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

[changegonnacome]

On 4/26/2023 at 1:43 PM, TwoCitiesCapital said:

The only thing a rate cutting would do for them is cut the negative NIM by dropping the cost of their liquidity. 

 

The 'only' thing.....its the most important thing......the loans are 'money' good...........the credit quality in FRC's historical asset book is outrageously good.......if they can get their funding costs down and shrink the negative NIMs.......then its a very unprofitable zombie bank......but a going concern.........which limps on and probably gets bought out for below book value once rates normalize & the crystallization of MTM losses in a change of control gets smaller. Reducing funding costs is exactly how the muted FRC 'bail-in' by other banks would work.......overpay for some underwater loans they have and hand FRC cash and reduce their funding costs.......it would be an act of self-interested charity from an industry not known for any. There is a PR value to it.......08 the banks wrecked the country.....2023 the banks helped stop GFC 2.0 (I know it isnt but thats how you could play it). I'm not saying its likely to happen but it might be doable - or they wouldnt be talking about it so much.

 

There's a longer term question about whether the franchise can be repaired.....it certainly cant for a long time to come re-implement its old business model.......and the question I've always had with FRC or any bank with such a high NPS rating in a commodity industry.......is as soon as you stop offering kind of sweetheart deals to your customers.....how loyal do they stay, how much did they love the 'deals' and not the bank.......the answer from SVIB & FRC is there is of course ZERO loyalty in a bank run scenario......when the 'new' SVIB is less likely to give the CFO/treasurer of HotStartUpCo a 3% 90% home mortgage collateralized with stock option that don't vest till 2030.......how 'interesting' does keeping all your corporate deposits with SVIB become......how strong really is the SVIB's/FRC's offering absent outrageously sweet deals. 

 

In terms of aggressive rate cuts in 2024......this would also bring the MTM loan book back closer to par.....such that they could sell the book and take a much smaller MTM loss that tangible equity could absorb.....and again lower their funding costs.

 

Rates & bank run broke the bank........rate cuts would certainly help & why if your in First Republic the recession cant come soon enough.....your effectively your praying for it....certainly in First Republic where credit book is gonna do fine from a default perspective.....the market value of loan book would go up.....and your funding costs would drop like a stone. FRC is a bank that would love the US economy to go of a cliff and preferably as soon as possible.

Edited April 28, 2023 by changegonnacome

[TwoCitiesCapital]

11 hours ago, changegonnacome said:

 

The 'only' thing.....its the most important thing......the loans are 'money' good...........the credit quality in FRC's historical asset book is outrageously good.......if they can get their funding costs down and shrink the negative NIMs.......then its a very unprofitable zombie bank......but a going concern.........which limps on and probably gets bought out for below book value once rates normalize & the crystallization of MTM losses in a change of control gets smaller. Reducing funding costs is exactly how the muted FRC 'bail-in' by other banks would work.......overpay for some underwater loans they have and hand FRC cash and reduce their funding costs.......it would be an act of self-interested charity from an industry not known for any. There is a PR value to it.......08 the banks wrecked the country.....2023 the banks helped stop GFC 2.0 (I know it isnt but thats how you could play it). I'm not saying its likely to happen but it might be doable - or they wouldnt be talking about it so much.

 

There's a longer term question about whether the franchise can be repaired.....it certainly cant for a long time to come re-implement its old business model.......and the question I've always had with FRC or any bank with such a high NPS rating in a commodity industry.......is as soon as you stop offering kind of sweetheart deals to your customers.....how loyal do they stay, how much did they love the 'deals' and not the bank.......the answer from SVIB & FRC is there is of course ZERO loyalty in a bank run scenario......when the 'new' SVIB is less likely to give the CFO/treasurer of HotStartUpCo a 3% 90% home mortgage collateralized with stock option that don't vest till 2030.......how 'interesting' does keeping all your corporate deposits with SVIB become......how strong really is the SVIB's/FRC's offering absent outrageously sweet deals. 

