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Banking Issues Bouncing Sharply

Just scanning the banking issues I see they are bouncing relatively sharply this morning–up 10% to 20%, but of course it is likely an overreaction, just like the selloffs of the last couple of days were overreactions.

Yesterday we saw a relatively sharp bounce in banking preferred issues during the course of the day–for instance the Customers Bancorp CUBI-F issue closed at $18.10 after being as low as $9.60. It is plenty painful to hold through a day like yesterday-but one has to ‘grin and bear it’. The bounces like we have seen are the times to ‘rebalance’ if you have to do it. I suspect we will see some further losses as folks move to that rebalanced position.

As the current crisis gets more in control we move on to (quickly I hope) changing rules and regulations. I know most of you know that the accounting for portfolio losses in the ‘hold to maturity’ category is highly suspect and this needs to be addressed. As xerty pointed out a day or two ago the banks have ‘fake’ equity numbers under current rules since their hold to maturity losses overwhelm their equity. So we will see changes in these accounting rules and likely huge sales of common share to build equity. It will be interesting to see how fast this proceeds and whether the solution actually fixes the problem.

Today we have equity futures up about 1/2% and interest rates are bouncing quite sharply with the 2 Year treasury up 24 basis points to 4.22% while the 10 year treasury is up 3 basis points to 3.61%. These rates have imploded the last couple of days so once again a bounce is to be expected.

Buckle up!! We have the consumer price index (CPI) being released in about an hour. The forecast is for a year over year number of 6% (compared to last months 6.4%) with the core rate at 5.5% versus 5.6% last month. A hot number will back the Fed into the corner relative to the next rate hike as they will need to hike rates–but of course this may conflict with the need to reduce rate hikes to stabilize the banking system–this should be interesting.

I see that Nomura Securities has now forecast a rate CUT at the next FOMC meeting and elimination of the quantitative tightening (QT) Fed balance sheet runoff. Pretty extreme and I think pretty unlikely. Right now I am guessing a 25 basis point hike with no change to QT–but we have data in an hour that may change everyone’s perspective.

I am looking at the Merchants Bancorp (MBIN) preferreds for additions to my current very small position. I will not be buying now as it is too soon for me after a crisis, but the company did pique my interest with their press release last night so I need to dig deeper. I will not be buying anything today.

18 thoughts on “Banking Issues Bouncing Sharply”

  1. I suppose I must be an enormous risk taker or incredibly dumb (e.g. buying more of Brookfield Offshore energy in bankruptcy and probably would never recover. All banks, be it mid size or large cap tanked. Some pundits in CNBC started to echo Professor Jeremy Siegel, Finance, Wharton School of Biz. It takes time for inflation to go down. Others started to suggest as Professor Siegel, nothing magical about that 2% long term, with supply chain problem and impassee in Ukraine. Sold large number of shares in my best eREIT, IRM (Iron Mountain). Schwab alerted that CEO was selling. My favorite mid size bank, EWBC (East West Bank Corp), solid balance sheet, CEO sold a whole bunch right before all bank stocks got smashed. I liked Tim’s CUBI-E bought 500 shares with proceeds from IRM. Picked up some HTLEP and have a buy order for 200 shares more. Perhaps I should cancel the order with new money (rental income) on HTLEP.
    In my retirement account, I sold my appreciated shares of BX (Blackstone) and picked up some HTLEP. Many articles in SA debating which one is better: Blackstone or Brookfield. I have learned that private equity does not mean safer or smarter than the rest of us!!

    HTLEP was doing better than the 200 shares of UCBIO I picked up before Bank trashing. The coupon was just a tad lower. But the relative performance of these two was incredibly remarkable. Thank you TIm. I hope we are both correct. BTW, the shipping preferreds seem to hold. Then some politician preach wars against both Communist China and Putin could easily result in complete disasters. Pundits in cable TV always include some military people who wanted to take the first shot …. If climate change does not kill us all, the generals might as Dwight Eisenhower warned. LOL.

    1. CNBC pundits forecast down on the Dow. I cancelled my open order on HTLEP. Greed kills. And Tim’s advice, buy little a time, has always been wise move. Leave some dry powder.

  2. Got me thinking about the Long Term Capital Management (LTCM) team. They literally had a Nobel laureate plus PHD’s running the place. They had great math models of how markets “should” work. The models failed and with 30X leverage, they went belly up leading to the first Fed bailout. (Greenspan)

    I will confess my models didn’t exactly think it was possible to have many preferreds literally drop in half one day, then be up 10% to 50% the next day. You do see several issues with one parent common do that, but NEVER with multiple common parents.

    A different way of saying, preferred returns do NOT follow a Gaussian (normal) distribution. Glad we did not have 30X leverage trades on yesterday.

