The next shoe to drop

Howdy, Opening Bell crew.?I'm Phil Rosen.?

Over the last month,?four banks have collapsed?— Silicon Valley Bank, Silvergate, Signature, and Credit Suisse — and a cadre of Wall Street giants banded together to make sure?First Republic?didn't suffer the same fate.?

And on Friday,?Deutsche Bank sparked a new round of banking fears, too.?

But even after all that, there's more trouble looming for the banking sector. Bank of America strategists just told us?where the turmoil could stem from next.

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1. Odds are, commercial real estate?is the next shoe to drop for the banking sector after this month's unrest.?

In a Friday note, Bank of America strategists said that a potential credit crunch — sparked by a wave of refinancing on?commercial real estate loans?— could send stocks spiraling and tip the economy into a recession.

"Commercial real estate [is] widely seen as?next shoe to drop?as lending standards for CRE loans to tighten further," BofA's Michael Hartnett said.

He added that occupancy rates in offices across the US remain far below pre-pandemic levels.?

Meanwhile, Zillow data shows national rent levels?have been falling for a year, which means those empty office buildings are still collecting rent,?but less than they did in the past. The shortfalls are being driven by?work-from-home trends?that are unlikely to let up anytime soon.

Regional banks have enormous exposure to commercial real estate loans. These firms hold almost 70% of all commercial property debt outstanding, a much higher proportion than larger banks, the strategists pointed out.

In a separate research note, JPMorgan analysts?said that nearly $450 billion in commercial real estate loans are set to mature in 2023,?60% of which are held by banks.

Of that batch,?almost a quarter will default, JPMorgan estimates, which could imply roughly $38 billion in losses for banks.

The potential problems echo the 2008 Financial Crisis, when plummeting property values tipped the economy into a deep recession. But this time around, it is commercial rather than residential real estate that may be in trouble.?

"Furthermore," JPMorgan analysts wrote, "regional banks are a lot more stressed which reduces their ability to amend and consent to loan modifications given the?pressure on the liability side of the balance sheet."

Are you worried about the impact of commercial real estate on the banking sector and the economy??Let us know in the comments.

In other news:

2. A top-performing fund manager explained how she finds undervalued stocks hiding in plain sight.?Kimberly Scott said investors shouldn't overlook mid-sized companies.?She named the seven best investments to make right now.

3. It's more affordable to become a real estate investor than you may think.?That's what Insider's Kathleen Elkins has learned after interviewing scores of top property professionals.?Here's what to know about house hacking, the one strategy that many experts use to afford their first property.

4. This portfolio manager at Quent Capital oversees more than $1 billion in assets.?He shared the six artificial intelligence firms he's betting on now —?and how to spot opportunities without getting caught up in the hype.

5. Deutsche Bank stock saw a double-digit slide on Friday.?The cost of credit default swaps linked to the German firm's bonds shot up at the end of last week.?Now, investors are fretting about the health of Europe's banks following UBS's rescue of Credit Suisse.?

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