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KRE ETF forecast after the FRC collapse, Charlie Munger warning

The SPDR Regional Banking ETF (KRE) stock will be in the spotlight on Monday after the collapse of First Republic Bank (FRC). The ETF was trading at $42.50, which was slightly above the year-to-date low of $40.70. It has plunged by almost 40% from the highest point in August last year.

First Republic Bank collapsed

The biggest finance and banking news of this week is the collapse of First Republic Bank, one of the biggest banks in the United States. In a statement, the FDIC announced that it would seize the company and sell the bulk of its operations to JP Morgan, the biggest bank in the US. This collapse makes it the second-biggest bank to collapse in America’s history. 

Unfortunately, there are concerns that other regional banks will collapse in the coming months as well. For one, there is a likelihood that many people with accounts in regional banks will move their accounts to the too-big-to-fail banks like Bank of America and JP Morgan.

Most importantly, these companies will now be subject to more strict capital requirements, which will affect their profitability. 

The other big risk for the SPDR Regional Bank ETF is the challenges in the commercial real estate sector, which is facing a triple whammy. It is struggling with higher interest rates, looming maturities, and low occupancy rates. Just last week, the Wall Street Journal reported of a San Francisco building estimated to be worth $300 million that will now sell for $60 million.

In a statement, Charlie Munger, the Vice Chair of Berkshire Hathaway warned that many regional banks have these toxic commercial property loans. He said:

“It’s not nearly as bad as it was in 2008.  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.”

KRE ETF stock analysis

KRE chart by TradingView

In my last article on the KRE ETF, I warned against catching a falling knife. That prediction was accurate since the fund has crashed hard since then. It now remains below all moving averages. Also, it has formed a bearish pennant pattern, which is usually a good sign to sell. 

Therefore, the shares will likely continue falling in the next few days as sellers attempt to move below the key support level at $40. A move below the key resistance level at $45 will invalidate the bearish view.

The post KRE ETF forecast after the FRC collapse, Charlie Munger warning appeared first on Invezz.

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