  3. I’d come off the ledge, but the wife’s boyfriend locked the window.
    Trying to get more PAA 726503AE5 @ $92.

  4. Like I mentioned yesterday, I bailed on most of my CUBI-F yesterday late afternoon. CUBI seemed to be taking an out-sized move down compared to other banks I have and I’d rather not have that risk. CUBI-F went all the way to $9.50 and I even traded a bit of it from $11.50 to $13.39 but, in the end, I don’t want that overhead risk. It looks to be okay today as do almost all the regional banks that were gutted yesterday morning. I deployed much of the funds freed to MS-E giving up some yield but gaining a lot less risk I believe.

    I be interested in seeing if others here made similar moves. I still have some cash to deploy…

    1. Nope, didn’t bite, held everything, but I might lighten up on financials down the road. I have six banks in my portfolio, 3 of them large and 3 of them small.
      One small one I have, ONBPP actually held up pretty well yesterday, the other two WSBCP and HTLFP not so much, but are bouncing back some today.

      1. Bill, this is similar to Feb. / March of 2020. This time I had a feeling we had went up too high and too fast so I took the example of several people here and I sold some of the higher risk but I was slower than some here like Grid and Bea. Probably could of dumped a few more knowing I could buy back in a market drop but I am trying not to trade but set up for income. Like you I will probably sell some of those bank holdings but I can wait for them to recover. Slowly building up the income stream. Last 3 months have increased it from 32,000 to 40,000 a year and still working on it.

    2. Yazzer, I try to stay out of banks, but totally cant help myself. If I stay with issues I am used to, I do better. NYCB-U got to 35.70 yesterday so I bought a small 400 share position, woke up greedy today and bought a 100 more at $37. Probably will flip on a further lift and then be out of banks. Congrats to those who bought on the crashes. I just bought on the edges in some utes that dropped. In fact I already sold my SR-A for a quick 90 cent gain. My CMSD is up well over a buck and a half and its getting closer to being booted.
      I saw a 4 year noncallable 5.05% CD so I bought another 10k of that.

      1. Nice – I am light on banks but was relatively heavy (for banks, that is) with CUBI-F and, given it was affected more than others started looking at it as having more exposure to collapse. I watched it go sub 10 and even bgt some at $11.50 (which I sold at $13.39) and, when it got back to the $16s, I started dumping and close the whole position with a last 100-share tranche at $17.70. I had 200 shares of NYCB-U and sold it all on Feb 8th at avg just over $44. My only other questionable bank issue is FCNCP but my price in is pretty low there so not much red.

      2. I like CDs too Mr. Grid. Bought a two year CD at 5.25% non callable,
        Two things I never like Banks and Airlines. WPC has been a good REIT.
        You seem to trade a lot. Taxes must be a nightmare.
        Good luck

        1. Hey Mr. Z. I try to trade a lot inside my tax frees but they tend to leak out into taxables…A lot anymore, ha. But its no problem at all. I just import directly from brokerage into taxware and it does it all in seconds. I have to manually import some K-1 stuff but that doesnt take 5-10 minutes at most.
          A person can build a 5% CD ladder all the way out from 3 months to 5 years. Personally I love having a lot of 5% base 100% safe money and building from that now.

      3. Grid, I couldnt grab any of the CMS investments. I think i was off by 10 cents on my bid, but they didnt experience a large drop in value like others. I did over the past couple days buy some from NiSource, DCP Midstream, American Financial Group, Bank of America, Wells Fargo, US Bank, National Storage, Aegon, Public Storage, Apollo Asset. Time will tell…

        1. Mr. C, I dont know what to think. I might pull the rip cord on some I just bought. Trouble is every time I do this I mostly have been burying that money into Tbills or CDs past 3-4 months I dont have the monetary firepower you have. I keep this pace up and at some point I wont have any money left to trade or buy with. I dont have a good feeling at all. And maybe its falsely predicated from knowing I can get 5% totally safe and do nothing and extend it out to 5 years. And maybe its also knowing I will easily return over double digits for the year just hiding out if I dont do something stupid. Who knows….

  5. ENBA full call 4/15/23. Frees up some cash to buy some babies flopping around in muddy bath water.

  6. Wow I went long the big one in the news yesterday. Problem was I just did so for myself. That’s the problem with doing a big trade because you can get so focused you have trouble seeing other positions. I was looking at the worst/best pfds at 330 yesterday. Some FRC pfds at 10 after hitting 6…..

    Also most names on my top 20 moved from 25.5 arena to 22.5—23.5. And I was so stuck I couldn’t put the positions on. Oh well

    1. If you Prefer,
      I went through Sunday and put in some low bids compared to the lows of the past year. Last night I held my nose and put in some more low ball bids based off yesterday’s lows.
      Some that hit yesterday were bids I put in a month ago on ones I wanted that had hit lows over the past year.
      This is looking a lot more like the last time the Feds did QT
      The economy is already starting to weaken. Maybe just coincidence, but two guys walked in yesterday looking for jobs and that is 2 more than all of the past 3yrs.

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