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Banking and Insurance Company Problems Continue

On Wednesday I bought a small amount of the Lincoln Financial Group 9% non cumulative preferred stock (LNC-D) which was an add to my modest holdings in this issue. This purchase was executed off a good-til-cancelled buy order which was entered a few weeks back–then it moves a little lower–might have to buy a little more. Within the last month the issue has traded as high as $29–now at $24.58. It is kind of early to be jumping into most banking and insurance issues in a major way. Honestly I see so many ‘potential’ buys in the various issues it is difficult to hold back on buying–but I’m going to try to restrain myself for a few more days–but if one doesn’t ‘hold their nose’ and do a little buying it is highly likely a giant opportunity will be missed. With my CD and Treasury buckets full I need to step in a little bit.

Equities are tumbling a bit this morning – down almost 1%, while treasury yields are plunging—the 10 year now at 3.29%—incredible ‘rush to safety’ amid global banking concerns–now with Deutsche Bank potentially having problems. This bank, along with Credit Suisse, have been problems since was back in 2007-2010 so I guess we shouldn’t be surprised. Regardless this issue has a long, long way to run.

I see the Fed balance sheet rose around $100 billion in the last week–add this to the $300 billion rise from the previous week we see the balance sheet back up to round $8.8 trillion which is now just below the record high of about $9 trillion. Any thought on this ever reaching 0 in our lifetime should be forgotten about – it will never happen. Honestly the $400 billion increase in the last 2 weeks is lower than I would have guessed it would be as banks rushed to borrow on their depreciated assets–so maybe that is the bright side. We don’t know which banks have borrowed from the Fed – this data will not be announced until 2 years after the start of the program, although one can figure it out in the future by going through banking financial statements.

Well let’s get the day rolling and see where we go heading into the weekend.

95 thoughts on “Banking and Insurance Company Problems Continue”

  1. was browsing QOL, and for WFC-Q & WFC-R, there is a new message stating that the fallback rate after LIBOR goes away will be the original fixed rates of 5.85% and 6.625% respectively.

    should we take this as SOFR will NOT be applied as the “new” LIBOR?

    Both currently trading below par.

    Can anyone confirm or disprove this?

    1. Some untested clauses in these issues. Whoever screws the investors first will probably get sued and they can be the test case for everybody else.

      1. Congress gave the companies legal liability protection with the Libor replacement legislation. I will assume most will do like Citi recently did and fall in line.

        1. I’ve been told “it depends on the prospectus” which I could never understand anyway. Now with all this pressure it gives them all an out. They are being ‘forced’ to stiff investors.

    2. Good question…STT-D seems to contain the same language: “If fewer than three such rates are so provided, then three-month LIBOR for the next dividend period will be set to equal the three-month LIBOR for the then current dividend period or, in the case of the dividend period beginning March 15, 2024, 5.90%.”

      I’m also curious if anyone has analyzed the LIBOR situation as it relates to USB-A. I’m curious if the language says that the floating rate will be frozen as of the date that the LIBOR goes away (6/30/2023). Here is the sentence that is causing me to think it could freeze as of 6/30/2023:

      “However, if the banks selected by the Calculation Agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had the Preferred Stock been outstanding.”
      ==============================================================

      Here is the full passage from the USB-A prospectus that discusses LIBOR:

      “Three-Month LIBOR” means, with respect to any Dividend Period beginning on or after the later of April 15, 2011 and the Stock Purchase Date, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time) on the second London Banking Day preceding the first day of that Dividend Period. If the rate described above does not appear on Reuters Screen LIBOR01, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by us, at approximately 11:00 a.m., London time, on the second London Banking Day preceding the first day of that Dividend Period. U.S. Bank National Association, as Calculation Agent for the Preferred Stock, will request the principal London office of each of such banks to provide a quotation of its rate. If at least two such quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Dividend Period will be the arithmetic mean (rounded upward if necessary to the nearest .00001 of 1%) of the rates quoted by three major banks in New York, New York, selected by the Calculation Agent, at approximately 11:00 a.m., New York City time, on the first day of that Dividend Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Dividend Period and in a principal amount of not less than $1,000,000. However, if the banks selected by the Calculation Agent to provide quotations are not quoting as described above, Three-Month LIBOR for that Dividend Period will be the same as Three-Month LIBOR as determined for the previous Dividend Period, or in the case of the first Dividend Period, the most recent rate that could have been determined in accordance with the first sentence of this paragraph had the Preferred Stock been outstanding. The calculation agent’s establishment of Three-Month LIBOR and calculation of the amount of dividends for each Dividend Period will be on file at our principal offices, will be made available to any holder of Preferred Stock upon request and will be final and binding in the absence of manifest error.

