US Regional bank stocks - PNC Financial, TFS - Truist, USB- USB Bank, MTB - M&T Bank etc

[Dinar]

59 minutes ago, frommi said:

What are your thoughts on OZK at the moment? They also look pretty solid on Burry's chart and had pretty remarkable shareholder returns in the past.

They used to have a very large commercial real estate loan book, and they were considered not to be very good underwriters...

[Dalal.Holdings]

1 hour ago, Spekulatius said:

It not really that useful of a chart.

FRC and I believe PACW have tons of fixed rate mortgages on their books. FRC has ~$100B in fixed rate mortgage and continues to write them aa interest rate rise. crazy. I think they are worth less than 85c on the $ and that in addition to losses on securities. None is accounted for on the chart.

 

 

That's the thing about all these simplistic spreadsheets and scatterplots--some are only looking at HTM or only looking at securities (and ignoring loans--that much bigger other asset banks hold). Some banks have zero HTM securities but still have long duration on their AFS securities. 

 

While these charts/sheets might reveal outliers and which banks to avoid, I don't think they give you clear idea of which banks to invest in. In order to get a good idea of that, you need to dig much deeper.

[Spekulatius]

46 minutes ago, yesman182 said:

Why do you think open market purchases in these stocks are out of the questions for WEB? Seems like he could get back in PNC and USB is prices deteriorate another 30% or so. 

Yes, that is definitely a possibility, but I think he would need to stay below 10%.

 

On FRC - if they are not forced to realize losses, well JPM is not in the business to give them money for nothing. They could get a credit line from FHLB, but that would cost them 5% interest .

So then they lend money at 2-3% and have to borrow it at 5% which is going to wreck their income statement. I think it’s game over for FRC, the deposit injection just bought them some time, because even JPM is a bit concerned that things go out of hand.

 

I would not be surprised to see a deal regarding FRC soon. They are not viable stand-alone any more, imo.

Edited March 18, 2023 by Spekulatius

[yesman182]

21 minutes ago, Spekulatius said:

Yes, that is definitely a possibility, but I think he would need to stay below 10%.

 

On FRC - if they are not forced to realize losses, well JPM is not in the business to give them money for nothing. They could get a credit line from FHLB, but that would cost them 5% interest .

So then they lend money at 2-3% and have to borrow it at 5% which is going to wreck their income statement. I think it’s game over for FRC, the deposit injection just bought them some time, because even JPM is a bit concerned that things go out of hand.

 

I would not be surprised to see a deal regarding FRC soon. They are not viable stand-alone any more, imo.

I agree with your point about JPM not wanting this to get out of hand. I assume they also don't want to be forced to purchase something they don't want to. I applaud Mr. Diamonds attempt at solving the problem with self regulation. I think WEB might have a similar issue in not having things get out of hand. I think if he made a 9% investment in a handful of small regional banks, things might calm down a bit. But I think the entire issue of deposits fleeing regional banks is overblown. I for one don't know anyone moving deposits. 

[Valuebo]

30 minutes ago, yesman182 said:

 But I think the entire issue of deposits fleeing regional banks is overblown. I for one don't know anyone moving deposits. 

 

This so much. This has been an echochamber in a big way these last two weeks of people calling for 2008 revisited. The system is sound and confidence has been shaken a little because of some tech idiots. Panic all around while the average guy in the street barely noticed anything is going on.

 

Shoot first, ask questions later.

 

I also see Buffett buying more BAC before big regional banking investments as I believe he will make the most logical conclusion that in the end the biggest banks will get out of this stronger again.

[Dalal.Holdings]

39 minutes ago, yesman182 said:

But I think the entire issue of deposits fleeing regional banks is overblown. I for one don't know anyone moving deposits. 

 

Do you know a lot of small businesses? Because those would be the large (much more than 250k) deposits to worry about. If those are steady, then the concern is limited.

 

But few individuals have > 250k in bank accounts. In fact, the avg American has far, far less...

Edited March 18, 2023 by Dalal.Holdings

[whatstheofficerproblem]

On 3/17/2023 at 3:54 PM, sleepydragon said:

 

 

 

Rumor has it that they used NetJets to travel private and made BRK more money while coming to Nebraska.

 

Edit: I said that as a joke, turns out they really did use NetJets and the flights were grounded for a week.. they are making BRK richer on their way in and out of Omaha.

Edited March 18, 2023 by whatstheofficerproblem

[KJP]

2 hours ago, Dalal.Holdings said:

 

Do you know a lot of small businesses? Because those would be the large (much more than 250k) deposits to worry about. If those are steady, then the concern is limited.

 

But few individuals have > 250k in bank accounts. In fact, the avg American has far, far less...

