July 18, 2024 | Premium Service | Bank earnings for Q2 2024 remind us a lot of Groundhog Day, the 1993 film directed by Harold Ramis and starring Bill Murray and Andie MacDowell. Each quarter, we have basically the same bank earnings, but each time the reaction from investors is different. And meanwhile, behind the scenes, institutional investors are churning positions in bank stocks, pushing down larger cap names from May highs and forcing smaller, less liquid stocks up. How will all this end?
A reader of The Institutional Risk Analyst asked why JPMorgan (JPM) had shown such a sharp increase in defaults on home equity lines of credit. In Q1 2024, JPM reported a huge jump in delinquency in the level of delinquency in home equity lines of credit. The chart below from BankRegData shows you the JPM results.
JPMorgan HELOC Loans | Q1 2024
Source: BankRegData
The rate of change in the JPM HELOC book was pretty ugly and illustrates one of our big concerns for financials, namely the tendency for credit metrics to display unusual levels of volatility. We asked JPM CFO Jeremy Barnum to clarify, but not expecting a response. The JPM HELOC book is now below 2% of total loans vs close to 10% a decade ago and thus is not part of the bank’s GAAP disclosure.
Delinquency on the bank’s prime 1-4s actually fell in Q2 2024, thus the curiosity about the HELOC book. JPM probably won’t drop their FDIC CALL report for the bank until the first week of August (H/T Bill Moreland). Righteous banks file in week one. Big banks like to hide at the end of the reporting period.
Through July 15, 2024, the WGA Bank Top Ten Index was up almost 20% YTD in 2024, illustrating the fact that not all bank stocks are going down. The chart above shows the WGA Bank Top Ten back to 2022.