 

In terms of aggressive rate cuts in 2024......this would also bring the MTM loan book back closer to par.....such that they could sell the book and take a much smaller MTM loss that tangible equity could absorb.....and again lower their funding costs.

 

Rates & bank run broke the bank........rate cuts would certainly help & why if your in First Republic the recession cant come soon enough.....your effectively your praying for it....certainly in First Republic where credit book is gonna do fine from a default perspective.....the market value of loan book would go up.....and your funding costs would drop like a stone. FRC is a bank that would love the US economy to go of a cliff and preferably as soon as possible.

 

My main point was that NIM impact being reduced doesn't magically make the loans at a value that improves the solvency of the bank. 

 

It helps the liquidity situation, which is STILL getting worse, but it doesn't solve the fact that deposits are fleeing the system, that they can't sell the loans to meet them as that results in insolvency, nor can they pledge the loans for additional liquidity even if that liquidity is no longer a drain on income.

 

The provision at the Fed is only for treasury securities, right. 

Edited April 29, 2023 by TwoCitiesCapital

[Dalal.Holdings]

On 4/19/2023 at 10:41 AM, mcliu said:

http://www.holdcoam.com/wp-content/uploads/Presentation.pdf

 

The Unsafest and Unsoundest Of Them All –

U.S. Bancorp (Ticker: USB)

 

Since the report became public on 4/17, WFC and USB are pretty much neck and neck (both down around 3.8%). Guess that pair trade (long WFC/short USB) wasn't a slam dunk.

 

A wonder how many hedgies out there generate "alpha" by taking positions and then going public with their thesis to try to push the market towards their trade. The Bill Ackman model...

 

In exchange for this "alpha", they trade in their own long term credibility. As Warren says, takes a lifetime to build a reputation and 5 minutes to lose it...

 

Edited April 29, 2023 by Dalal.Holdings

[Cigarbutt]

20 hours ago, Dalal.Holdings said:

 

unsafest and unsoundest...

 

Maybe this belongs to the USB thread but the discussion may/will get going when the asset side will be questioned so the following is about the liability side noise that recently occurred for many US banks including USB.

When Q1 results came out, noise was made around the end of quarter total deposits numbers (compared to end of last quarter, down 3.7% from 525B to 505B). In the more detailed (and boring) disclosure, there were mostly technical reasons for this and no fundamental numbers showing some kind of run on deposits in March.

In a time when deposits are overall going down in US banks (for reasons completely unrelated to basic banking activity), USB has actually grown its deposit base (even when adjusting for some acquisition activity in late 2022, using average total deposits during quarters):

Edited April 30, 2023 by Cigarbutt
spelling

[John Hjorth]

Thank you for sharing, @Cigarbutt,

 

But isen't the interesting dimension here also how the banks discussed, covered and included with regard to discussion in this topic are competing for deposits among each other with deposit interest rates, not only with money market funds? [Naturally, unless this topic is only about deposits / liquidity matters, isolated]

Edited April 30, 2023 by John Hjorth

[mcliu]

3 hours ago, Cigarbutt said:

Maybe this belongs to the USB thread but the discussion may/will get going when the asset side will be questioned so the following is about the liability side noise that recently occurred for many US banks including USB.

When Q1 results came out, noise was made around the end of quarter total deposits numbers (compared to end of last quarter, down 3.7% from 525B to 505B). In the more detailed (and boring) disclosure, there were mostly technical reasons for this and no fundamental numbers showing some kind of run on deposits in March.

In a time when deposits are overall going down in US banks (for reasons completely unrelated to basic banking activity), USB has actually grown its deposit base (even when adjusting for some acquisition activity in late 2022, using average total deposits during quarters):

Deposits are up because they closed MUFG acquisition ($80B deposit) on Dec 1, 2022.