      (https://www.sec.gov/Archives/edgar/data/36104/000095012310056056/c58008b3e424b3.htm#112 – page 53)

      1. Regarding USB – this is from their press release –

        From US Bank website

        Regulatory updates
        The Adjustable Interest Rate (LIBOR) Act
        U.S. Federal Legislative Solution for Transitioning “Tough” Legacy Contracts
        March 15, 2022
        On March 15, President Biden signed a congressional 2022 omnibus spending bill that included legislation to transition tough legacy LIBOR contracts in the U.S.
        The Adjustable Interest Rate (LIBOR) Act establishes a process for replacing LIBOR with a clearly defined replacement benchmark in existing contracts that (a) do not have fallback language, (b) have fallback language that falls back to a rate that is based on LIBOR, or (c) require a party to determine a replacement rate that takes LIBOR into consideration. This replacement benchmark rate will be selected by the Board of Governors of the Federal Reserve System (“the Board”) through a rule-making process by September 2022.
        The selected rate is required to be a SOFR-based rate with a spread adjustment and may vary across products. It is expected that the Board will provide a comment period on the proposed rules before they become effective.

    3. “… If the banks so selected by the calculation agent are not quoting as set forth above, three-month LIBOR for that LIBOR determination date will remain three-month LIBOR for the immediately preceding dividend period or, in the case of the dividend period beginning September 15, 2023, 5.85%.”

      Sounds like three-month LIBOR will be set as 5.85%, if it’s not available.

      1. if the default of LIBOR is 5.85%, then WFC-Q rate should be 8.94%, based on the original rate of LIBOR+3.09%.

        maybe the WFC guys are trying to pull a fast one. Hard to tell.

        don’t trust these banks much these days.

        FWIW, here is the text as stated by QOL in its WFC-Q page:

        As of June 30, 2023, LIBOR will either cease to be provided or will no longer be representative for all remaining US Dollar tenors. The Fallback provision for the cessation of quote from LIBOR for this security is to fall back to its fixed rate of 5.85%.

          1. I emailed WFC IR in January and got the following response –

            “Hello,
            Thank you for your email.

            While we have not commented on updated fallback language with regards to SOFR, what we can point you to is the prospectuses. With both the series Q and R, if LIBOR is no longer being quoted the dividend rate will be reset to the fixed rate + the reset. In the case of Series Q this would be the original fixed rate dividend of 5.85% + the 3.09% reset floating spread resulting in a dividend of 8.94%. In the case of Series R the dividend rate would be 10.315% (6.625% + 3.69%).

            Thank you,”
            Investor relations (1/23/23)

            1. esp,
              Thank you for that post! It is very clear now; so QOL is incorrect.
              The probability of call for both the Q and R series should be high, I’m sure WFC will not want to be stuck with such high rates for long, if at all.

              Hanging on tight to my small positions in both series.

              1. Strange that both WFC-Q & WFC-R are trading below par, especially Q.

                I picked up another 200 shares of WFC-Q at $23.17, it’s even lower now.

                If called in Sept, I will get a nice cap gain (7.3%) plus the dividend; if not called I will enjoy a 8+% yield until they decide to call. A good situation to be in.

        1. This one seems very clear. The September one is the first floating rate, so this sentence is applicable. It would have been a different case if it floated for the June dividend, but it doesn’t. They aren’t pulling a fast one, they just lucked out because it dropped before these started floating.

          ” If the banks so selected by the calculation agent are not
          quoting as set forth above, three-month LIBOR for that LIBOR determination date will remain three-month LIBOR
          for the immediately preceding dividend period or, in the case of the dividend period beginning September 15, 2023,
          5.85%.”

        2. Greetings E P:

          Thank you for the feedback. We do very much welcome and appreciate the input from our regular QOL contributors. I reread the prospectus, and I agree I made a mistake in the interpretation of the statement in the prospectus. It is using the fixed rate as a fallback to LIBOR, not falling back to the fixed rate. This has been corrected on Quantum Online.

          Sorry for the confusion,

          ~Jae

          The Quantum Online Team

          quantumonline.com

          1. Thank you, esp1090! Glad they were quick to respond.

            I am also a QOL contributor, which reminds me it is time to send something to them.
            Unfortunately, my stroke has put many issues back to a low priority until more urgent issues become manageable ( like walking longer distances without falling )

          2. I contribute and support fully the QOL info. Well done and I pay what I think its worth. Cant ask for more.
            As an aside: I’d pay for SA usage but not the info they give you. So 250/year premium I dont want. But $200/year to be on site? Wish they had a way to do this…Anyone else love SA free and would pay, but don’t want SA “help”?

    4. Unfortunately our pals over at QOL don’t actually provide the support for what they’re saying, which makes it hard to verify one way or another.

