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.
And it’s gone https://www.youtube.com/watch?v=_nVk25ZvTkU
https://www.marketwatch.com/story/roku-says-it-does-not-know-how-much-of-its-cash-it-will-be-able-to-recover-from-svb-10812044?siteid=yhoof2
Roku had 25% of their cash at SVB. This carnage may hit much harder than normal due to their position in the Valley and the fact that a good chunk of their depositors held FAR higher balances than the FDIC insured limit.
But I’ll bet that the bank is swallowed up by Monday by a bank with a large west coast presence like Wells Fargo or Bank of America, and it is announced by Monday.
One other bank that seems to be under the radar that has fairly sizable problems on their MBS assets is PNC bank.
Fyi – CUBI is listed as a bank that may face trouble in the aftermath of the SVB debacle.
I make no judgment, just sharing what I saw. This is based on margin contraction.
https://www.marketwatch.com/story/the-10-banks-that-may-face-trouble-in-the-wake-of-the-svb-financial-group-debacle-50d6e49e?mod=home-page
On Tim’s suggestion, I checked CUBI’s 10-K for it’s capital ratios and “Held to Maturity” balances.
They have a Table on p. 107 showing their various capital ratios vs the required ratios. All ratios are easily high enough to be classified as “well-capitalized”.
Their 12/31/22 balance sheet shows about $3 billion of available for sale investment securities and less than 1/3 of that ($840 million) classified as held to maturity. Compared to the year end 2021 balances it looks in 2022 like most/all of that $840 mm was re-classified from AFS to HTM.
I don’t know if the held to maturity balance is safe or risky, but it looks to me that their ratios show they’re adequately capitalized.
This ranking site gives them a “C” grade (akin to “average”) for their capitalization. Thanks to the person who posted this link a while ago:
https://www.depositaccounts.com/banks/customers-bank.html
Cash flow from operations for 2022 was negative $21M compared to $295M in 2021. The reversal was caused by a decline in earnings of $126M and a use of funds of $366M for “Origination and purchases of loans held for sale.” This latter figure is up from $73-74M in the prior two years. What is the quality of the loans held for sale?
mbg:
You do understand that banks playing the game of moving assets from AFS to HTM means they don’t have to do mark-to-market quarterly valuations on the HTM portion? It helps artificially boost book value in an interest rate environment like the current one.
Personally, I wouldn’t touch anything from small cap bank CUBI. The love-fest for the CUBI preferreds on this site is almost comical.
The folks running this bank are the same ones that tried dipping their toes in the water on crypto in a desperate effort to boost their “non-interest earning deposits”.
Nope.
I certainly had warm memories of CUBI preferreds. They did me very well. But I agree something just always seemed odd about that bank. They jumped near $26 a few weeks ago before last exD and I sold out. Since I have been out of banks with exception of a few leftover nutty BACRP shares, I certainly have no desire to enter now.
Was a modest buyer today reentering SR-A shares in purchases in 23.20s and 30s. Had been pondering buying some DCP preferreds and they dropped so I bought a few hundred of B. Unfortunately about 15 cents higher than the price it closed at though, ha.
Putting in a low ball bid on a few
Falling knives or opportunities
Seems group think has incited a panic in some bank preferreds. Is Silicon Valley a one off or emblematic of the industry
PACWP off nearly $9 today, yielding over 12% now
CUBI E and F both off around $1
MBINM (8% yielder) off $1.30
Mav – what are your must buys in the coming days for these bank preferrd?
SJC I am still on vacation so only limited time to research stuff.
Only thing I did today was swap my CUBI-E for CUBI-F (did it in multiple trades but the spread between the two was 75 cents to over a dollar)
Hope that knife is made of rubber. I got today:
VLYPO – $24.55
C.K – $24.93
PACWP – $16.22
FNB.E – $25.10
MBINM – $25.17
I “think” the fins on these companies look good. We’ll see in the future. Still have some powder if the sell off gets worse.
I do own a few of the SVB prefs, and hope they get made whole. 🙁
Tough day on the portfolio – I looked so smart in Jan.
