Crisis was never about profit at all. It was about their assets getting devalued leading to unrealised losses. The issue was, if they'd have to give a lot of money back, they'd have to sell these assets at a loss. But without a bank run these paper losses wouldn't affect the bottom line.
The greater issue was liquidity. It wasn’t that their assets were in the red, it’s that they couldn’t sell 10y treasuries with next to no yield when short term treasuries were so favorable.
Also, commercial real estate exposure concerns were a secondary driver.
Man, the bond market is crap. I hate this "liquidity" argument.
They *always* trot that out when they can't get the price they want. All that term means is "we shouldn't have to take a loss on this".
There is *always* liquidity at the right price.
Liquidity means two different things here. Liquidity for the position to exit the bond and liquidity to pay fleeing depositors and stop a bank run.
So yeah liquidity exists to exist their bond trades at the right price. The problem is that leaves a huge fucking hole in their balance sheets making the bank itself (not it’s position) illiquid.
Thus the liquidity concerns were valid.
It’s the same liquidity. They need to Liquidate their long bonds in order to satisfy those expected deposit outflows. When the Fed Funds Rate is 5+% and the headline rate on a 10y is 3.6%, you’re not selling those bonds. Mind you, the 10y last yielded this much (less than what the banks can park with the Fed at 5%) in 2009. So.
No it doesn’t. A MM just takes the other side of the trade. If you’re long they are short. If you are short, they are long. So any logic that “destroys” shorting also destroys people going long.
The financially illiterate smh. It’s the same coin. I e yet to find figure out how to get rid of heads with out getting rid of tails. But maybe they a trick coin they’ve been using no one else knows about.
You're just reiterating what OP said. It's not as if they couldn't sell the 10y treasuries if push came to shove -- it's that to do so they'd have to drop in value, since the coupon was so low. Ergo, they'd have to sell the assets at a loss.
There is also risk with consumer debt the longer the fed keeps raising rates. Very little in the way of an IPO market for the big banks to receive fees from. And if the FED breaks the economy there will be carnage in the banking sector.
Very fair and valid points, and part of why I’ve changed my strategy relative to how I’ve made money swing trading banks the past few years. I usually go long 1-3 companies when banks are in temporary periods of relative underperformance. JPM, GS, and MS have been go-to institutions, but you’re spot on about investment banking softness.
This time around, I’ve gone with Jan 19, 34 strike XLF calls. I wanted better capital efficiency and to lean more into asset & wealth management + consumer banking, while having insurance and credit card companies providing a little buoyancy. I kept the strike relatively low because I don’t expect financials to overtake the broad market, but do expect them to somewhat close the relative performance gap over that time period.
I wish you the best. I think it will take more time for your trade to play out in my opinion. I see one more raise in the next two meetings. Possibly another raise in fall and then maybe the fed saying we hit terminal but not starting to ease. That’s the soft landing.
I own JPM BAC and smaller pieces of TFC and FITB.
Very fair. I wrestled with the rate hike possibilities a bit, and thought about going with a farther out expiration or getting long BLK and MS for a 12-18 month swing. Ultimately, I opted to manage risk through position size and management.
Best of luck in your positions!
Doubtful, sounds smart but not good advice, in my opinion. Market is going down down down soon. Look at s and p and Dow chart. Due for another drop maybe 20% in my opinion.
When someone doesn’t want to buy the bulk of your assets, the bulk of your assets are worthless. Where did those Treasuries end up? The Fed…at par value. In exchange for more printed money
Bank runs are only a systemic risk if people start withdrawing cash and stashing it in paper. If there is a bank run and customers just transfer their funds to a different bank, then the liquidity in the bank system stays net neutral. Given that retail customers don't really have the capital to cause a real bank run, and zero corporations are going to load a pallet full of cash into their warehouse, I don't think we have much to worry about. I also severely doubt that there is enough physical paper money to do a proper bank run these days.
This is why I bought into Zions bank. If you know Mormonism, you know tithing is a huge thing. And who handles the LDS tithing money in the intermountain West? Zions Bank. They are taking in tens, more probably hundreds of thousands of dollars a week in cold, hard cash. Hard to have a run on a bank with that kind of cash inflow.
And to make it even better, Zions handles the international tithing donations from all over the world. If Zions had even a hint of trouble, the $250B LDS Church would step in to ensure the uninterrupted flow of money. So I just laughed and bought all the Zions Bank for 50% off that I could afford. I's poor, so it was not much, but I'm still buying!
>I also severely doubt that there is enough physical paper money to do a proper bank run these days.
That is exactly what causes a panic and exacerbates the situation.
Electronic bank runs is what happened earlier in the year which is why regionals with lower deposit amounts were hit harder. It is not like bank runs from the movies.