      I have the Q prospectus open right in front of me and I don’t agree with QOL’s read on it. Nor does what they say comply with the ARCC’s recommendations.

      I don’t know if Wells directly addressed this yet.

      1. That statement only popped up on QOL within the last week or so, IIRC, as I sure didn’t see it when I bought some of both recently, then re-looked the other day. I’d be curious to know where it came from, as it sure changes the outlook for possible call.

      2. Please remember that QOL just like here on III, is a FREE site. QOL and Tim provide information on a best efforts basis with their limited resources. And both will tell you while they try their best, the data they provide is NOT perfect.

        And be happy that QOL even exists after it’s founder, Don Doan, passed away a few years ago. The family has kept it going to pursue his mission.

        If you want higher accuracy, you can always step up to a Bloomberg Terminal which will set you back ~ $25k/year. For that price, it gives you a little more basis for complaints about data quality

        1. Tex, you took the words right out of my mouth. QOL does a pretty good job, for a free site.

        2. Just to be clear, I’m not complaining about QOL (I’m a contributor). I disagree with their read here is all and wish they told us what they were looking at to support their statement.

    5. Here’s what WFC IR said:

      Thank you for your email. Wells Fargo is not currently responding to individual inquiries about specific note issues impacted by LIBOR transition, but we encourage you to read the prospectuses available on our website, https://www.wellsfargo.com/about/investor-relations/preferred-stock/. We continue to review applicable Federal Reserve regulations on this transition, and currently plan to notify note holders generally regarding the applicable SOFR replacement rate for LIBOR using the ARRC-recommended DTCC Legal Entity Notice (LENS) process.

      1. When did you get that.

        I emailed WFC IR earlier this year regarding WFC-Q, and got the same response as the others – that they do not comment on SOFR and it’s 5.85% + 309bps per the fallback in the prospectus…..

  2. Got an important answer from Bloomberg’s Wall Street Week. Dan Tarullo, who was a Fed board member from 2009 through 2017 was on the show discussing the banking situation. He was asked point blank by Larry Summers if the Fed’s stress test for banks included a scenario for increased interest rates like we have seen. He answered NO and further added that Silicon Valley Bank WOULD have passed the more stringent stress test applied to banks with >$250 Billion in assets. I would put high confidence that he knows what he is talking about.

    They talked about one of the stress tests is for lower interest rates which would accompany a recession, which is obviously not pertinent in this case.

    Later on the show, Larry Summers said the 2018 revisions to the stress test were “ill advised” but then said the changes were NOT the cause of the SIVB failure.

    BOTTOM LINE is the Fed was “lookin for love in all the wrong places.”

  3. I am really not sure what to make of these numbers. A 0.6% drop of deposits in one week (week ending 3-15) is significant but much less than I expected. Given that the most bank CD and money market rates are poor, I would have expected this kind of number without the issue of having most deposits over the FDIC insurance. limit.

    Maybe a 30 day ban on naked short selling of bank financials should be instituted. Just a random thought.

    https://www.cnbc.com/2023/03/24/100-billion-pulled-from-banks-but-system-called-sound-and-resilient.html

    1. Short selling has nothing to do with it. And they can just sell calls and buy puts. Look no further then Janet Yellen

    2. Short selling has nothing to do with it. And they can just sell calls and buy puts. Look no further then Janet Yellen

      1. The above numbers are suggesting there is no significant outflows of deposits from the banks (above what should have been reasonably expected).

        Yet – there is a lotta fear in the markets. That fear is being stoked by some parties.

    3. Keep in mind that “total deposits” includes all the money that moves from one bank to another. So, if depositors moved money from one bank to another to help get under FDIC limits, it is just net-zero change for total deposits.

  4. Seeing I was a deposit broker in the S&L days and placed deposits in thousands of banks I buy ‘most’ insured CDS without thought. Last week Saw CDs from Signature Bank at 6% for six months. I did NOT buy them! But they were under par (.99) I figured if they go non interest bearing for stretch they diff between 99 and 100 was equivalent to 80 days of interest. In general even inboard cases most FDIC claims are made in less then 2 weeks.

    And FRC has been in with some well priced secondary paper. Same story. Rate not as strong but still excellent. Discounted to face. The Q there was do I want my friends to get buyers shock if FRC too goes belly up? Of course we are insured for P & I but how the FDIC handles depositors can vary significantly.

    1. They transfer it to new bank …no change….
    2. They transfer it to new bank and bust the rate. (you can then get out no surrender charge)
    3. They bust all the CDs and test the FDIC insurability of each account. Here it can make a big diff if you are direct w bank, tor if you are in pooled securitized CD, or if you are in any sort of nominee account.
    4. They transfer some of the deposits to Bank XYZ, some to Bank XXX and threat depositors differently depending on which place your money goes.

