On Friday Moody’s downgraded bunches of banks – the laundry list can be seen here.
In general it looks like most ratings were lowered 1 notch and mainly because Moody’s has downgraded the outlook for the banking system in a macro view to strong from very strong.
These ratings changes DO affect many preferreds–I’ll be picking through the data so I can update the spreadsheets etc.
If you sign up with Moody’s for a free account you can click the links and read in more detail.
INVESTOR’S BUSINESS DAILY
Regional Bank Damage Reports Mixed. This Lender Soars
https://www.investors.com/news/regional-banks-earnings-western-alliance-zions-key-detail-march-damage/?src=A00220#
Here’s what’s at play. Retired Dallas Fed Gov Kaplan
https://youtu.be/G5DYadVVmGI
IFP I have to get to work or I would finish listening. I am at the 32min. mark. Everything I heard so far supports my feeling rates higher for longer. We have to have a balance for when rates were lower for longer.
What he was saying about excess money in the system, well where did that go? well into the stock market and commercial real estate and that was leveraged with adjustable rate loans.
What is going to happen we don’t know, but Kaplan is saying there could be another shoe to drop 3 to 6 months from now.
Also, observe what is around you. If you look at the comments section I am guessing a good portion of the listeners are not American born. There is an interest in the world of what’s going on here in this country.
Charles, mi hai scoperto! Vivo in Italia, a Milano.
Thanks for the chuckle Fabrib,
One country on the bucket list.
Cruise lined up the Danube for this Oct. To Budapest.
Wife wants to go to Ireland next.
Thanks, at least somebody took the time!
the first 20 minutes are the most important. Anyone who owns banks should review this. He really knows the depositories and keeps it simple.
If you. Thanks! Definitely sobering – for banks, especially small ones . Cheers! Windy
The real issue is NOT the short list of banks that Moody’s downgraded. It is that the rating agencies, primarily Moody’s, Standard & Poors, and Fitch, 100% missed the duration mismatch/bank run probabilities for ALL of these banks. Recall that Silicon Valley Bank (SVB) was A2 rated shortly before they were shut down.
Two bottom lines IMO:
1) Just like in the 2008 GFC crisis, the ratings agencies 100% missed the fact that residential housing could lose value, rendering a LOT of AAA/AA paper worth pennies on the dollar. Can’t count on the rating agencies to save you.
2) Any bank other than the too big to fail, can easily be put out of business in a matter of hours due to a bank run. We do not know which banks Janet/Jay/FDIC would step in to protect depositors. But like Oklahoma Senator Lankford asked Janet something along the lines of: “Would you do the same thing for an Oklahoma bank?” to which she replied “not necessarily.”
Implications for investors in bank preferreds/bonds and possibly >$250k depositors is there is a new risk element we did not previously consider.
We own the common of one large TBTF bank in one account and some short term bonds of the Moody’s downgraded banks, particularly Comerica that has had a lot of discussion on III. We have one account in a TBTF that exceeds the $250k FDIC limit.
Good input Tex the 2nd. No you certainly can’t count on the ratings agencies.
Tex,
Do you happen to know if anyone was a Michael Burry type calling this out before March?
Gum, two sources for advance notice of the Silicon Valley Bank downfall:
1) Retired hedge fund manager, Bill Martin, explicitly warned about SIVB back on January 18th in a Twitter thread. He wrote:
“Luckily, regulators do not force $SIVB to mark HTM securities to market. But the bank would be functionally underwater if it were liquidated today.”
https://twitter.com/RagingVentures/status/1615826088038473733?
In the same thread he said that he was short SIVB at the time, so some might have questioned his motives, but he turned out to be 100% correct. SIVB went up after he wrote this, but later crashed.
2) The best bank analyst I know, Chris Whalen also warned not just about SIVB, but many other banks that have the same underwater mark to market problem. He publishes a free blog and also a more detailed paid service. You can follow his blog at:
https://www.theinstitutionalriskanalyst.com/
No bank, including JPM, can withstand a run.
Dimon can, with a call and eventual costly deal with Buffett.
Is there a similar web page for the s&p credit agency?
dobuleV–I’ll do some checking. S&P does also have a free signup to look at individual issues.