“This isn’t going to be another history of the meltdown of Silicon Valley Bank. Dozens of those have appeared in my inbox over the past month, as I’m sure they have in yours. Thus, rather than merely recount the developments, I’m going to discuss their significance.”
That is how Oaktree co-founder Howard Marks opens his latest memo. Thankfully his memo lives up to that opening paragraph because I think we’ve all read enough about Silicon Valley Bank’s collapse.
There have been a number of comparisons made to the Global Financial Crisis in 2008, that saw bank failures lead to a risk of a larger collapse of the whole financial system. Marks doesn’t believe we’re in a similar situation. “I think the similarities between 2008 and 2023 are limited to the mere fact that, in both instances, problems existed at a few financial institutions. I find the common elements mostly superficial.”
While Marks doesn’t think we’re at the start of a financial crisis, that doesn’t mean he isn’t concerned. And he is particularly concerned about the commercial real estate market and the banks that lend to it. With the work from home shift, higher interest rates and the possibility of businesses failing during a recession (and then vacating their leases), there are a lot of factors adding up to risk for office buildings. For Marks, the banks that lend to commercial real estate projects are the ones to watch.
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