    When they break a CD the money most often stops accruing interest. AND whoever is handling the affair is overloaded beyond belief. It can take a long time to get monies out of a CD liquidation.

    So a primary risk is…you hope to keep a high rate and they send your money back OR rates are up and you hope they break the CD but do not. And hold the money until maturity.

  5. The BIG question is WTH is the treasury/fed/fdic doing? By saving all deposits…..and wiping out all stock, bond, and pfd shareholders…Yellen has set an ugly precedent. How do they expect banks to recapitalize when they have just set the table for complete destruction? Yellen closed (YES IT WAS DONE BY HER) SVB thursday night. She was “Monitoring the situation closely” until sunday afternoon. Then she relented and deposit saved, investors ruined. 72 hours for all fiduciaries to contemplate their risk. WHY. She should have done that Friday morning. No instead all friday, saturday, sunday, the main mews story on all news networks was SVB failure.

    This is shades of FNM FRE raising over a billion in pfds fall 2007. When they were technically bankrupt. The old ‘public private partnership’ that I swore I’d never be part of ever again.

    Yellen had single handily destroyed banking confidence. For what? Well last year the FSOC issued a statement backed by yellen powell and gensler. They were focused on an existential threat…Global Warming. They put hat in writing. Nothing on balance sheet risk. Supposedly yesterday they had another emergency meeting. Can’t wait to hear what these rocket scientist are now worried about.

    PS that cloud fare robot blocker hates me

      1. If you Prefer, you think your having problems, my laptop keeps resetting right when I am writing and I lose everything, Argh!
        Two things before I have my koffee, I think the reminder you give me is appropriate even for CD’s. Don’t get too greedy trying to get the best rate.
        Next, I hadn’t really thought of what I was hearing happening in Europe would apply to me or us in the US.
        The uproar over AT1 bonds and CS
        https://www.reuters.com/markets/why-markets-are-uproar-over-risky-bank-bond-known-at1-2023-03-24/
        I guess it was known AT1’s could go to ZERO but bond holders were not expecting it. Later last week just like here I heard other banks in Europe like Deutsche are also in trouble.
        I understood it was the banks saying if they had to sell bonds to raise capitol and this was happening they wouldn’t be able to sell them.
        The article states different countries in Europe and the world are talking about treating this issue differently. Britain wants to stick to the traditional and stay with leaving bond holders above stockholders and creditors.
        Here it sounds great the government is protecting the depositor and loaning banks money and taking loans and bonds etc as collateral. But then expecting the banks to return the money in a year and take their collateral back.
        Sounds like a pawn broker or kicking the can down the road.
        It’s not us little guys buying bonds 10 at a time, it’s the big guys buying millions of dollars at a time that support the system and I don’t think anyone would be happy to take that kind of loss.

        1. I read a detailed evaluation of US banks versus European banks capital protections. While it as written by the industry so its biased they were pounding the table BUY the US banks. Common , preferreds, and bonds. Said we are completely different and have much more protection.

          While the markets don’t completely buy that, it is something.

          PS TIM CLOUDFARE COMPUTER CHECK IS NOT WORKING

          1. Thanks If you Prefer,
            Also I am dealing with the wack a mole, but I think it’s my fault. I am in incognito mode and I need to confirm this website is ok every time my computer turns off.
            P.S. those little grainy pictures are hard to see, especially the shadowy ones! lol

          2. If you Prefer–maybe my hosting company added something I don’t know about–they do a good job normally, but may this is something we don’t want.

            Can you give me more detail.

            1. Tim,
              FWIW – I think the reCAPTCHA is from google. If I don’t turn on javascript for google, it doesn’t work (so I turn it on to post). I understand why you need it and am not complaining about it.

              It has been bugging me a lot recently too to pick pictures. It had stopped asking me to id pictures for weeks – until late last week. Don’t know what changed, but it may be something from the google tool.

  6. I look for two things with cd’s……pays monthly and not callable…today I bought a 5.30 one yr and a 5.05 two yr..both pay monthly and noncallable…from fidelity….secondary cd’s that are a favorable rate and pay monthly are flying off the shelf at fidelity…it’s hard to snag one…at times….tells me people are nervous about whats going on

    1. It could also be that people are seeing falling yields and expectations for rate cuts and hurrying to lock in yield and duration.

      1. Im like Craig in that I only buy noncallables. I like monthly payers but that has been more hit and miss and secondary in importance. I started with the shorter duration and one yrs last fall as I was pairing off with longer duration ute bonds. Lately I have been stretching out the duration for plus 5% three to five year CDs. I sold some more off today and will be looking next week for more 3-5 year CDs at 5% minimum to buy so I wont go “bargain shopping” with all the new idle cash.

