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Charlie Munger Sees American Banks Exposed to Real Estate Loans

Berkshire Hathaway, Goldman Sachs, Bank of America, Charlie Munger

By The Registry Staff

Charlie Munger, billionaire investor and vice-chair of Berkshire Hathaway, has warned of a potential storm brewing in the US commercial real estate market. In an interview with the Financial Times, Munger expressed concern over American banks being “full of” bad loans as property prices continue to decline. The 99-year-old investor believes that the turmoil in the country’s financial system could lead to a commercial property crash following a handful of bank failures. 

Munger has a long history of supporting US banks through periods of financial instability, investing billions of dollars in Goldman Sachs and Bank of America during the 2007-08 financial crisis. However, Berkshire has so far stayed on the sidelines of the current bout of turmoil, which has seen Silicon Valley Bank and Signature Bank collapse.

Munger expressed caution over the risks associated with banks’ vast portfolios of commercial real estate loans. “A lot of real estate isn’t so good anymore,” he said to Financial Times. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.” Munger noted that banks were already pulling back from lending to commercial developers, with every bank in the country becoming much tighter on real estate loans today than they were six months ago.

Despite Berkshire’s success in generating compounded annual returns of nearly 20 percent, twice the benchmark S&P 500 stock index rate, Munger warned that the golden age of investing was over, and investors would need to contend with a period of lower returns. The 99-year-old investor attributed his success to buying great companies at a cheap price, but said that “it happens rarely.”

Munger also took aim at his own industry, hitting out at a “glut of investment managers that’s bad for the country” and buyout groups, stating that there is too much private equity and too many buyers of all kinds, making it a very tough game for everybody.