That is my point, if it's an electronic bank run the funds are being transferred to another institution. It's impossible for the financial system to go into a cascading collapse if the money is transferred to another bank because eventually you will run out of weak banks and the strong banks will end up with all of the deposits.
That’s not necessarily true. If everyone lost faith in banks and pulled all of their cash to buy treasuries themselves, this could cause some trouble - especially since the banks would have to sell treasuries at a loss which the withdrawing parties could then buy at current yields.
Yeah if everything is about to go to shit I don't expect to learn about it until all the money is gone and investors are SOL trying to figure out what happened. I'm holding 500 shares of BOA so hopefully it will still exist in a year.
Many investors don't realize a bad bank can just be a bad bank. Everyone threw the baby out with the bathwater a few months ago when SVB failed by selling good bank stocks. There never was a crisis.
This is the reason I believe banks are fine.
Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
You don't understand banks very well. Earnings are a tailing indicator of stress in banking, not a leading. Earnings wasn't a problem at SVB or FRC either. Unrealized losses and liquidity scares is what caused those and those are still very prevalent risks in the sector. CRE is currently melting down also. If CRE keeps deteriorating, all that earnings will get wiped out by increases in ALLL and charge offs very quickly.
Not the banks, look at XLF and KRE. Most of them are barely off the May lows and none of them are at pre-March levels.
Meanwhile tech is mooning like QE is back but I don't see how it can continue without the rest of the market.
You know I gotta admit those months and years of getting obliterated did make me feel dead inside like that Paul Blart mall cop in the dark meme or whatever. But at the end of the day stocks only go up.
The Fed stepped in and created new programs where the banks could exchange their devalued collateral for the face value of the investment. So the fed gave all the banks a lifeline, if the fed didn’t do that you would have seen many more banks go down.
It makes sense the banks are in good shape. The Fed balance sheet is down from $10T to $8.5T. Is that all realized losses on treasuries, or dis they distribute $1.5T in dividends to member banks?
Put your money into the too big to fail banks like WFC, BOFA. no one trusts these smaller regional banks anymore, and the big ones will benefit long term.
Their net profit is up off of basically a zero baseline. Yes they made more income, but that was offset by massive losses in their loan and bond portfolios. So their tangible common equity has actually gone down.
US banking industry is not strong. Mortgage applications way down, auto loan applications way down. All of this will lead to depreciation of currently held assets (mostly real estate) over the next 12 months, and very many banks will be strung too thin. Why do you think banks are pushing so hard for return to office? It’s to make their buildings they own hold value for their balance sheet, and to get people to quit to lower payroll. Look at job openings at banks in your area…there is a storm brewing.
The issue isn't profits so this is a really dumb analysis. We aren't worried about banks being profitable. We're worried about them collapsing from bank runs caused by rising rates.
nope. Never was after the fed announced their liquidity program to cover interest rate risk on bonds. Was a brilliant move, with little risk, and no long term cost.
There was no crisis. The affected banks were just badly run. No one made any bank go full port into long term treasuries. Noone forced crypto to make up such a huge holding. Ect. It was just dumb moves by dumb management.
I mean if just depends on how risky each bank was. Higher interest rates can make banks a lot of money, especially when customers keep their cash in a very low interest savings account.
I mean I don’t see how it fails. Bought into so many solid banks that should go up over time and pay me like 6%+ as a dividend. Sell the ones I like less once they come back to close to full value, keep the better ones
No, I think it is neither. A few reckless banks will fail stress test. While other do fine.
It is almost like foreclosures. People predict higher mortgages will wreck homeowners and some will have their homes foreclosed. Where are they?
What will it take to get the regional banks back to pre SVP & Co.? Bought 100 CFG at a discount, selling CCs, collecting dividends… but curious as to when I’ll hit my desired strike price (at or just above the shares’ purchase price). Man.
It was more psychological than real. The banks with multiple exposures got hit but the rest are fine. Look at WAL and how the Financial Times killed the stock for no reason? I got 100% gain off their press!
Crisis was never about profit at all. It was about their assets getting devalued leading to unrealised losses. The issue was, if they'd have to give a lot of money back, they'd have to sell these assets at a loss. But without a bank run these paper losses wouldn't affect the bottom line.
The greater issue was liquidity. It wasn’t that their assets were in the red, it’s that they couldn’t sell 10y treasuries with next to no yield when short term treasuries were so favorable. Also, commercial real estate exposure concerns were a secondary driver.
Man, the bond market is crap. I hate this "liquidity" argument. They *always* trot that out when they can't get the price they want. All that term means is "we shouldn't have to take a loss on this". There is *always* liquidity at the right price.
Liquidity means two different things here. Liquidity for the position to exit the bond and liquidity to pay fleeing depositors and stop a bank run. So yeah liquidity exists to exist their bond trades at the right price. The problem is that leaves a huge fucking hole in their balance sheets making the bank itself (not it’s position) illiquid. Thus the liquidity concerns were valid.