    2. Re: “people are nervous about what’s going on.” A major brokerage is quoted in an article as recommending “taking advantage of the crisis” by buying two 7% REITs for income. One reply comment sums up what a lot of small investors are thinking right now:

      “Decisions, decisions? Should I buy a stock that has a 7% dividend, puts my capital at risk and no guarantee that the dividend will not be cut. OR, put my money in a 5% CD with no risk to my capital and no risk to my 5% return rate and is guaranteed by the FDIC. I went with the CD’s.”

      Also, a 2-3% price swing is normal volatility these days, so any excess yield over a CD at 5% can evaporate in a day.

      1. BJ am I nervous? yes. The banking sector is going through some shakey times. The REIT sector was / is also. Are we out of the woods yet and is it time to buy REIT’s? maybe another shoe to drop? the REIT’s I am looking at seem solid and I am sticking to the preferred and toeing in but they still haven’t hit their lows of last year. But then again all it would take is something else happening in the economy to kick the leg out from under everything like this upcoming Federal budget fight. Are we headed into a regular recession or something like the Great Recession?
        It’s been slow in the building business, not sure if its been the constant rains or what. Everyone is saying April is going to be busy. But on the other hand I called one of my customers Fri. and 2 long time employees are no longer there. One was working from home.
        What to do? do I need the income from 5% CD’s or stay with the 2-1/2 to 3% MM and keep looking for stocks? So far I am sticking with the plan of looking long term. Staying cautious and buying 5% preferred under par. trying to stick to mostly utes or similar.
        Lot of great ideas from folks here. Also looking at higher yielding preferred under par to get a little extra income. Still too many bank preferred, but I am underwater and not willing to sell and take a loss. Instead trading to lower my cost. Have a few financial and insurance preferred and BB and am comfortable with what I have but not buying more.
        And again BJ I am looking at REITS long term. Everyone has their fav’s depending on what part of the country they are in. I also have energy related stocks for income but they are more volatile and I babysit them.
        Too early I think to look at consumer and growth stocks but eventually I think I want to get back into some of them if they fall.
        My advice is don’t follow me. Do what your comfortable with.
        All my accounts are down, but my wife’s IRA is producing enough to cover her withdrawals and about 10,000 excess that fluctuates as I trade a few stocks. And I still have dry powder.

        1. Charles – everyone has different needs, goals and risk tolerance – so everyone will be different. But there is a reason the old adage, buy when there is blood in the streets has held up after all these years

          Too many people tend to panic and sell low into panics and buy high after things have recovered. I learned long ago to ignore the noise and take advantage of opportunities when they present themselves

          Now I also have a very well diversified portfolio including enough in T-bills and CDs to bridge the gap from when I retired til my wife and I plan to start drawing SS. So that allows me to not worry about price swings in the value of my portfolio and focus on growing the annual income

          I have been able to grow it substantially by taking advantage of big dips, blood in the streets, illogical dips in low liquidity preferreds, etc.

          Now I am very diversified (lots of preferreds, REITs, quality dividend payors, some dividend growth stocks, a few MLPs and BDCs, etc. Basically it has to pay me a nice dividend or I don’t own it) and always toe in over time but I just started buying back some REITS that I had sold over half to two thirds of my positions in a year or so ago. I have other REITs that are long term holds but the ones I reduced a while ago and have started to buy back include AVB, ARE, CPT, ESS

          Sure 5% from safe CDs is nice but 7% or more is better as long as one has a long term view. I remember here during the covid panic how some were going all to cash while others of us were taking advantage of a great buying opportunity

          Bottom iine everyone has to do what they are comfortable with but I am still looking for bargains to take advantage of

          Good luck

          1. Maverick,
            Great combination of REIT’s that will also be growth stocks when things recover and your being conservative on what you want for income.
            I have to take a little more risk (or not) to get the 5% I am looking for. Also I put limitations on what I can buy to get the bang for the buck.
            Two recently I bought EXSR and UEPEP were ones I broke my own rule. Normally my upper end is 40 to 50 a share. I had been eyeing BXP but hadn’t made up my mind as I like owning a preferred compared to the common.

            1. Chuck

              Thanks – Yes those REITS I added I like for growth once things recover. Their dividends are on the lower side, in the 4’s. I own a number of other REITS and other issues at higher dividend rates so these are definitely more on the low end of the income side ( I am roughly at a 6.8% yield overall in my rollover IRA so yeah these are in the bottom half). That said, these stuck out to me as the more compelling REIT buys right now.

