As we enter Q1 24 bank earnings season, I expect to see continued commentary around interest rate pressure; increasing costs and stagnat loan demand… but I also expect the tone to shift. The sentiment back in January ’24 was that rates had peaked and Q1 would still be challenging but Q2, Q3, and Q4 would enjoy the shift of rates decreasing, costs decreasing, and loan demand starting to bounce back. This would relieve pressure on NIMs and overall the thought was “brighter times… Read more: What are the odds rates go up?

Outstanding’s of the Bank Term Funding Program held steady from June to December of ’23, but are up ~24% since December. Total outstanding’s are now at ~$141 billion. The intent of the program was protect depositors, the idea being banks could leverage this program to shore up capital if deposits were called vs needing to sell for a loss out of their underwater securities portfolio. There’s no doubt this program brought needed stability to the US banking system. The program was intended to… Read more: Are banks using the BTFP to arb The Fed?

On December 18th the FDIC issued a Financial Institution Letter highlighting the “importance of strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices for institutions with commercial real estate (CRE) concentrations.” The timing of this letter felt strange for a couple reasons, and I contest that may have been the intent of the author, Doreen Eberly Remember on December 13th, a rather bland, but positive FOMC Statement was released – the highlights: Then Chair Powell spoke and in a dovish,… Read more: Multi-family Risk

I went to check out a live recording of the Compound & Friends in Charlotte last night and their guest was Campbell Harvey, Professor of Finance at Fuqua. The episode is excellent; Cam made an argument that real inflation is currently < 2% (minute 30), he was critical of the Fed pausing vs ‘terminating’ rate hikes, and that the best way to avoid a deep recession is to grow the economy (vs raising taxes and/or printing money) Cam Harvey’s 1986 Ph.D. thesis noted… Read more: The Un-inversion

As we roll into Q3 bank earnings after knowing the 10Y yields spiked in the last couple of months, the question(s) become: Its difficult to find any issues in reading through JPM’s Q3 earnings. This thing is an absolute juggernaut, and capital issues are not a problem. But it is worth noting a 4% decline YoY in deposits firmwide. A huge $ number, and while not a problem for JPM, likely a problem for some other banks should that % decrease in deposits… Read more: The Great Mark to Market

Marty Gruenberg and team released their Q2 ’23 Quarterly Banking Profile on 9/7 and given these reports provide dated analysis, I was unable to find anything surprising. What’s worth diving into is the forces behind shrinking loan growth across the industry. See below: As mentioned in the notes of this chart, year over year growth is around the average of the last ~10 years @ 4.5%… but velocity and direction are important here. Many banks are experiencing stressed loan to deposit ratios, and… Read more: Loan Balances Shrink

ADP Released their June 2023 change in U.S. private employment this week and it came in hot, adding 497,000 jobs vs the 220,000 estimate. The market reacted negatively, as the likelihood of the Fed continuing to raise rates increases as job growth helps fuel inflation. Given this increase was largely driven by leisure and hospitality (232,000 new hires), wouldn’t we expect this to be relatively seasonal? The consumer is still spending, service based roles have had trouble hiring the past couple years, but… Read more: Is the🔥Jobs number misleading?

Marty Gruenberg is back with the Q1 QBP, and while I was eager to see data based evidence of a shift in banking to support the observational shifts we’ve all seen in headlines as of late, I realized this data is already stale. Marty was quick to call this out immediately – “…these results, especially for earnings, include the effects of only a few weeks of the industry’s stress that began in early March, rather than over the course of the entire quarter.… Read more: 2023 1st quarter numbers are in.

I’ve seen references to the below in different formats, leading to comments like “the consumer just wont quit” and “the consumer is still strong given headwinds” While the chart looks strong, I argue the source of that strength is fading and likely lags other indicators. This strength started in the form of cash spent by the consumer, but as we see deposits shrink and credit card totals outstanding increase, we can assume the consumer is now shifting spending from cash to credit. With… Read more: Consumer Spending Strength

The internet is full of hot takes around the series of collapses we just witnessed and I’ve debated how deep to go here. I found a thread that does a good job of providing a time series of events (with one suggested edit by me) and implications going forward. A big shout out to @professorstam.eth for the quality content 👇 My one edit to the timeline is in the below point, SVB didn’t announce they were liquidating there Available-for-Sale Securities… they announced they… Read more: “The Industrial Virality Complex”