"TCW Group CEO Warns of Looming Credit Crunch Amidst Banking Turmoil"

 

The recent banking turmoil has left some executives putting on a happy face to calm the financial system, but TCW Group CEO Katie Koch takes a more realistic view. With more than $200 billion in assets under management, her views carry weight, and she believes that the rest of the sentiment has not caught up to the view that the macroeconomic environment is going to be challenging. She predicts a medium to hard economic landing, and she thinks that the economy is headed into a credit crunch.

Koch's view is that the rolling banking crisis that continues to unfold is going to put pressure on regional banks' ability to extend credit, which, in turn, is going to put pressure on the economy and jobs. She is quite worried about that, and it underscores the base view as to why she is in the more bearish camp.

The recent plunge in PacWest stock by 50% is a sign that the economic challenges are piling up. The West Coast regional bank said it was weighing a range of strategic options, including a sale or capital raise. Extreme selling pressure has spread to other regional banks this week, including Comerica and Zions.

The week began with regulators seizing regional bank First Republic, which marked the largest bank failure since the 2008 financial crisis. JPMorgan then swooped in to purchase a majority of First Republic's assets.

Despite the banking turmoil, the S&P 500 is down less than 1% in the past month, and it is up roughly 6% on the year. But the negatives for markets are becoming too hard to ignore for Koch and other realists.

Koch believes that as the credit crunch plays out, it could begin to weigh on the commercial real estate market. Regional banks have a dual pressure from both deposit outflow and their commercial real estate exposure, and that is going to put pressure on those banks.

In summary, Koch's views are quite bearish, and she believes that the macroeconomic environment is going to be pretty challenging. As the rolling banking crisis continues to unfold, it could put pressure on regional banks' ability to extend credit, which, in turn, is going to put pressure on the economy and jobs. While the sentiment has not caught up to this view, Koch and other realists are worried about the negative impact on the commercial real estate market.