              I did mention I am very diversified, owning a large number of issues. I also vary my risk – taking more risk in my rollover IRA and less risk in my taxable account (under the reasoning the rollover IRA is very long term). So while my overall yield is about 6.8% in my rollover IRA it is about 6% in my taxable account and then less than 5% in my cash equivalents accounts (where I have a mix of laddered Treasuries in the 4s, some recent CDs over 5 and money market funds)

              I sold my BXP near the end of January. Historically it has been a good company, but the office commercial real estate market had more risk than I wanted, especially in the 6 large cities they are located in. It may be a good value now given it has dropped almost 30% from when I sold it. But I just felt more comfortable in non office market REITs.

              Good luck

        2. Chas,
          Interesting to read up here at III today. Here’s my take on what I think I will have to confront on any given day for the long term:
          – We are not going into a typical cyclical downturn, this is different, a sea-change that only the retired may remember distantly, BUT we were all able, healthy, at the beginning of our vigor, focus and ability to take a few punches. This may still be true if you are back in your twenties. Now, the trend has shifted, just look for confirmation with rates/inflation. I like Lyn Alden’s analogy that this is more like post WW2 economics globally. Rates up, inflation/erosion and other similarities like monster debt at every level/ bigbig leverage.
          – We have ONLY seen the FIRST wave up in rates!! Now a resting time / maybe recession?, then probably another wave up in rates. When? After about two major bottoms. I think we could kerplunk in back to 2% Fed Rate on the downside. Use that time well!
          – The problem is debt which can come around to counter-punch and hit banks and balance sheets everywhere. REIT instability, Adjustable Derived Instruments including a huge sucking sound on individual mortgages, consumption and packaged pool instruments. It’s not going away.
          – The media and politicians love to act like they can control everything AND are correct in all ways, but….can you live with it now and make the necessary adjustments that you are (fill in the blank) years old? For me, I can not make that many correct decisions in a row and recover from my own swagger.
          – We (America) are a much smaller fish now and the rest of the world is more equal on balance, competing aggressively. THAT is a big influence.
          – I think The Body Politic has had at least this past 23 years time to get in realistic position for this era of our cycle, but has not made the necessary moves. It’s going to take a herculean effort to shift and we ARE painted into a corner and going to get our feel in the paint. Only Bugs Bunny can paint a window and jump out. Now our options will be mandated, feel coerced and limited. We will all feel those gravities in one way or another.
          Happy Springtime nonetheless, JA

          1. JA, You made me chuckle 🙂
            I feel your 100% right on what you are saying. I have no need for a loan now but I was thinking adjustables came back or are back due to large loans and rates if you want to buy a home. Debt that is pooled together and packaged like the last time around. Read the news about China and Russia competing for influence in Africa, and other parts of the world. Countries grouping together for power and influence as you said.
            I need to go read Lynn’s latest, thanks for the reminder. Keep some dry powder Joel.
            I think it was Friday I put in a bid for a Olin bond for a play on powder but I was too cheap, made a offer on Fido that didn’t take

      2. Bear, it seems very prudent to me. I have been waiting almost 15 years to be able to “punt on 3rd down” and collect meaningful yield. Reinvestment risk is always a consideration, though going 5 years 5% mitigates that quite a bit near term. But I will always designate some for trading and a bit of dumpster diving…And I also have my long dated 10 yearish duration bonds from last fall that are doing great.
        Never been a bank guy, but increasingly dipping in on a few. Up to 4 now. Actually some very decent stressed IG bank debt on bond desk at very compelling yields of 8% ish and short 3 yearish to 5 duration.

        1. Grid—Actually some very decent stressed IG bank debt on bond desk at very compelling yields of 8% ish and short 3 yearish to 5 duration.

          Could you provide some examples? Thanks.

          1. Credit Suisse is still IG rated and has some short duration bonds, but I wouldn’t touch their debt with a ten foot pole.

              1. Comment by system trader over on SA who is a retired engineer.
                “So the amount of uninsured money on deposit versus available liquidity matters. Based on the recent 10K, Comerica had 45 billion in uninsured deposits and I could only find 7 billion of liquidity. If that is correct it is by far the worst ratio of the dozen banks I’ve looked at”

                1. Charles, please don’t believe everyone hiding behind a computer (they may have an axe to grind or feel the need to be self important) and their “analysis” https://filecache.investorroom.com/mr5ir_comerica/492/download/Comerica%20Inc%20Feb.%202023%20Investor%20Presentation%20%282%29.pdf
                  Page 23 may be noted. I am going to go through the last 10Q as well
                  Remember, ultimately we are all responsible for our own analysis and investments 🤔
                  Smile, Azure

                  1. One focuses on one point of risk in a bank and plugs that hole next thing they realize there are 2 more. There are multi points of a bank that represent risk and any could be a point of instant stress.
                    One sees 8% in debt YTM one is assuming risk. As long as this is the benchmark, one is assuming risk.
                    https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C658579&symbol=MSFT4389877
                    And of course the usual thoughts need to be evaluated. Credit risk, concentration risk, sector risk, duration risk, market general risk, etc. etc.
                    The only real knowable absolute bargain relative risk wise is the 3 to 5 year CDs to the 3-5 treasury. As historically an analyst stated there usually is a 40 bps or so differential. Now being some banks are scrambling for deposits one is getting a 150 bps spread.