 

2nd table on page 2 shows the impact. 
https://ir.usbank.com/static-files/30f7fc8a-1e69-4f59-8b2f-64033271c990

 

MUFG deposits down around 10B and USB backing out MUFG also down around the same amount.

Edited April 30, 2023 by mcliu

[Cigarbutt]

12 hours ago, John Hjorth said:

Thank you for sharing, @Cigarbutt,

 

But isen't the interesting dimension here also how the banks discussed, covered and included with regard to discussion in this topic are competing for deposits among each other with deposit interest rates, not only with money market funds? [Naturally, unless this topic is only about deposits / liquidity matters, isolated]

 

11 hours ago, mcliu said:

Deposits are up because they closed MUFG acquisition ($80B deposit) on Dec 1, 2022.

 

2nd table on page 2 shows the impact. 
https://ir.usbank.com/static-files/30f7fc8a-1e69-4f59-8b2f-64033271c990

 

MUFG deposits down around 10B and USB backing out MUFG also down around the same amount.

Deposit competition is a thing, especially for some banks. However, overall, there is still an abundance of deposits and outflows in one bank will, almost by definition, mean inflows for others. For that specific aspect, USB does not appear to be in trouble and, in fact, may be considered a relative safe place for deposits.

As shown below (from USB disclosures), deposits haven't been running away from USB, especially after the 'turmoil'. Banks overall, for quite a few months now, are seeing deposits decreasing at an annualized rate of 3 to 3.5% (despite still rising loan books, so due to 'macro' factors) and (taking into account the digestion of acquisition) USB's deposit base is still growing or at least remaining stable in this declining environment, especially since early March...and they are showing growth in their own in-house money market funds' assets so...

-----

Take the above with a grain of salt (i'm no banking expert) as my main activity today was getting the backyard pool ready for the season (my contrarian side provided satisfaction of doing this activity when it is raining as i sense the pleasure of enjoying the pool later when the sun will be up).

Disclosure: i've opportunistically held USB in the past and only follow now on the surface although my timing (and holding period return) was better than the Master on this one:

Warren Buffett Buys Banks, Healthcare, and Dow Jones Shares (cnbc.com)

[Spekulatius]

 Casualty list:

Si Bank: ~$11B

Signature bank: ~$110B

SIVB: ~$220B

FRC: $230B

 

About $570B in banking assets have taken a new owner and the equity base supporting them has been destroyed. Total size of the US banking system is about ~$22T, so that's ~2.55% so far.

[changegonnacome]

Interesting time period - wonder whats next for the venerable banking industry?

 

The commercial real estate boogey man is well known.........and those loaded to gills with that stuff are getting worked over right now.....and bank investors have been forewarned on whats likely coming there.

 

Suspect the next shoe to drop - are likely niche banks with some kind of idiosyncratic consumer risk on their balance sheets.....not bank collapsing stuff like we've seen but possibly share price collapsing stuff........credit quality deteriorating married to rising funding costs sure can impact short-medium profitability.

[Dalal.Holdings]

So what a hilarious turn of events. JPM gets a sweetheart deal for FRC with FDIC taking some loss and preferred/corporate debt of FRC wiped along with common. This is after SVB was “sold” in similar fashion to another bank.

 

Now those holding PACW, WAL, etc are wondering—why would anyone ever buy a bank before receivership? The common, preferred, and debt are taking a hit as this is digested.

 

And Dimon said “the crisis is over” after he secured his good deal…

[Spekulatius]

Dimon and his CFO looking at other banks to “donate” deposits to:

 

[Dalal.Holdings]

Our regulators are total clown shows. Not only have they furthered moral hazard, but they have made every other bank in danger now because they’ve announced to everyone that any bank can be easily taken under with a total wipeout of common, preferreds, and debt & the FDIC will gladly just hand off the good stuff to a well connected buyer.

 

Even when JPM bought Bear the gov’t/shareholders forced them to raise the bid. And even the Swiss forced UBS to ascribe some value to Credit Suisse’s common (though AT1 rightfully got washed).

