The Institutional Risk Analyst

When you are in a big crowd, nothing else matters.

Sadly for the bears in the audience, nothing would make the banks happier than if consumers would use more credit....

If a bank has 6% debt to assets, what is the equity of the parent BHC worth?

We continue to believe that combining Citi and GS may make sense in terms of consolidating two capital markets businesses

Our view is that China has been caught in a debt deflation for the past five years.

With industry losses on every loan closed well north of 200 bp, you might ask yourself why WAL would still be buying conventional loans.

TCBI needs to keep efficiency in the 50s if they want to survive the coming drought in mortgage lending.

S&P was the first to call out the growing lack of fiscal discipline in Washington, downgrading Uncle Sam in 2011

The last Treasury Secretary that tried to extend the maturities of US government debt was Jack Lew (2013-2017). Yellen missed an opportunity

So when we ask why large banks are so big, the answer is that the Federal Reserve Board allows large BHCs to use more leverage

We expect to see USB trading at a discount to JPM and Peer Group 1 until the bank improves its operating leverage to pre-COVID levels.

We all dodged a bullet in Q2 2023 because the repricing of assets and deposits slowed from the crazy levels seen at the end of March.

JPM has an impressive lead in earnings and growth over WFC and C, neither one of which is positioned to catch up with Jamie Dimon in 2023.

The sad fact is that even with another 2% capital, most US banks are arguably insolvent thanks to the Fed “going big.”

The “winners” in the mortgage sector will be those larger players with equally large servicing books that can access bank funding

JPM is really a large mutual fund with a bank attached, as shown in the table below.

If the FOMC raises the target rate for fed funds further, then banks like CMA are likely to come under renewed selling pressure.

We look for lower prices for legacy MBS and MSRs as new allocations are used up and P&Ls sink deeper into the red...

If we assume that asset returns will continue to rise, but that bank funding costs will rise 5x asset returns, then US banks have a problem

To survive long-term, both WAL and PACW need to get that beta back down below 2 and closer to 1, but the hawks on the FOMC may not cooperate