                    1. Grid,
                      Concentration risk is one I should keep reminding myself. On one hand I probably have too many banks and on the other hand this could be a good time to buy more, at least to cost average down.
                      I took your cue of if your going to take the risk the bonds of a bank may be better than the preferred.
                      The list Tex posted over on the sand box is a good place to start.
                      One thing I started looking at on FINRA is if the issuer of the bond has been slowly calling the bond prior to maturity . Some people look at this as bad. Me, I look at it as if I loaned money to someone and they were making an effort to pay it back before it was due as compared to say a TBTF bank that keeps borrowing to roll over its debt.
                      My mortgage company didn’t like I was doubling payments on my 30yr and paying it off in 15
                      Now if there was a bank that had a note that they had been making an effort to pay off prior to the panic and its selling at a distressed price would that be worth the risk?

                    2. Charles, I think you have to file that scenario under an assumption of “when the facts change, I change”. Meaning what they did in the past has no bearing on the future. Take for example a bond I own from ute hold co Dayton Power. It was a $300 million issuance and only $15 million remain outstanding. However, they have made no effort to tender anymore for well over a decade leaving just that pittance outstanding presumably until 2031 maturity.
                      Concerning financial and concentration risk. I owned none during the fallout and have made a few bucks trading these past week or two. And currently hold 4. There are a couple more I like. But Im comfortable with the percentage of sector risk I have now, but probably will add and sell to lower individual concentration risk.

                  2. Thanks AB
                    Be interesting to see how 1st qtr this year compares to 4th qtr last year. Probably end of May.
                    Liquidity changed quite a bit from full yr 2021
                    Liked the map showing which states they have exposure to.
                    Chart comparison to other banks on page 23 was interesting
                    opportunity for research

                  3. Right, Azure. Just because an article shows up in SA, doesnt mean it is true, no matter how much ink they put down, or whatever AI they use to make it read well and be believable. The 10k lists 20B in liquid assets broken down by US treasuries, RMBS, CMBS. The fair market value they have listed is 17B, and not 7. The # they should probably improve on is the # of uninsured deposits over deposits which is about 60%. I think the big banks have ~ 50 ish %. The risk is if some of those uninsured deposits move… they gotta sell. But this is true of any banks customers that get skittish and want to join the big 4. Will be interesting reading 10-k’s next quarter on the amount of deposits incoming/outgoing for the banks.

                    1. Mr C thought the same thing about this Qtr.
                      I sometimes find the readers in the comments section of SA know more than the “expert” who wrote the article.

  7. I know from what Tex and others have posted there are problem banks. How bad I don’t know. What I do know is the news isn’t helping any with the constant barrage. I agree with Tim I need to quit watching and focus. Friday can be a good day to catch deals. But today I stuck with utes. Early morning I could of picked up a few deals on banks and “possibly” do a few quick flips but decided to just wait and watch.
    Missed the low on Grid’s WAFDP bet he bought more to cost average what he already had

    1. Charles, I did lower it a tiny bit. Bought 200 in 14.60s and sold 200 at 15.10 and then bought 200 more at $14.93 I believe. My yahoo spreadsheet says cost basis is $14.98. I sold off my ALL-B at 25.63 which is sitting at a small call loss now if announced. If it sags exD I will look to reenter. Certainly am not using any of proceeds to buy anymore WAFDP. Prudence usually over a continued amount of time is rewarded more than greed!

  8. You buy, when there is blood on the street, knees wobbling and stomach churning. This is why you kept your powder dry.

    1. How do you tell if there is blood on the street now or knees aren’t wobbling enough yet?

  9. New FFCB agency out today at 6.3, callable 7/2023, matures 4/2036. 3133EPEM3
    Why are their rates so much higher even than FHLB?

      1. Gary – See farmcreditfunding.com. Good website, but too much to cut and paste. Known as “agencies”, not government backed, but very high credit quality (typically AA+ or higher). I’ve been purchasing as much as I can at over 6.3% whenever a recent issue comes out and I can get it at par. They are almost always callable, and they likely will be called when rates drop, but you are collecting +6.3% until it is called. They beat yields on CDs and treasuries, although treasuries typically aren’t subject to State tax if held in a taxable account, so you need to factor in you State tax rate when comparing treasuries to agencies. They also beat yields on most IG bank preferreds.