Breaking news: Silicon Valley Bank is shut down by regulators, FDIC to protect insured deposits
First FDIC insured bank to fall this year 😱 Liquidity issue, but Silicon Valley Bank was directly because of Peter Thiel telling his friends to pull their money out of th bank and the street got word of it. Silicon Valley Bank was the 16th largest bank in the United States. Keep raising Fed, nothing to see here 🤮
That’s unbelievable…. I’ve been associated with fslic / fdic / ncua failures since 1983. I’ve NEVER seen one taken out like this.
Silicon Valley Bank had 200 billion in assets and was trying to raise two billion dollars to shore up its loss on “ultra safe US Tbills.”. Depositors began withdrawing money this week after its CEO said it would have to raise capital. Silicon Valley, which is a huge provider of tax revenue to the State of California, (the fourth largest economy on earth), is not going to be sending out the billions in taxes that the State of California relies on to pay its huge bills. Inflation at six percent is important, but damaging the California tech economy and the State budget revenues will affect everyone in the USA and beyond far more than inflation. Slow down the rate hikes Powell or a financial collapse like 2008 will be a far bigger problem as regional banks will fail. Your friends at the big banks as they increase market share in the banking industry will not rescue the 99 percent of us.
I have a small positions in a few banks. HTLFP, WSBCP, ONBPP, ZION-L and MS-E, JPM-C. All are FF or Resets except ONBPP ( it is a perpetual paying 7%) and JPM-C, ZION-L also has a maturity date of 9/15/2028.
I am not an accountant, but from their 2022 Q4 statements they look solid and all are rated B or higher on the Weiss bank ratings site.
If I had to sell one right now I suppose it would be JPM-C, nothing special about it, just a 6% IG perpetual, but probably the safest of the bunch. I suspect a couple of these will be called when they go to FF or Reset as it will most likely take the dividend rate to 10%, or close to it. So, guess I will keep them and see what happens.
A list of banks with margin compression.
10 banks that may face trouble in the wake of the SVB Financial Group debacle
https://www.marketwatch.com/story/the-10-banks-that-may-face-trouble-in-the-wake-of-the-svb-financial-group-debacle-50d6e49e?mod=home-page
Any chance you could list them? I can’t open the link unless I become a member. I have a free account but they won’t allow me to read it.
Thanks
JB/AZ, I’m at a gym 💪🏼 and my iPhone wouldn’t let me cut and paste. When I get back to my hotel room, I will if no one here hasn’t listed the BIG TEN
I think this is the article.
Cut and paste is a mess so here are the tickers:
CUBI, FRC, SASR, NYCB, FFWM, ALLY, DCOM, PPBI, PB, CLBK
Try going to the main page. Its the fourth link below the big picture. I thought it was an open link, I was not signed in and it worked for me.
https://www.marketwatch.com/
Here are the 10 showing contracting margins over the past year, or the smallest expansions of margins:
Bank Ticker City Net interest income/ avg. assets – Q4 2022 Net interest income/ avg. assets – Q3 2022 Net interest income/ avg. assets – Q4 2021 One-year contraction or expansion
Customers Bancorp Inc. CUBI West Reading, Pa. 2.61% 3.10% 4.03% -1.42%
First Republic Bank FRC San Francisco, Calif. 2.28% 2.53% 2.50% -0.22%
Sandy Spring Bancorp Inc. SASR Olney, Md. 3.10% 3.34% 3.29% -0.19%
New York Community Bancorp Inc. NYCB Hicksville, N.Y. 2.10% 2.06% 2.20% -0.11%
First Foundation Inc. FFWM Dallas, Texas 2.35% 2.98% 2.41% -0.07%
Ally Financial Inc. ALLY Detroit, Mich. 4.04% 4.20% 4.09% -0.05%
Dime Community Bancshares Inc. DCOM Hauppauge, N.Y. 2.98% 3.20% 2.95% 0.03%
Pacific Premier Bancorp Inc. PPBI Irvine, Calif. 3.34% 3.34% 3.27% 0.07%
Prosperity Bancshares Inc. PB Houston, Texas 2.72% 2.78% 2.65% 0.07%
Columbia Financial Inc. CLBK Fair Lawn, N.J. 2.69% 2.78% 2.60%
AZ, Thank you for the interesting read (and for all of them). As they are so frontline consumer-centric, have always seen ALLY as a LEI, and of course they started their unrelenting slide last summer. Suspect there are many other candidates for your list that may make themselves known in the next quarter. With so many recent big events, we know there will be more setting up unscheduled board rendezvous. Also of interest are those who during the era of free money strayed from their base. OZK comes to mind. Straying from my own high IG inclination, I remain a cautious holder on their equity side with some derviatives as ballast.
