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let's bring in Tom M KBW a Ste Company CEO and president to discuss Tom thank you for being here uh so I guess we can kind of start there do you what do you make of kind of all of these warning signs that we've been talking about with regard to uh CR um you know especially against the backdrop of CBR saying last week in its earnings report that uh it's actually cautiously optimistic that the worst is over in in office leasing which kind of created more of a a relief for the market at least temporarily so then when you see numbers like this uh what are you what are you thinking of with regard to the banking system well good morning and also we just completed our 31st Annual banking conference last week and so got a lot of really good Channel checks very recently um look we are in a commercial real estate cycle it it really should be no surprise and it's the reason why we're Market perform on the banks and even though they're at a very low valuation we're not at an outperforming on the sector there are stocks that we like our view is we're about 2third of the way through this real estate cycle and just to give you perspective originations when when interest rates were near zero in 2020 and 2021 were two times their normal rate these mortgages are going to adjust and they're going to adjust with lower vacancy they're going to adjust with higher costs due to inflation and we're going to see more losses which Les and I as you study the industry I know that you've focused on this but lone loss reserves and and and Provisions for banks have been essentially zero for years we are going to see very large increases in losses that is part of the banking business we have a provision estimate for smaller Regional banks for this year of 25 basis points over the cycle may be 40 basis points so we see this happening slowly and over probably the course of the next year they going to be more commercial real estate losses we've built it into our estimates it won't happen all overnight um and then the question is how many outliers will there be there will be some and then the next question is is this a systemic risk to the banking industry we think with the capital the earnings and the reserves it's not a systemic moment for the sector but I think it's to kind of oh sorry Tom I didn't mean to interrupt you there um but I think it's important to distinguish between kind of those big six banks that uh are very highly capitalized especially related to historical levels and are becoming increasingly so in compliance uh with potential rules that are out there but then there's also the regional banking space which has been uh setting aside a lot more for loan losses and uh you know kind of fits in a different Dynamic with regard to the C ecosystem um so if you do kind of distinguish those how would you characterize what's going on in the regional space right now you do a great you just did a nice job of laying that out I think there are three banking Industries within the banking industry there are the big Global cies the the ones that we talk about as bulge bracket Banks Universal Banks trillion dollar asset sizes you've got the midsize Banks then you have the 97% of banks in America which are below 10 billion they all do different things and they all look a little bit different the smaller banks have more commercial real estate and they tend to be less reserved at the moment so we think they are probably at the greatest risk for an earning surprise if a commercial real estate problem shows up they're also less likely to lend in the big cities however there are going to be headwinds to earnings from those companies and that's why we've been tilting for stock selection towards the higher Banks the larger Banks interesting and I think yeah oh I was just going to say I think the market agrees with your prognostication there in terms of just the potential for some sort of uh downside surprise uh in those names uh Thomas Show I really appreciate it thank you for your time