    1. Thanks a bunch for the heads up Irish. Added 20k to my SAFE bucket. Even if its only three months of AAA @ 6.32% it helps protects me from my affinity for catching falling knives.
      Thanks again.

  10. Banks definitely have problems. I wouldn’t say insurance has problems. The declines in their common stock prices largely reflect the high multiple to book value they were trading at. They’re just re-valuing down to GAAP book value instead of being valued at “adjusted” BV.

  11. IMHO, Lincoln LNC-D is a solid choice for the long term. (I am not a hot button day trader.) There will be ups and downs with these issues. One can never be sure of catching the bottom. I look to entering at a range I can live with. Currently looking to swap out weaker positions for stronger.

    FWIW, took a look at CD yield ladders a few hours back. Was surprised to see 5.00% plus yields straight across the line, even out to 18 to 24 to 36 months. (Caveat: Callability alert anything 12+ months.) Compare to Treasuries.

    “You’re always window shopping but never stopping to buy.” – Georgy Girl

    1. The CDs paying 5%+ are with banks that are currently in some degree of questionable states. That spooked me a little even though theoretically, one is protected via FDIC. But I don’t think the interest on them is protected? Anyway, even though low risk if one does fail it would be a hassle I’d rather not have.

      1. principal and interest are protected up to the limit
        this was posted elsewhere with the specific language

          1. Me too, Bear. The possible negatives are the interest quits accruing during the bankruptcy process and if another bank acquires them in bankruptcy they can redeem the CD or offer a lower yield that you can reject and just take the proceeds. If that causes great stress, one has lived a charmed life. I bought another small 10k CD today from City National which is 5% five years and uncallable. And you know damn well why it was offered on those generous terms, ha.

              1. Bill, I think they had to quit giving them to help offset the costs of overpaying CDs to get money. But dont worry none of this has effected the CEO’s busy schedule. Im sure he is about ready to step on the first tee box of the local country club, the bank paid for as I type this.

                1. Most likely they quit giving them away until they can get a fresh new supply of The Philips Eco Conscious Toaster

                  Philips Eco Conscious Toaster is designed to help you reduce your carbon footprint. We really like that it’s made of 100% Bio-based plastics. The company itself has pledged to be CO2 neutral in global operations in 2020 and beyond. The Phillips Eco Conscious Toaster is a 2-slot 830W compact toaster with 8 browning settings. It has an integrated bun rack, self-centering feature, defrost and reheat mode, cancel button, and removable crumb tray. It is made with sustainable design and is safe and sustainable. It is also modern and minimalistic. Drawing only 830 W means that its one of the lowest power toasters on our list. This toaster is available in a single white matt color. It’s also unusually non-toaster-like in its design and really stands out.

              2. LOL !!! A few years back I bought a CD from the local credit union, they gave a choice, a cool looking T shirt with their logo on it (which I opted for) or a small cheezie duffle bag also with their logo. T shirt doesn’t fit anymore, should have taken the duffle bag 🙂

            1. FWIW – most bank failures don’t go through the typical BK process. FDIC and regulators step in and liquidate. Process is WAY faster.

              For most insured depositors, the process is nearly invisible and takes a day or two for savings/checking-type accounts and up to a couple of weeks for CDs.

              What I don’t know is how long it takes for a depositor whose deposits exceed insurance limits to see anything for their “excess” deposits.

          2. BearNJ,
            “FWIW, I have no concerns whatsoever about buying CDs from any FDIC insured bank, under the $250,000 limit.”

            I agree 100% with that. I myself try and buy CD’s that pay monthly even if I get slightly less compared to a “pay at maturity one”. I may be thinking wrong, but a 5% 2 year CD from a medium or small, but financially sound bank with FDIC insurance is a better deal than say a two year corporate IG rated bond that may pay around the same amount but zero insurance should it fail ? The only reason I could see for buying more bonds now that the rates have come down under 6% even for longer term bonds, would be to lock in the rate, not owning a crystal ball stops me from making such a move. Besides, at 74, even green bananas are no longer an option.

        1. Only caveat is all, or most, of JPM’s CDs seem to be callable. Wasn’t a concern 3 weeks ago.

        2. This AM I’ve seen 2 (different) JPM 1 yr 5.30s on Fido pop up and disappear within minutes. Was able to grab a little of one.

      2. During the 07-08 crisis, I had 2 CD’s with banks that went belly up. In each case, the value was deposited in my account within the week of default. It required no effort on my part.

        1. Thank you JAG, first real feedback experience I have read about on failed banks with outstanding FDIC CD’s.

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