CRE deleveraging risk of up to €700 billion confirmed. Our initial estimate of the €300-600 billion banks’ financing gap has been validated, and the range has now tightened towards the top end, with banks enlarging their original deleveraging plans and announcing new ones. The original €100 billion risk from CMBS run-off and liquidating open-end funds also remains valid and has seen c.10% reduction so far. Banks are 20-25% through our estimated CRE deleveraging, a faster pace than expected. We estimate that c.20-25% of the expected deleveraging has been done in the last 18 months, through a mix of sales (c.20%), repayments (c.55%), asset repossessions (especially in Spain) and some write-downs (remaining c.25%).
Source : Morgan Stanley