Author: Tim McPartland

Looking at my spreadsheet of banking and insurance issues shows a sea of red–California banker First Republic (FRC) seems to be taking one of biggest hits–common and preferreds–one issue off $6 right now.

I hold some Customers Bancorp (CUBI) and Bridgewater Bancshares (BWBB) preferreds and right now I have no intention to sell at this time–they are modest positions.

I would suggest that holders of banking preferreds review the balance sheets of their company’s–check their capital levels relative to the required levels. How much of their investment portfolio is ‘hold to maturity’ and watch for statements from the company on deposits leaving the bank–most bankers will be just fine with minor outflows–or maybe they need to up their CD rates. Many of the small banks offer inferior rates on deposits–locally one bank is offering 4.11% on a 21 month CD–1% under what I can get from the big banks..

We should get statements out of most banks today on their individual positions. Also I wouldn’t be surprised that we get a very major announcement from Silicon Valley Bank (SVB Financial) at any moment–they badly need an announcement to save the bank.

When interest rates move sharply higher in a quick fashion ‘things break’ eventually. I have noted many times the huge losses insurance companies have taken in their investment portfolios – anyone holding long maturity bonds for the last year is going to get hammered-we all know that is what happens.

Watching the Silicon Valley Bank situation is almost surreal–this is the 16th largest bank in the U.S.–very well capitalized according to the last 10K. Obviously investors are on edge after the Silvergate Capital (SI) collapse. To see their common shares fall maybe 75% in a few day while the company hunts for capital with a common share and preferred share offering. My question is where are the bank regulators? Do they have a handle on banks or not? The 5.25% (SIVBP) non cumulative preferred outstanding fell to the $15 area yesterday–I suspect it will fall further today.

So we will watch this all play out–seems like a potential Warren Buffett moment–he could provide a few billion in capital via a 12-14% preferred stock issue. Depends on the actual financials–I am certain the Berkshire Hathaway accounting wizards are looking at the situation right now as they could recapitalize the bank with ‘petty cash’.

So we have the jobs report in an hour – now maybe it is secondary to the banking situation – but just the same very important. It is expected that 225,000 new jobs were created–certainly anything less would be a positive. The unemployment rate is forecast to continue at 3.4%. We’ll see soon.

Preferred stock and baby bonds got hammered yesterday – in particular the banking and insurance company issues where my quick review showed losses of 1/2% to 8% – excepting the SIVBP issue which fell 25% or so. May see a bounce back depending on whether there is further clarification on the banking situation.

The banking situation has sent treasury yields sharply lower with the 10 year treasury yield has fallen from over 4% earlier in the week to 3.85% right now. The banking situation may or may not change the trajectory of interest rate hikes by the Fed–just one more piece to the giant puzzle–maybe they raise only 25 basis points when they really want 50? Maybe after a review of the banking system they pause? Who knows?

So with equity futures down just a bit this morning we await the news of jobs and banking. This will be a very good day to watch from the sidelines.

It’s an orderly day as equities have been falling since 1/2 hour after the market opened. Interest rates have moved 6 basis points lower to the 3.92% area.

All eyes are on the jobs report tomorrow at 7:30 a.m. (central). Today we had jobless claims that came in at 211,000 versus expectations for 195,000–while I wish no ill will on anyone (employed folks) we need this number to trend higher–Jay Powell wants it higher (or at least he believes that is an important sign the economy is weakening). Continuing unemployment claims rose to 1.72 million. With JOLTs (job openings and labor turnover) showing 10.5 million available jobs it is hard to believe that anyone is unable to find work–but if you are a software engineer, working at the local Holiday Inn Express is not really a workable solution.

Today I went ahead and bought a bit of a 1 year JPMorgan 5.40% CD–just $5,000. This issue is callable in June so I am betting that rates will be higher in the later part of the year than they are now. Most of the CD’s I have bought are not callable–they pay 20 basis points less, but at least one can count on the rate for 2 years. I have not bought anything further out than 2 years simply because I think we will be able to do better maybe in August.

Reviewing the preferreds and baby bonds today it is kind of ugly considering that the 10 year is lower in yield by 6 basis points. I have no focus on these issues now – risk/reward isn’t adequate for now. I think the average share price may be 4% lower in a couple months–we are going back to where we started the year so thus far lightening up on preferreds and baby bonds after the January rally and moving to more CD’s and bonds has been a stellar play–we may be able to do a ‘rinse and repeat’ later this year.