Equity futures are up darned near 1% this morning–maybe we will get a little Santa Claus rally going into the end of the year. The last few weeks have been a little tough for stocks so it wouldn’t be a huge surprise to get a little retracement for the next couple of days.
The 10 year treasury yield is off 3 basis points this morning after taking another too large of a jump of 10 basis points yesterday—that is 2 days in a row of 10 basis point jumps and it has put a cap on any gains for preferreds and baby bonds–I know my accounts have been red each day.
Yesterday I nibbled a bit on Merchants Bancorp 6.0% perpetual fixed-to-floating rate preferred (MBINO). Current yield is 7.26% with yield to 1st call of 17%. So this is my second regional/community bank in the portfolio–I have some CUBI fixed to floating and some of their baby bonds (CUBB). This is an area (smaller banks) where I decided I want some more exposure while I can get between 7-8% current yields. It is highly likely I will nibble another issue or two yet this week. You can see all banking and insurance preferred issues here–sorted alphabetically or by current yield.
Well it is -5 degrees outside – fortunately no wind yet. The forecast us for 5-10 inches of snow by this time tomorrow, but adding in high winds I suppose it will be -20 to -40 with the wind chill. This is Minnesota so anyone who is unprepared for the snow and the cold is just kind of foolish–the older I get the more I dislike the weather, but at least I am prepared. My brother was in Walmart yesterday and he said it felt like the ‘state fair’ with throngs of people stocking up–what silliness.
“ the older I get the more I dislike the weather”.
That’s why I retired and and made alternative plans for winter time.
At my place in Idaho it’s currently 3 deg. and the windchill is -27 degrees. At least that’s what the weather service says. Fortunately, I spend winters on Oahu where it’s currently sunny and 78 degrees. Sorry, I just couldn’t help but rub it in a little.
Mele Kalikimaka to all!
Hi Tim,
Yesterday I picked up sister security MBINP with the 7% coupon and slightly shorter maturity date (4/24 vs. 10/24) and slightly higher conversion rate.
Looks like the main risk with some of these smaller / regional banks this time around is used car loans where its better to give the car back than make the payments. Wonder with some of these smaller bank players what the risk is here?
legend.vs–no doubt this is a risk. The issue thus far has been ‘non bank’ banks in mortgages–some have gone BK and some have closed up shop (simply not enough business out there). I think Capital One is probably the highest risk in auto loans. We’ll see how it plays out.
Used cars are so expensive I would think the bank ultimately comes out ahead if the buyer returns the car, no?
The price of used cars has been plummeting, especially expensive ones. So people who bought their used cars the last year or two are likely underwater on their loan. So the bank will take a loss if the car is repossessed
The largest risk for many banks is NOT their car loans, but the mortgages they hold. The bank made a 30 year loan @ 3.0% last year and still has it on its books. What is it worth today? 90% ? 95% ? Darn sure NOT worth 100% of par, even ignoring default risk. Last I heard ~ 30 smaller banks were already technically insolvent for this reason alone. And what that means is that the FHLB and/or Fed MIGHT not allow them to borrow overnight. This is what all of the talk about accessing the Fed discount window. Obviously the too big to fail banks would be supported, but will all of the smaller banks? Don’t know, but it is a risk you need to understand.
Now you know Tex why I have been saying I need to look at other areas for investment as I don’t want to get too heavy into banks that can suspend payment on the preferred and be non cumulative. I guess this also applies to Insurance preferred.
I have preferred of CUBI, HTLF, NYCB, and ONBP
It’s tempting because of the high dividends but I want to spread the risk around. Note- the NYCB-PU is an old preferred that is cumulative
Charles, just to make sure you are aware. NYCB-U is trust debt, not a true preferred so no QDI. Being its debt makes it cumulative by its nature. Also if owned outside of tax free accounts I believe there is OID which will cause a bit of “phantom tax”.
Thanks Grid,
Your the one who turned me on to it. I told you I have been buying it every time it dips below 42.00 I have been adding it to both my wife’s and my IRA’s
MBINO priced nearly $7 lower than MBINM doesnt make sense. Just wait until the floating rates kick in. Inefficient market sometimes overrates current yield.
Identity of banks using window are only released with a two-year lag. Previous spikes were 2008 and March 2020–much larger then. Current uptrend is smaller than then but sloping upward.
https://www.reuters.com/markets/us/fed-discount-window-borrowing-is-edging-up-is-it-problem-2022-12-09/
Bloomberg reports a spike in the Fed discount window use by banks suggesting smaller banks might be in trouble.
https://www.bloomberg.com/news/articles/2022-12-19/billions-of-dollars-in-fed-discount-window-suggests-all-is-not-well-in-banking?leadSource=uverify%20wall
I hold a bunch of these and am wondering what to do.