In the ‘headlines of interest’ I post most evenings I am adding in smaller bank earnings – even those without preferred stock outstanding. The idea in doing this is to keep those smaller banks front and center. I don’t read all of what I post, but I do skim the articles and generally speaking smaller banks (not the too big to fail banks) are reporting earnings that are reasonably decent given the situation in interest rates. Many (not all) are reporting growing deposits and modestly rising allowances for bad debt. One bank with earnings falling substantially NJ banker OceanFirst Financial (OCFC) reported earnings which were off 50% from a year ago – the change because of a $17 million participation in a Manhattan office building which went bad and was written down to $8 million. Of course the question is how many more similar loans are going to go bad. Contrary to OceanFirst earnings Bank OZK reported record earnings, although allowances for credit losses increased fairly substantially. My question (for which there is no answer) is how many bad loans are being swept under the carpet–bank examiners can’t be everywhere and you can be certain a bank or two will blow up. On a historical basis these things take substantial time to work through the system–things are great until they aren’t. We’ll see.
So interest rates were higher again yesterday with the 10 year closing at 4.99%, but rates have backed off to 4.94% this morning. The assault on the 5% level will have to wait until next week as there is little economic news today. We have only 1 Fed speaker today–a welcome respite after this weeks gaggle of speakers. Fed Chair Powell spoke yesterday and was as expected – not going to commit to any spoken word on future Fed Funds hikes or reductions but definitely keeping the future hikes on the table.
Next week we have personal consumption expenditures (PCE) being released on Friday – a key data point which could move interest rates substantially – higher or lower.
So let’s see where the day takes us – the 10 year treasury has climbed up 3 basis point to 4.97% just since I started typing this not – maybe the 5% assault will come again today – who knows.
Bank OZK, mentioned here and in videos, has an odd-month CD offering. a 13 month CD with a teaser rate of 5.6%. Which seems competitive in today’s market. By way of comparison, 12-month T-Bills are around 5.4%. OZK also has a 7 month promotional rate CD at 5.25%, about a quarter point under T-bills and a bit below 6-month brokered offerings.
The 13 month CD term seems to be their favorite for promotional offerings. The rate on their 6-month, 12-month and 24-month maturity CDs are all under 0..25% APY. (Yes, the decimal point is in the right place and the digits are not transposed.) DYODD.
Tim; There are quite a few interesting things going on right now in this crazy market. Have you looked at any of the WFC bonds and preferreds?? The one that got my full attention was WFC+L which was trading at $1,048 yesterday. I already own 150 shares and am thinking should I add more??? Its really a great price for the Long Term Investor. Another one I’ve been buying in big batches is CHSCL which continues to astound me that its now down to $25.10. I spoke to their Treasurer just a couple of weeks ago and was told that everything is fine with the company and its just a sign of where interest rates are.
Chuck, I am a nobody but if you watch the video Justin posted the link to and listened to Chris Whelan a well known bank analyst he was suggesting now is the time buy JPM bonds. He wasn’t enthused about WFC btw
Chuck–i haven’t been looking at anything WFC–I have had a bias against them for many years based on me ‘firing’ them in July 2004 on ethical concerns–I should get over that. Thanks for mentioning the CHS L issue–I hadn’t noticed where that one was at–I own the CHSCN issue, but will consider a swap into L next week. As you know I have for 15 years considered the CHS issues to be ‘investment grade’ (even though they are not rated)–just golden.
Tim, along similar lines, I will never buy anything Morgan Stanley. It’s a long story, but it’s nearly 30 yrs and counting, lol.
pig pile – yes some of us hold things a long time–probably costing us some money.