 

Now the ability of remaining banks to raise capital via common, preferreds, and corporate debt is taking a hit.

[Dalal.Holdings]

Anyway, I bought some PACWP in the 10s

[Peregrine]

It's kinda funny how posters in this thread somehow forgot that FRC was mark-to-market insolvent and based on their own FV marks, no less. They couldn't hold on to their deposits, which forced them to get high cost financing, which turned their bank upside down. The regulators didn't do that to them - if anything, they helped them.

 

If there were no visible hand, this bank would've gone down a lot sooner and everyone owning the capital stack gets zero'd a lot quicker. 

[Spekulatius]

@Dalal.Holdings I don't agree - the regulators are not there to protect shareholders or debt holders, their job is to protect depositors and the integrity of the entire banking system. Anyways, bought back some PNC which I sold  a few days ago.

 

I do not think this banking crisis is over, at least not for equity holders of bank stocks. We just moved from an acute to a chronic phase. I also think the Fed would be better of not raising interest rates any more.  The steepening of the yield curve inversion is just going to stress banks more by bleeding deposits in higher yielding vehicles.

 

The banking calamities and issues already lead a tightening for the borrowers on top of the Fed tightening. I think the Fed should wait and see before they risk to overdo it here.

[Dalal.Holdings]

You’re right that insolvent banks should remain insolvent and equity holders in a highly levered company like a bank should be hosed.

 

However, the rapid receivership and sale of SVB and FRC on juicy terms to the buyer (First Citizens and JPM) may have unintended consequences — If you are a bank looking to acquire a struggling lender, why not wait until receivership now? In the past you might have bought the struggling bank for single digit (low market cap) common stock price (preferred/debt holders would be spared). This is what happened with Bear and Credit Suisse. Now there is no incentive to bid on a struggling bank until after it fails.

 

After all, in receivership, the FDIC will gladly take on some of the losses from you so now you get a much better acquisition price. 

 

Meanwhile the politicians will say this is “not a bailout” when in fact the “FDIC assessments” are in effect socialization of losses onto the bank’s customers (ie. the taxpayer).

Edited May 2, 2023 by Dalal.Holdings

[Peregrine]

Rapid receivership and sale happened all the time during the S&L and GFC crises, especially when a bank lost deposits at the rate that Signature, SVB and FRC did. Without rapid receivership and sale, the cost to the FDIC would've been a lot greater in all likelihood. The longer it goes on, the worse for the FDIC and the worse for the financial system.

[Dalal.Holdings]

17 minutes ago, Peregrine said:

Rapid receivership and sale happened all the time during the S&L and GFC crises, especially when a bank lost deposits at the rate that Signature, SVB and FRC did. Without rapid receivership and sale, the cost to the FDIC would've been a lot greater in all likelihood. The longer it goes on, the worse for the FDIC and the worse for the financial system.

The key question—did the “sale” occur on similar “juicy” terms as SVB and FRC? No, because Sheila Bair actually had a spine and worked to minimize losses to the deposit insurance fund. With the current admin, there is no such effort.

 

https://www.ft.com/content/b860ebb6-f202-4ec6-a80c-8b1527c949f4

[benchmark]

1 hour ago, Dalal.Holdings said:

Anyway, I bought some PACWP in the 10s

I thought that their quarter report was decent, and bought some as well  

[Dalal.Holdings]

58 minutes ago, benchmark said:

I thought that their quarter report was decent, and bought some as well  

And I’m out now !

[Peregrine]

1 hour ago, Dalal.Holdings said:

The key question—did the “sale” occur on similar “juicy” terms as SVB and FRC? No, because Sheila Bair actually had a spine and worked to minimize losses to the deposit insurance fund. With the current admin, there is no such effort.

