed it—even more speculation that Wednesday’s consumer price index data will help make the case for Fed cuts this year. Hope springs eternal—here’s your markets wrap.