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FirstFT: US banks sell property loans at discount in rush to cut exposure


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Some US banks are preparing to sell off property loans at a discount even when borrowers are up to date on repayments, following multiple warnings that the asset class is the “next shoe to drop” after the recent turmoil in the US regional banking industry.

HSBC USA is in the process of selling off hundreds of millions of dollars of commercial real estate loans, potentially at a discount, as part of an effort to wind down direct lending to US property developers, according to three people familiar with the matter.

Meanwhile, PacWest last month sold $2.6bn of construction loans at a loss. And a clutch of other banks are making it easier to execute similar sales in the future by changing the way they account for commercial property debt.

Typically, banks are reluctant to accept losses on big blocks of loans that will retain their full value as long as borrowers make repayments on time. But some are being convinced to take the plunge amid fears of an increase in delinquencies — especially on debt secured against office properties that have experienced falling demand due to the enduring popularity of working from home.

Here’s what else I’m keeping tabs on today:

  • Apple: The tech giant is expected to unveil a “mixed-reality” headset, its most important product in 13 years, at its Cupertino headquarters.

  • EU: The World Trade Organization holds a review of the bloc’s trade policies, while European Central Bank president Christine Lagarde speaks on current economic and monetary policy at a European parliament committee hearing in Brussels.

  • Economic data: Germany has trade balance figures, and S&P Global publishes services purchasing managers’ indices for the EU, France, Germany, Italy, the UK and the US.

Five more top stories

1. Exclusive: The Bank of England plans to broaden reforms of its deposit guarantee scheme to better protect depositors in failing smaller banks after March’s collapse of Silicon Valley Bank’s UK arm highlighted significant weaknesses in the existing regime. Read the full story.

2. Saudi Arabia will cut oil production by 1mn barrels a day in a bid to prop up oil prices as part of a deal in which several weaker African members of Opec+ will have quotas reduced. The kingdom made the announcement after a fractious meeting of the oil producers’ group in Vienna.

3. Exclusive: Axa Investment Managers has struck a €150mn deal to buy the French film studio that produced this year’s screen adaptation of Astérix et Obélix and one of the Hunger Games series and expand the site near Paris into one of Europe’s largest filmmaking facilities. Here’s why the French insurer’s property arm is following a popular niche.

4. Rishi Sunak will seek to exert British “leadership” over the artificial intelligence debate when he meets US president Joe Biden this week, including the idea of hosting a global AI regulatory body in the UK. George Parker has more from the prime minister’s agenda in Washington.

5. APG, one of the world’s largest asset managers, has said its pension fund clients are shying away from China in a growing pullback by investors alarmed at rising geopolitical risks. The Netherlands-based group manages about €532bn of assets for Dutch pension plans.

The Big Read

Crude oil pollutes the shoreline of an estuary at B-Dere, Ogoni, Nigeria, in 2020
Crude oil pollutes the shoreline of an estuary at B-Dere, Ogoni, Nigeria, in 2020. Leigh Day is bringing a case against Shell on behalf of the Ogale and Bille communities over oil spill pollution © George Osodi/Bloomberg

The volume of international litigation relating to environmental and climate issues has grown rapidly over the past few years, with cases seeking compensation from companies for environmental damage of rising interest. But these legal fights are also becoming a business opportunity for those who want to make money from climate-related claims, backed by investors ranging from pension funds to family offices. Not everyone thinks this development is a welcome one.

We’re also reading . . . 

Chart of the day

Productivity is expected to barely grow this year across mature economies, said The Conference Board, with this weakness set to continue over the next decade. The US-based research group cited the rising cost of capital and ongoing economic and geopolitical uncertainty, with growth from generative artificial intelligence only coming much later.

Line chart of Labour productivity (GDP per hour worked in 2022 constant $) showing The trend in productivity growth has been lower since the financial crisis

Take a break from the news

Chinese-American sci-fi writer Ted Chiang — whose novella Story of Your Life was adapted into the Hollywood film Arrival — sits down with Madhumita Murgia for Lunch with the FT to talk about the limits of AI, the uses of science fiction and why “the machines we have now are not conscious”.

Additional contributions by Annie Jonas and Vita Dadoo Lomeli

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