The financial crisis of 2008, also known as the credit crisis, began in the United States with the collapse of the housing market. Banks had provided risky mortgages to households with low creditworthiness, and these mortgages were bundled into complex financial products that were sold worldwide. When house prices fell and interest rates rose, many households could no longer pay their mortgage, leading to massive defaults. This caused major losses for banks and financial institutions worldwide, resulting in a global financial and economic crisis.

It's been 16 years already, but I assume this has stayed with most newsletter readers. We are now witnessing something that reminds me of the banking crisis of 2008.

Two weeks ago, I published a newsletter indicating that New York Community Bank (the 35th largest bank in the United States) announced a net loss of $252 million for the fourth quarter of 2023 due to faltering real estate investments.

The American commercial real estate market has been hit by rising borrowing costs, with office buildings particularly affected by the increase in remote work since the pandemic. Additionally, stores are closing more often as people increasingly order online. Have you noticed this in your daily life? Reflect on your own work and shopping preferences since the pandemic. Often, by thinking logically, we can also get an indication of where the world is heading.

Among the largest American banks, bad loans for commercial real estate have exceeded loss reserves, mainly due to a significant increase in delinquent payments for offices, shopping malls, and other properties. In the past year, the average reserves at banks such as JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley decreased significantly. The delinquent debts for commercial real estate at these six banks nearly tripled to $9.3 billion. Across the broader US banking sector, the total value of delinquent loans rose to $24.3 billion, doubling from the previous year. This marks the lowest level of coverage in more than seven years to absorb potential losses.

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As shown in the image, you see a 'calm before the storm' in 2005-2006. In 2008, banks lost $373 billion in assets, and 'only' 25 banks went bankrupt. The years that followed show that total losses decreased. However, bank bankruptcies increased in the following years. Large banks took over smaller banks, which had fewer assets on their balance sheets, hence the total losses decreased - but bank bankruptcies increased. This raises the question: is history repeating itself, or is this time different?

The period 2021-2022 is compared to the 'calm before the storm' of 2005-2006. In 2023, banks lost significantly in assets, while remarkably few banks went bankrupt. A notable example is the collapse of Silicon Valley Bank, the sixteenth largest bank in the US, which fell after a massive withdrawal of money by customers (bank run). We then saw the price of gold (€) rise by almost 10% in less than 2 weeks. The takeover by First Citizens Bank provided temporary stabilization, but tensions are still simmering beneath the surface.

Smaller banks are more at risk in the commercial real estate market, with an exposure of 30%, compared to only 7% at larger banks. This higher exposure makes them more vulnerable to problems in this sector. Jerome Powell, in an interview with 60 Minutes, acknowledged that this makes smaller banks more likely to go bankrupt.

For investors, a loss of confidence in banks, where customers withdraw their money en masse, represents an opportunity to invest in safe havens such as precious metals. After financial turmoil, like the credit crisis of 2008, we saw a significant increase in the value of gold and silver, by 189% and 250% respectively in the four years thereafter. This underscores the potential of precious metals as a solid investment in times of financial uncertainty.

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