 

Relatedly: https://www.reuters.com/article/global-banks-fdic-mbca-idUSL1N35Q0ME

 

Two in the thick of it admit big outflows early in the week but claim deposits stabilized by the end of the week:

 

https://www.pacwestbancorp.com/news-market-data/news/news-details/2023/Pacific-Western-Bank-Issues-End-of-Week-Update/default.aspx

 

https://investors.westernalliancebancorporation.com/news-releases/news/news-details/2023/Western-Alliance-Bank-Provides-End-of-Week-Update/default.aspx

 

The fact that these two feel the need to give frequent updates on their solvency isn't a good sign.

Edited March 18, 2023 by KJP

[Spekulatius]

2 hours ago, yesman182 said:

I agree with your point about JPM not wanting this to get out of hand. I assume they also don't want to be forced to purchase something they don't want to. I applaud Mr. Diamonds attempt at solving the problem with self regulation. I think WEB might have a similar issue in not having things get out of hand. I think if he made a 9% investment in a handful of small regional banks, things might calm down a bit. But I think the entire issue of deposits fleeing regional banks is overblown. I for one don't know anyone moving deposits. 

I do not know anyone either,  but I do not know anyone who has more than $250k in deposits either and those are the ones that are likely to do something. Shoot first and ask questions later is a totally rational way of thinking of downside is significant and upside is non existent. the problem for regional banks is that most people would be better off moving some of their deposits and earn more and be probably safer, I think a lot of these banks have been hoping for inertia but fear of losing may be a motivator to get them to do something like moving to a MM market cash management account or similar.

Edited March 18, 2023 by Spekulatius

[formthirteen]

 

 

On 3/17/2023 at 7:25 PM, Spekulatius said:

Bought a few more shares today, but won't add more.

 

Maybe someone here can translate this into English and what it means to investors:

Quote

 

USE OF PROCEEDS

U.S. Bancorp will not receive any of the proceeds from the sale of the securities referenced in this prospectus. All secondary market offers and sales made pursuant to this prospectus and any disclosure document describing the terms of the specific series of securities being offered and sold will be for the accounts of the broker-dealer affiliates of U.S. Bancorp in connection with market-making transactions.

 

 

Did all the money go to U.S. Bancorp Investments, Inc.?

 

Quote

Investment and insurance products and services including annuities are available through U.S. Bancorp Investments, the marketing name for U.S. Bancorp Investments, Inc., member  and , an investment adviser and a brokerage subsidiary of U.S. Bancorp and affiliate of U.S. Bank.

 

This rhymes with Charles Schwab?

[Castanza]

13 hours ago, Spekulatius said:

I do not know anyone either,  but I do not know anyone who has more than $250k in deposits either and those are the ones that are likely to do something. Shoot first and ask questions later is a totally rational way of thinking of downside is significant and upside is non existent. the problem for regional banks is that most people would be better off moving some of their deposits and earn more and be probably safer, I think a lot of these banks have been hoping for inertia but fear of losing may be a motivator to get them to do something like moving to a MM market cash management account or similar.

Yeah the chart is just a ballpark idea intended to point out outliers 
 

Do any of the banks show deposit withdrawals according to industry? I’d be willing to bet most are from high cash burn, high rev, no profit businesses (tech). Most small businesses outside of tech are probably more concerned with running their operations than where specifically their money is held. Probably the exact reason SVB was flooded with VC and tech capital. “It was easy to go there so everyone went there”.
 

Looking at banks with low tech exposure, recession proof depositors (businesses) and thin commercial real estate loan books is probably the play.   Question is can you even get that granular? 

[Spekulatius]

2 hours ago, Castanza said:

Yeah the chart is just a ballpark idea intended to point out outliers 
 

Do any of the banks show deposit withdrawals according to industry? I’d be willing to bet most are from high cash burn, high rev, no profit businesses (tech). Most small businesses outside of tech are probably more concerned with running their operations than where specifically their money is held. Probably the exact reason SVB was flooded with VC and tech capital. “It was easy to go there so everyone went there”.
 

Looking at banks with low tech exposure, recession proof depositors (businesses) and thin commercial real estate loan books is probably the play.   Question is can you even get that granular? 

Well what is a recession proof business though?

It is easy to find out the exposure to real estate lending. The breakdown for loans would in the 10–k or the FDIC filings. Many banks also give out the percentage of problem loans as well.

 

Below is a paper that I found through a link in a Fox business news article. Looks at MTM loses (including on loans) vs  bank size. In these distribution charts , the mega bank don’t look any better than the smaller ones and indeed have a lower percentage of insured deposits (since they bank large institutions).

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676

 

What does it mean ?