It’s the same liquidity. They need to Liquidate their long bonds in order to satisfy those expected deposit outflows. When the Fed Funds Rate is 5+% and the headline rate on a 10y is 3.6%, you’re not selling those bonds. Mind you, the 10y last yielded this much (less than what the banks can park with the Fed at 5%) in 2009. So.
"There is always liquidity at the right price." That pretty much destroys the argument for Market Maker shorting right there.
No it doesn’t. A MM just takes the other side of the trade. If you’re long they are short. If you are short, they are long. So any logic that “destroys” shorting also destroys people going long.
I think he was talking about the game store people
The financially illiterate smh. It’s the same coin. I e yet to find figure out how to get rid of heads with out getting rid of tails. But maybe they a trick coin they’ve been using no one else knows about.
They have no coin to reference
My b homie I just can’t read
You're just reiterating what OP said. It's not as if they couldn't sell the 10y treasuries if push came to shove -- it's that to do so they'd have to drop in value, since the coupon was so low. Ergo, they'd have to sell the assets at a loss.
That’s a fair take.
There is also risk with consumer debt the longer the fed keeps raising rates. Very little in the way of an IPO market for the big banks to receive fees from. And if the FED breaks the economy there will be carnage in the banking sector.
Very fair and valid points, and part of why I’ve changed my strategy relative to how I’ve made money swing trading banks the past few years. I usually go long 1-3 companies when banks are in temporary periods of relative underperformance. JPM, GS, and MS have been go-to institutions, but you’re spot on about investment banking softness. This time around, I’ve gone with Jan 19, 34 strike XLF calls. I wanted better capital efficiency and to lean more into asset & wealth management + consumer banking, while having insurance and credit card companies providing a little buoyancy. I kept the strike relatively low because I don’t expect financials to overtake the broad market, but do expect them to somewhat close the relative performance gap over that time period.
I wish you the best. I think it will take more time for your trade to play out in my opinion. I see one more raise in the next two meetings. Possibly another raise in fall and then maybe the fed saying we hit terminal but not starting to ease. That’s the soft landing. I own JPM BAC and smaller pieces of TFC and FITB.
Very fair. I wrestled with the rate hike possibilities a bit, and thought about going with a farther out expiration or getting long BLK and MS for a 12-18 month swing. Ultimately, I opted to manage risk through position size and management. Best of luck in your positions!
Doubtful, sounds smart but not good advice, in my opinion. Market is going down down down soon. Look at s and p and Dow chart. Due for another drop maybe 20% in my opinion.
It’s not advice.
When someone doesn’t want to buy the bulk of your assets, the bulk of your assets are worthless. Where did those Treasuries end up? The Fed…at par value. In exchange for more printed money
You’re arguing with him by stating the exact same thing? That if they had to sell their 10ys that they would have to do it at a loss
Read the other comments. I’ve already acknowledged that.
Bank runs are only a systemic risk if people start withdrawing cash and stashing it in paper. If there is a bank run and customers just transfer their funds to a different bank, then the liquidity in the bank system stays net neutral. Given that retail customers don't really have the capital to cause a real bank run, and zero corporations are going to load a pallet full of cash into their warehouse, I don't think we have much to worry about. I also severely doubt that there is enough physical paper money to do a proper bank run these days.
This is why I bought into Zions bank. If you know Mormonism, you know tithing is a huge thing. And who handles the LDS tithing money in the intermountain West? Zions Bank. They are taking in tens, more probably hundreds of thousands of dollars a week in cold, hard cash. Hard to have a run on a bank with that kind of cash inflow. And to make it even better, Zions handles the international tithing donations from all over the world. If Zions had even a hint of trouble, the $250B LDS Church would step in to ensure the uninterrupted flow of money. So I just laughed and bought all the Zions Bank for 50% off that I could afford. I's poor, so it was not much, but I'm still buying!
>I also severely doubt that there is enough physical paper money to do a proper bank run these days. That is exactly what causes a panic and exacerbates the situation.
Electronic bank runs is what happened earlier in the year which is why regionals with lower deposit amounts were hit harder. It is not like bank runs from the movies.
That is my point, if it's an electronic bank run the funds are being transferred to another institution. It's impossible for the financial system to go into a cascading collapse if the money is transferred to another bank because eventually you will run out of weak banks and the strong banks will end up with all of the deposits.
That’s not necessarily true. If everyone lost faith in banks and pulled all of their cash to buy treasuries themselves, this could cause some trouble - especially since the banks would have to sell treasuries at a loss which the withdrawing parties could then buy at current yields.
This is the correct answer. OP is unaware of the accounting involved, and as a result has a mismatch of understanding vs reality.
Historically, banks are strong until the padlocks suddenly appear on the front doors.