In Azure-ese: Qui audet adipiscitur
And you need to update us on your latest forest purchase. A fabulous diversion from the IR cycle.
You can’t read that article without a subscription.
Chuck, paste the link into the dark blue bottom, and it should work. This is what I do with Marketwatch articles.
https://archive.ph/
I read on SA about an hour ago that SVB was having trouble with floating more common and preferred so is exploring a sale.
What is the downside risk of buying the big bank preferreds (WFC, JPM, BAC) below $20 and collecting 6% for a few years until they buy them back at $25?
RAAB, What is your basis of assumption that these 4% ish perpetuals will ever be called?
if there perpetual, who knows how long if ever it will take before they buy them back
if your willing to ride out interest rate fluctuations then its fine. i own a few but not adding till i think interest rates have stabilized.
I bought a chunk of these in December when they were cratering (BAC, ALL, COF, USB, GS, Entergy, WFC, PSA). With a yield as high as 7%, I was comfortable holding them and figured they’d appreciate the most if/when rates drop. Although rates didn’t drop in January, these issues rose about 15% so I lightened up a bit. With today’s drop, I tried buying about 8 of these this morning but even as the best bid, no one was panicking and selling. Drat.
The downside risk is that you collect 6-7% yield and have to hold for a long time. I’m OK with that. I’d rather be in these investment grade large caps than in sketchy higher yield 5 letter OTC issues and lower grade NYSE issues (for example, look at the FRC Pfds this morning).
th,
We’re pulling on the same oar here. Have stacked and laddered USTs, IBonds and a series of ute bonds and lower-coupon FHLBs, though seeing the current meltdown as yet another potential golden opportunity to average-down existing holdings. All but two of 40-something held are still trading above my basis, but a wall of standing bids below that basis is waiting for the arrival of panic sells or over-sized sell orders that swamp the bid side. One hit today – NTRSO (a financila of course) around 20.70. Baa1/BBB+, 4.70% coupon, QDI. The kicker on this is it goes ex in 3 days, so effectively a $20.40/share buy. With QDI ~ 6.50% taxable equivalent at the $20.70. fc this is right up your alley hope you saw it. Please all do your own diligence before investing.
Aloha, Alpha.. Those dang old ute preferreds are staying stubborn arent they! I am still watching…
Im just glad order has been restored in my world. PFF was beating my ass after January. Embarrassing, as they never have in 10 years since I tracked that with mine. But Im whipping its arse good now. Always set the bar low and you will always be pleased. 🙂
Grid, Yes utes have been disappointingly stubborn and not reflecting treasury v ute pricing that correlates with other recent sell-offs. Bravo on your and Bea’s early-January lightening-up on holdings which is proving to be prescient on asset side and will be more so if that correlation returns.
I’ve been staying boringly focused on income side which continues to rise through the current melee. Have net-sold nothing, completed a few buys (mostly with divvy reinvests) and a couple of arbitrages while the first legs of few ladders are starting to rollover at higher (and locking longer) rates. Hoping for more bond opportunities in next few weeks. Among the arbs, some are solely for higher IG at same yield. We’ve not yet seen the panic wash-out typical in some sell-offs and still may not, though have a wall of basis-lowering bids waiting just in case.
Well CD rates at the TBTF banks can be low too. At bank rate, some of chase wells and bank America CD offerings are below single digit.
With first republic losing 65% of its value in 20 minutes this is a crazy market heh?
JPMorgan was offering 5.40% on a twelve month CD two days ago, but they sold out. My guess is these guys need to raise cash for end of quarter window dressing. If you’re looking for CDs keep a close eye on the window.