Author: Tim McPartland

Each day that passes gives me a little more confidence that we may be near the end of the banking crisis—not there, but getting nearer.  Of course we always have plenty of issues to worry about–the debt ceiling and government spending, but let’s face it we won’t have a time where we can’t find something to worry about.

Last night I was working on the fixed-to-floating rate preferred stock page and noting the great bargains that are out there–or should I say ‘potential’ bargains.  3 issues in particular caught my eye.  Valley National 5.50% FTF (VLYPO) with a current coupon of 8.91%, current yield of 12.05% and of course a yield to worst of over 26%.  Zions Bancorp 6.3% FTF (ZIONO) with a current coupon of 9.58%, current yield of 11.79% and yield to worst in the 20% area.  Lastly the Goldman Sachs 5.50% FTF (GS-J) with a coupon of 8.98%, current yield of 8.99%, but with much more safety has a yield to worst of just around 9%–I suspect this issue will be called soon.  NOTE–the FTF spreadsheet calculates the coupon with real time 3 month libor–the GS issue just became floating so no dividend has been paid since entering the floating rate period.  The spreadsheet calculates the ‘potential’ coupon–the actual coupon only is known on the dividend determination date for each issue.

I am not recommending anyone buy any issue mentioned here–but I may just nibble in a very small way before the week is out.

Interest rates are still quiet today–3.51% on the 10 year treasury this morning–not much movement this week and this will probably remain true through the end of the week.  Next week we have more consequential economic news so markets should move.  We have Powell’s favored inflation gauge on the 26th (Friday)–personal consumption expenditures (PCE) data and with the FOMC meeting approaching that will be a huge number.

So let’s get going on the day.

Yesterday was kind of flattish in the income issues marketplace–some issues up ,some down–although some of the regional bankers took a pretty large leap up.  Customers Bancorp (CUBI), Valley National (VLY), Zions (ZION) and others saw their preferreds jump 2-8%–no particular reason for the jump except time has passed and each day that passes without a collapsing bank signals a potential end to the ‘crisis’.  On the other hand–in a giant overreaction, Allstate (ALL) preferreds tumbled with the announcement of a new preferred issue.

Today I see the 10 year treasury is at 3.48% this morning which is 2 basis points below yesterday’s close.  I am thinking we continue to see rates in a narrow range until the debt ceiling issue can be resolved so things should be flattish for the balance of the month.

Home Depot (HD) earnings were out this morning and comparable store sales were down–is this a proxy for the economy?  Certainly it is meaningful for home building and home improvement – I have no answer but these pieces of information add talking points to recession speculation.  We will have retail sales ex automobiles released here in a few minutes and this will add a little more color to the recession (potential) story.

I won’t be doing anything again today except potentially going ahead and buying either the new Allstate issue OR one of their currently outstanding issues.  I sat on my hands yesterday.

After a few days of respite we saw a rough day for banking preferreds – mostly red, but the red wasn’t as deep as we have seen in the past.

It is obviously too early to go ‘all in’ with the banking preferreds–but there should be no doubt that there is opportunity coming–unfortunately we don’t know when that opportunity will finally present itself.

I continue to watch those bankers I own for any new news–i.e. uninsured deposit level etc. so I don’t have to start my hunt later ‘from scratch’.

I see community bankers with current yields from 7.5% all the way up to almost 10% and most of these have presented solid earnings recently–but this story is not static and you see from a day like today that it looks like there is an ‘all clear’, but these things always take longer to play out than one would ever predict. Patience!