Charlie Munger warns of ‘trouble’ for banks amid ‘a lot of agony’ for commercial real estate

“It’s not nearly as bad as it was in 2008,” Warren Buffett’s right-hand man told the Financial Times in an interview published Sunday. “But trouble happens to banking just like trouble happens everywhere else. In the good times you get into bad habits…When bad times come they lose too much.”

Berkshire Hathaway in the past has backed banks in tough times, investing about $5 billion in both Goldman Sachs and Bank of America in the 2007-08 crisis and 2011, respectively. But now, with a handful of bank failures being followed by possible commercial property crash, Berkshire Hathaway isn’t getting involved. One major concern is risk stemming from commercial property loans in bank portfolios.

The shift to remote work has hammered commercial real estate, leading to rising vacancy rates and falling property values.

“A lot of real estate isn’t so good any more,” Munger said. “We have a lot of troubled office buildings, a lot of troubled shopping centres, a lot of troubled other properties. There’s a lot of agony out there.”

Banks today, he noted, are hesitant to loan to commercial developers. “Every bank in the country is way tighter on real estate loans today than they were six months ago,” he told the British paper. “They all seem [to be] too much trouble.”

Last month, Tesla CEO Elon Musk tweeted that of all the economy’s looming threats, the state of the commercial real estate debt market is “by far the most serious.”

Munger acknowledged Berkshire Hathaway’s past success with bank investments. But he also referred to lessons learned. “We’ve had some disappointment in banks, too. It’s not that damned easy to run a bank intelligently, there are a lot of temptations to do the wrong thing.”

His comments come ahead of Berkshire Hathaway’s annual meeting in Omaha next Saturday.