So much for my MetLife short... It's among the six institutions the stress-test results indicate won't need to raise new capital.
Why MetLife rallied is beyond me. It's holding more than $30 billion in commercial real estate exposure – half of all its loans are commercial real estate.
Commercial real estate deals are defaulting at a rate of more than $200 billion a year. And get this: Subprime, the straw that broke the banking system's back, was about a $1.3 trillion market when it started blowing up. Commercial real estate loans total more than $3.5 trillion and are probably in even worse shape. The worst is yet to come.
I find it difficult to believe MetLife will remain untouched. And by passing the stress test, it'll probably get complacent and not raise the capital it'll need once the commercial deals start becoming OTTI: "other than temporary impairments." That'll take time because nobody wants to sell at current prices, which indicate impairments of 50%-65%. They'd rather hang on as long as possible and be forced into bankruptcy.
On Tuesday, I watched a scary presentation by Igor Lotsvin of Soma Asset Management. Igor says 25% of commercial real estate in Nevada is impaired... and when 25% is impaired, the entire market is impaired.
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