Europe’s banks in ‘better place’ than US

Europe’s banks face less threat from some of the problems now showing in the commercial real estate markets than their US counterparts, analysts at JPMorgan have said.

Economists are worried commercial property could be the next shoe to drop if problems in global banking markets trigger a broader credit crunch for the multi-trillion-dollar sector that was already under pressure.

“Fundamentally, we believe that any contagion from either US banks or US CRE (commercial real estate) onto European peers is not justified, given different sector dynamics,” JPMorgan analysts said in a research note published late on Monday.

Whereas the US market is blighted by high office vacancy rates and negligible rental growth, they highlighted that Europe has far fewer empty properties and benefits from more inflation-linked rental contracts.

“Europe: 2 – US: 0!” JPMorgan said, summarising the situation as if it were a soccer match.

Policymakers’ main fear is a so called “doom loop” where concerns about banks’ health trigger a deposit flight and encourage banks to start calling in real estate loans in a bid to free up money.

That would accelerate a property sector downturn, aggravating underlying health concerns as it did during the 2007-08 global financial crisis and a number of other major crashes.