 

 

Edited March 19, 2023 by Spekulatius

[changegonnacome]

3 hours ago, Spekulatius said:

What does it mean ?

 

I wish I knew but I'm trying to figure it out. Some thoughts

 

Post-GFC banking reforms with the focus on risk weight assets meant banks due to capital requirements & their own RoE math were 'forced' to hold only the 'safest' assets in the world....which meant......Treasury/MBS/Mortgages etc........but like the saying goes......no investment, no matter how safe/great can't be made a bad investment by sufficiently raising its price......and the price on bonds/fixed income got raised to extreme levels in 2020/2021.......at the same time banks got loaded with deposits that needed a 'spread' home.......they turned deposit liabilities into the 'safest' assets in the world to earn a spread - mortgages/MBS/treasury's........the only problem is they paid too much & took too much duration risk.

 

Pre-GFC and Dodd-Frank & Basel III.......what might banks have done with the 2020/2021 deposit influx.....who knows.....but a bank back then had way more viable OPTIONS to earn a spread & get descent RoE .........they would have bought shorter duration high yield junk credit instruments and other such things that post-GFC they could never touch again.

 

In some way this banking crisis is the child of the GFC banking crisis. The regulators possibly came up with the wrong solution to 08....in trying to make the banks safer on the asset side......they never foresaw that one day treasures & agency MBS assets could themselves become 'toxic'.......during a bond bubble on price alone......but also become toxic on the duration side too. They forced a bank's CEO into deploying deposits into only a few things.....and even though they were the safest things in the world....owning too much of them with too much duration could be poisonous.

 

Put another way the OPTIONALITY that banks had pre-GFC was regulated away and the activity moved into the shadow banking system.

 

Couple of thoughts:

 

(1) Such well meaning post-GFC reforms have potentially zombified the traditional banking system for years to come to the advantage potentially of shadow bank-esque entities......if you've got a clean liquid short duration balance sheet & potentially an emerging deposit franchise or cheap source of funding.....your potentially going to be very nimble as compared to lots of banks that are desperately going to be trying to right size the duration on their b/s

 

(2) Seems like all the indebtedness around at a sovereign level + all the duration (re-fi'd mortgage books at 3%) now sitting on the banking systems books.......has indeed put a kind of CEILING I think on how high interest rates can actually go.....6% or 7% Fed funds feels almost impossible now.

 

Couple of actions:

 

(1) FinTech players that were unbundling bank services might have a very interesting opportunity to steal market share as the traditional banking system spends years trying to unwind their upside down balance sheets

(2) Try to find the healthiest shortest duration balance sheet banks out there with low funding costs.......they will be kings.....low loan to deposit ratios, low funding costs and the ones that importantly didnt take a lot of duration risk with their lending in 2020/21.........the ones that pivoted or tried to pivot to 5/1 ARM's....they might hurt for a year or two on their NIM's but the future is theirs as that stuff rolls off

 

Anyway Sunday evening ramble...alot to think about where things go

 

 

Edited March 19, 2023 by changegonnacome

[formthirteen]

https://archive.is/jFiOj

 

 

[Red Lion]

2 hours ago, changegonnacome said:

 

 

(1) Such well meaning post-GFC reforms have potentially zombified the traditional banking system for years to come to the advantage potentially of shadow bank-esque entities......

 

 

This is why I think apo/ares/owl may be a good way to play this current sell off. I feel like they stand to benefit, and typically raise their capital from pensions, long term annuity contracts with punitive early termination clauses, and some publicly traded bdc’s. 

[Dinar]

1 hour ago, RedLion said:

This is why I think apo/ares/owl may be a good way to play this current sell off. I feel like they stand to benefit, and typically raise their capital from pensions, long term annuity contracts with punitive early termination clauses, and some publicly traded bdc’s. 

Gundlach thinks that levered loans are a terrible deal right now.    

[tnp20]

I often look at risk from the shorts perspective...which ones are heavily shorted and have high rates to borrow their shares.

 

The short % of float/outstanding data is usually 2-4 weeks out of date so not very useful when sudden crisis form but Interactive Broker provides both the borrow rate and utilization of available borrows on s hourly basis.

 

Using this method: PACW, FRC and WAL are the most riskiest in that order. PACW actually screens well on deposit base and unrealized losses but the high short interest should make you take a second look. Its preferred, PACWP with a 8.25% dividend is trading at 16% yield ...another sign that something does not add up.

 

By the way, soon as some news gets announced that the regional banking industry has some how been saved ....these ones should have the greatest bounce in their common equity due to the larger short interest.

[Red Lion]

1 hour ago, Dinar said:

Gundlach thinks that levered loans are a terrible deal right now.    

