KBW CEO Thomas Michaud joins ‘Squawk Box’ to discuss the banking crisis, the state of regional banks, and whether there is more turmoil down the road….(read more)

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KBW CEO Thomas Michaud: It’s Inevitable We’re Going to Have More Credit Expense Going Forward

During times of economic uncertainty, the financial industry is often at the forefront of change and adaptation. As the CEO of Keefe, Bruyette & Woods (KBW), Thomas Michaud is well aware of the challenges and opportunities that lie ahead. In a recent interview, Michaud shared his insights on the future of credit expenses and its impact on the banking sector.

Michaud acknowledges that the current economic climate, exacerbated by the ongoing COVID-19 pandemic, has put substantial strain on individuals and businesses alike. As people face unemployment, reduced incomes, and an uncertain future, the effects on creditworthiness are inevitable. These circumstances have compelled financial institutions to brace themselves for an increase in credit expenses going forward.

Given KBW’s expertise in the banking industry, Michaud has a unique perspective on the potential ramifications of a credit expense surge. He anticipates that commercial real estate loans, particularly those related to retail and hospitality sectors, could face significant challenges. The prevalence of remote work, coupled with the closure of businesses, has raised concerns about the long-term viability of these sectors. Consequently, banks could see a rise in delinquencies and defaults in their loan portfolios, leading to increased credit expenses.

Furthermore, Michaud recognizes the crucial role of government intervention in mitigating the adverse impact of the economic crisis. The implementation of loan forbearance programs, stimulus packages, and relief measures have provided temporary relief to many borrowers. However, as these programs eventually expire, the true extent of credit risk will be revealed. Michaud suggests that banks should be prepared to adapt their credit risk management strategies accordingly.

In response to the foreseeable future of credit expenses, Michaud points out the importance of maintaining sound underwriting practices. Banks must exercise caution and diligence in assessing the creditworthiness of borrowers, taking into account the evolving economic landscape. Strengthening risk management frameworks and adopting prudent lending standards will be crucial to weathering the storm.

Despite the challenges ahead, Michaud remains cautiously optimistic about the banking industry’s resilience. He emphasizes that banks have learned valuable lessons from previous crises, allowing them to better navigate the current economic turmoil. Moreover, technological advancements and the adoption of digital banking have improved banks’ operational efficiency, making them better equipped to handle credit expenses.

In conclusion, KBW CEO Thomas Michaud foresees an inevitable rise in credit expenses for financial institutions. The impact of the pandemic on the economy and various sectors has made it imperative for banks to anticipate and manage potential delinquencies and defaults. By maintaining strong underwriting practices and implementing effective risk management strategies, banks can mitigate the impact of credit expenses, ensuring their stability and resilience in the face of adversity.