Regional Banks Tumble Today…
* Regions Financial (-12.38%)
* Comerica (-8.53%)
* Western Alliance (-8.38%)
* Zions (-7.07%)
* Fifth Third Bancorp (-6.54%)
S&P 500 closed BELOW its 200 MDA (4233) closing at (4224)
I guess that makes a trifecta on the majors. (barely on the nas)
Big Banks income will continue to soar with the RevRepo and less real money being lent out. Why not? Banks have had ‘special rules’ just for them:
“In addition to the TEFRA (1982 Ronald Reagan and Walter Wriston (very eye-opening read on Old Wriston’s effect on Reaganomics and “Reform”)) adjustment for banks, another special rule is Internal Revenue Code 582(c)(1) which allows the sale of bonds, debentures or certificates held by banks to be considered ordinary assets and not capital assets.
I thought there was a barrier from Investment Banking and Lender Banking??
If the bank were to sell a bond at a loss, it does not have to offset the loss against capital gain income. The loss will reduce its regular taxable income.”
Of course bank earnings will hang in there! Who needs a great, or smart team when the umpires are your hires?
The real individual winners are the specialist CPAs and Lobbyists.
Joel,
The Glass–Steagall act from the early 1930s separated investment banking from commercial banking. It was repealed near the end of the Carter administration. I remember some discussion then that the Fed had weakened it so much it wasn’t very effective anymore (I don’t remember details).
I also remember discussions of reviving it after the ’08 crisis, but nothing happened. I wish they would bring it back. If banks are TBTF, they should have to stay in their lane as commercial banks (IMHO).
Priv., The full history is shockingly parallel to a coup d’etat. I knew that destruction of the efforts of the Wiser Past, but now that barrier and our bailouts are extended to Inv Banks now. It’s been a sad charade that goes on. The PhD- janitors do their work and quietly go away or join a Thank You Board.
By the way the leftover capital gains referred to above are also “taxed at a special rate, under special rules.”
All this was the supposed to use OPM (ie: Wriston’s financialization of depositors>CDs and funds otherwise directed toward taxes> deficiet rathcheting>privatization aka Reaganomics) to “stimulate” innovation and capital development, but it led to off shoring, embolding get-rich risk taking/bailouts, malinvestment in productivity, Billionaire-building Insiders and worst of all financial engineering with debt>buybacks to inflate PEs to give appearance of success/value building and a depletion of middle class America>Labor based tax burden. These are the people we worhiped on the covers of Money and other magazines. The Very, Very Rich.
I have read much on the real history . Sometimes it is very upseting. It seems I am surrounded with a paradigm of geniuses who really do NOT know the TRUE path taken to where we are now. So…occationally I pipe up. Truthfully, there is no shout-warning I can do to get a larger consideration of alternatives for our nation. So, I play in the sandbox and hold my nose when the lumps come up.
Me? I’m in all top tranche IG instruments now. I got a claim.
Glass‐Steagall was repealed by the Gramm‐Leach‐Bliley Act (Phil Gramm) in 1999 under Clinton.
Prior to that, Phil Gramm’s wife Wendy was chair of the CFTC and when energy trading was deregulated, allowing the Enron debacle to ensue (her subsequent employer).
Tim. I think Bank of the OZK was mentioned in the YouTube video Justin posted the link to. It was mentioned as one of the regional banks that was heavy into short term development and construction loans, but it was also mentioned that areas like the South especially Tx are slowing down to almost no growth in any commercial loans. What you are seeing now in the news is 3 months old. If lenders phones are not ringing or they have maxed out on risk and taking the rest of the year off until Jan. then maybe banks like OZK come 3 months from now with be singing a different tune.
Charles–one of the reasons I mentioned OZK was because the talk was of really fast growth and questions around their commercial lending – yes like you I wonder about 3, 6 and 9 months out.
Their commercial lending is the first to get paid off, so their loans have a really low interest rate and are very short term, but also have close to a zero risk of default. Most other lenders don’t touch this space because the margins are non-existent unless you have the infrastructure to process these loans cheaply.
Speaking of banks…
https://www.sec.gov/Archives/edgar/data/67088/000119312523258891/d532606d424b2.htm
MUFJ just issued an AT-1. if you ever see the phrase “capital ratio event” in a prospectus, to coin Monty Python. Run! Run away!…
Marley’s ghost of Credit Swisse Justin. Tier one capitol that can be wiped out to zero in a capitol ratio event.