December 17, 2024 | Premium Service | Whalen Global Advisors LLC (WGA) has published the latest edition of The IRA Bank Book, the quarterly outlook for the US banking industry. The highlights of the Q4 2024 report include:
A discussion of the composition of industry revenue and earnings, and the outlook for 2025. Net interest margin grew modestly Q3 2024, but a weakness in fee income pushed overall results down vs Q2 2024. WGA expects industry revenue to grow in 2025 as the Fed begins to expand liquidity to accommodate rising federal debt.
“The Fed’s half-hearted fight against inflation is officially over,” notes WGA Chairman Christopher Whalen.
Updated credit charts are included in the report showing the components of commercial real estate (CRE) loans and related data series including delinquency, net loss and loss-given-default, and aggregate exposure at default (EAD) for the industry. The report notes that loss severities on multifamily and CRE categories are above pre-COVID levels, but well-below 2008 levels of loss.
The report highlights the continued duration risk hidden on the books of US banks because of the industry trend since 2008 to retain securities in “held to maturity” instead of available for sale.
“Realized loss rates in the banking industry have been falling for four quarters,” notes Whalen. “With the exception of commercial real estate and multifamily assets, the rest of the real estate sector shows little stress. With the Fed pushing liquidity out of reverse repurchase agreements, we expect bank deposits and industry assets to grow in 2025.”
Source: FDIC/WGA LLC
WGA notes that bank stock prices have soared in the second half of 2024, with the WGA Bank Top 10 Index up 40% year-to-date in 2024. “If the rate of increase in credit expenses continues to build in Q4 and 2025, that would provide a catalyst for some profit taking in the sector,” Whalen notes in a recent report.
Copies of the IRA Bank Book report are available to subscribers to the Premium Service of The Institutional Risk Analyst. Stand alone copies of the report are also available for purchase in our online store. Subscribers to the Premium Service of The Institutional Risk Analyst may download the latest report below.