And this is why I diversify and set position size limits for myself. I’ve definitely been known to be wrong before. But I think I’m more familiar and comfortable with a larger allocation with the asset management or annuity businesses without the same degree of asset liability mismatching risk in the banks. 
 

 

[lnofeisone]

It looks like NYCB will be taking over Signature deposits and buying some of the loans (roughly 10% of Signature's total loans and roughly 60% of Signature's multifamily loans) at 20% discount. My guess is NYCB took non-rent stabilized multi-families (with some minimal mix of rent-stabilized). Can't blame them for cherry-picking. 

 

Interesting bit - NYCB  has a lot of experience acquiring failing banks with their work on AmTrust and Aurora/Lehmann (something I worked on long ago).

 

Interesting choice by FDIC.

[Spekulatius]

On 3/18/2023 at 3:00 PM, SharperDingaan said:

WEB just does a version of the GS thing. A very large convertible (>20% interest on a FD basis), that includes a (fed guaranteed) buyback/interest over X years. As/when the bank progressively buys back at the convertible value, the BRK FD interest declines; otherwise in year X the fed takes out at least enough to keep them below the limit.

 

If the other players also have the deal .... and a portion of their deposits rolls into the convertible ... it's a 'rescue' that comes from 'outside' the system .... Biden can keep his promises .... and FRC instantly becomes one of the strongest banks in the land.

 

We also get a nice bump in the price of CS next week 

 

Fingers crossed.

 

SD

I don’t think that’s how it’s going to work. Certainly not the CS part, they are toast already. I think FRC will toast within 4 weeks.

[John Hjorth]

I must admit that I have spent quite some time in the weekend thinking about all this fuzz about Jets parked in Omaha Airport posted on Twitter etc. Also reading *BS* about Mr. Buffett "saved the US banking system under the GFC", while he made two preferred deals of USD 5 B each with banks, and openly in interviews afterwards admitted that he ran out of funds available to engage in 2009.

 

Personally, I have a hard time to imagine that Mr. Buffett would consider it attractive to do a long row of preferred deals  [with warrants attached] with a row of small banks and a line of regional banks.

 

Berkshire had approx. USD 125 B in liquidity YE2022 [ex. liquidity in railroad, utility & energy], deduct from that USD 30 B as cash reserves for a "rainy" [<-?] day in the insurance operations, which leaves approx. USD 95 billion. [I haven't even included a deduction for adding to Pilot here - was it approx. USD 8 B?] Would even a material part that figure make any difference in the US banking system somewhere? I think not really.

 

Could it be a potential business opportunity for Mr. Jain to provide insurance to all these banks for insurance of deposits - some way - above FDIC coverage? I'm thinking like NICO years ago provided coverage for Lloyds in London [I know, yes, that was technically reinsurance, not insurance...].

Edited March 20, 2023 by John Hjorth

[hasilp89]

I'm sure others are seeing it as well but we had our two primary deposit banks (both top 50 regionals) offer 3%+ deposit rates this morning (from close to 0). Wouldn't ever have had concerns about the safety of these two institutions. My assumption is they're offering this to many clients to stem the fear of panic/runs and its likely most are doing this. While it doesn't allay the fear of having uninsured deposits the assumption is it helps retain deposits across the board.

Either way NII is going to get demolished over the next 12 months right? I can't see the case for buying any of these with how much uncertainty there is now. Sure prices have come down but you're betting on human behavior that could end up being irrational and panicked. 

[changegonnacome]

11 minutes ago, hasilp89 said:

I'm sure others are seeing it as well but we had our two primary deposit banks (both top 50 regionals) offer 3%+ deposit rates this morning (from close to 0). Wouldn't ever have had concerns about the safety of these two institutions. My assumption is they're offering this to many clients to stem the fear of panic/runs and its likely most are doing this. While it doesn't allay the fear of having uninsured deposits the assumption is it helps retain deposits across the board.

 

Curious what banks did this? Like you I think deposit rates/funding costs across the banking system are gonna go through the roof.......NIM's will get crushed......loans to the extent they are even available will come with a higher price tag reflecting higher funding costs.

[hasilp89]

 

41 minutes ago, changegonnacome said:

 

Curious what banks did this? Like you I think deposit rates/funding costs across the banking system are gonna go through the roof.......NIM's will get crushed......loans to the extent they are even available will come with a higher price tag reflecting higher funding costs.

lol i'm not tryna start a panic on cobf.

 

[Castanza]

10 minutes ago, hasilp89 said:

 

lol i'm not tryna start a panic on cobf.

 

 

I don't think anyone on here is panicking considering the discussion is primarily "what banks to buy and how to capitalize on a seemingly irrational fear of bank runs."