 

https://www.ft.com/content/b860ebb6-f202-4ec6-a80c-8b1527c949f4

 

"Juicy" terms? Based on FRC's own FV marks, JP Morgan paid $10 billion more than they should've to the FDIC! The longer it goes on, the worse the bid the FDIC gets. And the longer it goes on, the more desperate FRC gets.

 

Back during the S&L crisis when probably more than a half of S&Ls were zombies and operating with negative equity, S&Ls kept upping the ante in raising deposit rates and driving further down the credit spectrum in a desperate bid to become viable. Needless to say, this is not good for the financial system.

[Parsad]

Half of America's Banks Are Potentially Insolvent

 

https://finance.yahoo.com/news/half-america-banks-already-insolvent-133000968.html

 

Cheers!

[Parsad]

Milken on Banking Fallout..."Not another crisis."  Cheers!
 

https://finance.yahoo.com/news/michael-milken-on-the-banking-turmoil-this-is-not-another-financial-crisis-190746352.html

[Dalal.Holdings]

18 hours ago, Peregrine said:

 

"Juicy" terms? Based on FRC's own FV marks, JP Morgan paid $10 billion more than they should've to the FDIC! The longer it goes on, the worse the bid the FDIC gets. And the longer it goes on, the more desperate FRC gets.

 

Back during the S&L crisis when probably more than a half of S&Ls were zombies and operating with negative equity, S&Ls kept upping the ante in raising deposit rates and driving further down the credit spectrum in a desperate bid to become viable. Needless to say, this is not good for the financial system.

 

Re Juiciness: explain why Dimon is taking a victory lap on this if it’s really “$10B more than they should have” on positive tangible book and earnings impact on JPM…

 

Here’s the problem: a quick receivership and sale via giving JPM a good deal increases the probability of future bank failures. So, while quick receivership may have lowered the cost of FRC’s failure to the FDIC, it may have increased the number of upcoming failures that the FDIC will have to deal with.

 

If banking sector consolidation is to occur, now it’s best for the acquirer to let the FDIC take it under and take on losses on their behalf.

 

The FDIC has set risky precedents here: that a bank in receivership is more attractive to a buyer than a bank that’s alive. And also that all depositors will be saved. They may have also caused a discounting of bank common/preferred equity and corporate bonds given the increased risk of these getting zeroed out (which hampers the ability of banks that are still around to raise capital). These are precedents that may prove very expensive to the depository insurance fund overall, more expensive than a slow wind down of FRC and SVB. 

Edited May 3, 2023 by Dalal.Holdings

[Peregrine]

2 hours ago, Dalal.Holdings said:

 

Re Juiciness: explain why Dimon is taking a victory lap on this if it’s really “$10B more than they should have” on positive tangible book and earnings impact on JPM…

 

Here’s the problem: a quick receivership and sale via giving JPM a good deal increases the probability of future bank failures. So, while quick receivership may have lowered the cost of FRC’s failure to the FDIC, it may have increased the number of upcoming failures that the FDIC will have to deal with.

 

If banking sector consolidation is to occur, now it’s best for the acquirer to let the FDIC take it under and take on losses on their behalf.

 

The FDIC has set risky precedents here: that a bank in receivership is more attractive to a buyer than a bank that’s alive. And also that all depositors will be saved. They may have also caused a discounting of bank common/preferred equity and corporate bonds given the increased risk of these getting zeroed out (which hampers the ability of banks that are still around to raise capital). These are precedents that may prove very expensive to the depository insurance fund overall, more expensive than a slow wind down of FRC and SVB. 

 

Re: juiciness

 

Because FRC is worth more to JPM than simply the market value of its loans.

 

Re: quick receivership

 

I don't see how this was at all rushed. FRC lost nearly all its deposits within a few weeks' time and was given nearly a whole month to find a private solution. And when it couldn't, this bank tried brinksmanship tactics by threatening its suitors that if they didn't save it the costs would be worse. 

 

You really think the FDIC should let this bank operate with no deposits of its own and negative NIM and generate losses for the foreseeable future?