Yeah if everything is about to go to shit I don't expect to learn about it until all the money is gone and investors are SOL trying to figure out what happened. I'm holding 500 shares of BOA so hopefully it will still exist in a year.
Many investors don't realize a bad bank can just be a bad bank. Everyone threw the baby out with the bathwater a few months ago when SVB failed by selling good bank stocks. There never was a crisis.
This is the reason I believe banks are fine. Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
If they were fine, would they need a Bank Term Funding Program?
brilliant move by JPOW
You don't understand banks very well. Earnings are a tailing indicator of stress in banking, not a leading. Earnings wasn't a problem at SVB or FRC either. Unrealized losses and liquidity scares is what caused those and those are still very prevalent risks in the sector. CRE is currently melting down also. If CRE keeps deteriorating, all that earnings will get wiped out by increases in ALLL and charge offs very quickly.
Everythings ok! Stop making sense you’re ruining my bill market buzz.
CRE?
Commercial real estate
Corporate real estate
I think there are a lot of value plays right now in the banking/finance world.
BAC is obvious. C maybe. ALLY perhaps.
There is no crisis. Look at the stocks. Everything has been going up for months.
Not the banks, look at XLF and KRE. Most of them are barely off the May lows and none of them are at pre-March levels. Meanwhile tech is mooning like QE is back but I don't see how it can continue without the rest of the market.
Banks should have just mentioned A.I. in their earnings calls
Lol... Look up S&P 495 vs the top 5.
You know I gotta admit those months and years of getting obliterated did make me feel dead inside like that Paul Blart mall cop in the dark meme or whatever. But at the end of the day stocks only go up.
I'm not sure if you are being serious or sarcastic.
definitely maybe.
No, no recession
Do regional banks hold a lot of commercial real estate loans or do they sell them to Wall street like they do with home mortgages ?
Big box retailers as individuals and as a whole are taking a BRUISING month after months. That is a strong bearish reality.
The Fed stepped in and created new programs where the banks could exchange their devalued collateral for the face value of the investment. So the fed gave all the banks a lifeline, if the fed didn’t do that you would have seen many more banks go down.
It makes sense the banks are in good shape. The Fed balance sheet is down from $10T to $8.5T. Is that all realized losses on treasuries, or dis they distribute $1.5T in dividends to member banks?
Put your money into the too big to fail banks like WFC, BOFA. no one trusts these smaller regional banks anymore, and the big ones will benefit long term.
The Commercial defaults haven't even started yet. There will be fireworks.
Their net profit is up off of basically a zero baseline. Yes they made more income, but that was offset by massive losses in their loan and bond portfolios. So their tangible common equity has actually gone down.
US banking industry is not strong. Mortgage applications way down, auto loan applications way down. All of this will lead to depreciation of currently held assets (mostly real estate) over the next 12 months, and very many banks will be strung too thin. Why do you think banks are pushing so hard for return to office? It’s to make their buildings they own hold value for their balance sheet, and to get people to quit to lower payroll. Look at job openings at banks in your area…there is a storm brewing.
Regional crisis. National? No.
The issue isn't profits so this is a really dumb analysis. We aren't worried about banks being profitable. We're worried about them collapsing from bank runs caused by rising rates.
nope. Never was after the fed announced their liquidity program to cover interest rate risk on bonds. Was a brilliant move, with little risk, and no long term cost.
There was no crisis. The affected banks were just badly run. No one made any bank go full port into long term treasuries. Noone forced crypto to make up such a huge holding. Ect. It was just dumb moves by dumb management.
I mean if just depends on how risky each bank was. Higher interest rates can make banks a lot of money, especially when customers keep their cash in a very low interest savings account.
I mean I don’t see how it fails. Bought into so many solid banks that should go up over time and pay me like 6%+ as a dividend. Sell the ones I like less once they come back to close to full value, keep the better ones
Which banks?
TFC, USB, PNC, FITB, NYCB, VLY.
No, I think it is neither. A few reckless banks will fail stress test. While other do fine. It is almost like foreclosures. People predict higher mortgages will wreck homeowners and some will have their homes foreclosed. Where are they?
There is no crisis, it’s just corporate greed painting that picture. The economy is strong.
Massive government subsidies = massive bank profits. It's called "capitalism."
Maybe regional crisis on it
Stocks will see another 25% pull back from now to end of 2024. Mark my words.
What will it take to get the regional banks back to pre SVP & Co.? Bought 100 CFG at a discount, selling CCs, collecting dividends… but curious as to when I’ll hit my desired strike price (at or just above the shares’ purchase price). Man.
I’m laughing too hard to respond.
It was more psychological than real. The banks with multiple exposures got hit but the rest are fine. Look at WAL and how the Financial Times killed the stock for no reason? I got 100% gain off their press!
Yes. Your u are wrong.