June 3, 2024 | Premium Service | Whalen Global Advisors has published the latest edition of The IRA Bank Book for Q2 2024. The quarterly outlook for the US banking industry is available to subscribers to The Premium Service and features more than thirty pages of charts and commentary about the financial condition of the sector. Below is the latest chart for the $1.1 trillion non-owner occupied commercial real estate (CRE) portfolio.
Source: FDIC
The highlights of the new report include:
A discussion of the composition of industry revenue and earnings, and the outlook for Q2 2024. Net interest margin fell yet again in Q1 2024, the report notes, but a strong rebound in fee income pushed overall results higher in Q1 vs Q4 2023.
New charts showing the different components of commercial real estate loans and related data series including delinquency, net loss and loss-given-default. The report notes that loss severities in multifamily loans are leading the other sectors higher. Loss rates on all CRE loan categories are above levels of a decade ago and rising.
The report also highlights the huge amount of duration risk that remains 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.
In 2008, most bank securities were AFS and marked to fair-value daily. Today, most bank securities are booked unhedged in held-to-maturity (aka ‘hide the duration’). Federal bank regulators should require that banks keep most Treasury and mortgage securities in AFS as a matter of financial discipline.
The unrealized losses on COVID era securities remain a huge problem for banks large and small, especially if long-term interest rates rise back to Q3 2023 levels or above. If interest rates rise, then bank solvency again becomes an issue and may cause increased market volatility. The chart below illustrates how the banking industry has attempted to hide trillions of dollars in the COVID interest rate problem by classifying securities as held to maturity.
Source: FDIC
Copies of the IRA Bank Book 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. Media wishing to receive a courtesy copy of the report please email us: info@rcwhalen.com