Dalal.Holdings

i agree w this take. It’s strange that banks are being taken to the woodshed and yet there is so much more froth elsewhere…even Bitcoin has traded up. I would not be long the tech/VC/crypto ecosystem

So bank tightening —> less inflation/deflation —> lower rates —> HTM securities rise in value And yet lower rates might not be fantastic for NIM but I think it’s less likely Fed goes all the way back down to ZIRP

Good thread. I've owned USB for some time and bought some TFC today. From what I can gather, USB has 37% insured deposits and TFC about 43% insured (compare to 3% for SIVB and 6% for SBNY). I think the deposit quality is high. Both look attractive from a pure valuation/dividend yield perspective. As to CRE loans, my research shows USB has ~14.5% of all loans in CRE vs ~7% for TFC. This doesn't seem far off from WFC has 16.5% while BAC is 6%. I actually noticed that it seems CATY has pretty high CRE exposure--about 49% of its loans or 3.5 times its equity. TFC also has a large Top 10 insurance brokerage which was recently valued at ~$15B and the co is set to receive ~$2B in cash in Q2 for a sale of 20% of it. USB owns Elavon which is a top payments processor (supposedly half a trillion $ in transactions per yr) but I haven't uncovered too much about it. Both TFC and USB are part owners in Zelle/Early Warning Services.

Seems completely asinine for Feds to continue Wells' asset cap and stymie the FHN acquisition given what's happening.

Yeah...ironically people rushed into the same securities that got SVB into trouble...the irony. At this rate, long term yields will go down enough that the banks holding these long dated securities will see unrealized losses shrink... On the deposit side I am wondering how much of this is just "all the VC's moved deposits" and how much is "depositors realize T-bills/money markets are paying 4-5% so banks bleed deposits". I've been told for a long time that non-interest bearing deposits are a good thing for a bank to have, but what if these non-interest bearing deposits are the quickest to take flight given how rapidly short term rates have risen. A lot of these non-interest deposits didn't care that they were earning 0.0001% in interest when rates were zero, but now they are re-evaluating the situation... So now tell me--what deposit is stickier: a savings account paying 3.5 to 4% or a non-interest bearing checking account? My answer given how rapidly rates have risen is that the interest bearing deposit is probably going to be stickier if rates continue to rise...

Crypto is bearing the brunt of Fed's fight with inflation--as is tech. Guaranteeing SVB's deposits helped save many startups...for the time being, but their fate will be determined by rates and it's not likely to be pretty for the startup ecosystem

I still need help understanding...why did Roku have half a billy in the bank and not in T-bills/some kind of sweep ? Especially with short term rates so high?

https://home.treasury.gov/news/press-releases/jy1337 Signature bank $SBNY also just went under. Deposits guaranteed and to be made whole tomorrow…somehow not “borne by taxpayer” yet “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.” Don’t worry; I'm sure banks will pass the cost of the “special assessment” onto their customers (aka taxpayers).

I think the banking business model of "if we loan you money, you must keep your deposit with us" needs to be made illegal by regulators. It's what allowed this bank to *think* its deposits were sticky. Also, 100% on board with this:

Here come the water works... Key line: Clearly regulators don't have Ackman on speed dial like they do Warren

Orgs like Schwab will "probably be fine" in terms of avoiding insolvency, but I can't help but think of the real economic loss they've incurred by tying up assets in long dated bonds. Huge opportunity cost for very little real return when you buy a long dated bond yielding 1-3% IMO given we have no idea where macro factors are going to be next 10-15 years. Not to mention the real, inflation adjusted return is piss poor and good probability of even being negative even if you manage to "hold till maturity"...even if Fed achieves 2% inflation target the real after-tax returns are piss poor! Pretty much what ole Warren was saying on buying long dated bonds at low rates.

IBKR 10-K: Compare that with Schwab's 10-K:

I somehow don't think that bank regulators had "persistent, steep yield curve inversion" on their bank "stress test" bingo cards...

https://www.wsj.com/articles/crypto-investors-cash-out-2-billion-in-usd-coin-after-bank-collapse-1338a80f?st=3fzz78dk73rzhwf&mod=e2tw

Are those derivatives marked to market on BAC’s balance sheet? If they were, we would have seen them already Serious question. I also think BAC and banks with diverse, sticky deposits are not the same as SIVB… But imagine a scenario where J Pow has to take rates somewhere where Volcker had to and those “paper” losses will grow much larger. I do think that before that happens so many smaller banks/insurance/etc will have folded (because there are so many long dated bonds out there) that there will be no inflation to fight

Well now it's on Zerohedge, Spek

https://twitter.com/Malone_Wealth/status/1634384584757374982?s=20

Starting a new thread here because I think the second and third order effects are just being uncovered... https://www.cnn.com/2023/03/10/business/roku-svb-cash/index.html Will regulators get this puppy sold ? I bet they make Wells Fargo take it and in exchange lift the asset cap/regulatory shade

I don't think Moynihan got Warren's memo

Well at least BAC's deposits are not concentrated in startups/nascent tech (their liabilities are much better shape than SVB). I do worry about BAC's unrealized losses and yet WEB has sold every other bank except BAC. Maybe he's not concerned about it ? Obviously with hindsight we can criticize, but I can't believe people moved into 20-30 year commitments just to get a bit more yield. I think inflation should have been anticipated in the wake of fiscal + monetary wave from covid.

SVB was betting on low rates for longer not just on its asset side, but also its liabilities side. It took deposits from the sector of the economy with the most to lose from rising rates. Double hit.

I agree that reduction in lending will help reduce inflationary pressure. I am not sure if the curve will automatically revert however. Even today there is demand for long dated bonds for some reason because everyone expects the Fed to loosen with an impending recession that everyone thinks is right around the corner. One wildcard is fiscal (deficit) spending by the government. Elizabeth Warren grilled J Pow on raising rates but J Pow did not mention that the same Senate that was grilling him played a huge role in creating and perpetuating inflation. Warren and Sanders in particular want to continue deficit spending under the guise of "Inflation Reduction Act", loan "forgiveness", and other spending which means monetary is the only thing working against inflation today. The government continues to spend more than it takes in which only makes the inflation part worse. Whether the higher interest rates alone can reduce inflation is still a question for me (without fiscal tightening). So far it has not been as effective as the Fed would have hoped. In the 70's before Volcker, Fed Funds went double digits and could not slay the beast...

I bought some CASH today. I hold some USB but didn't add today nor jump into other banks. My worry about some of the banks with unrealized held-to-maturity asset losses is: Banks make money off the yield curve...What if this time a yield curve inversion does not lead to a recession (leading to short terms rates falling and reverting of the curve) ? What if an inverted curve lasts for some time and grows more inverted ? It seems strange but economy is still hot even with an inverted curve which means the curve can get even steeper in terms of inversion as Fed raises further. I don't think the current environment can be compared with any recent recession given the persistence of inflation as well as a strong economy in the face of rapidly rising interest rates. I think many people take it as a given that inversion is indicating an upcoming recession and fall in rates. I think long dated bond yields are way too low. I can't believe institutions and people bought and are buying long dated bonds at low rates given no one knows how high and for how long the Fed has to go to neutralize inflation. My fixed income duration does not go beyond T-Bills and I-bonds (12 months).

https://www.wsj.com/livecoverage/stock-market-news-today-03-09-2023/card/silvergate-stock-price-plunges-after-crypto-bank-announces-shutdown-c83IXMuP4ZA6saqPm8BA As rates go higher, more dominos will fall I see Cathie bought more TSLA shares...