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

[Spekulatius]

My Subaru car loan is serviced by Chase. It showed up in my CC chase accounts just like magic (based on SS number, I presume).

[Cigarbutt]

BTW, what wabuffo describes for car loans being moved around is a similar scheme when money is moved to MMFs (also like Apple savings accounts, One savings accounts at Walmart (offer 5% now up to 100k) etc) as these entities don't create deposits/money, they only act as intermediates (flow-through entities).

-----

Short version:

The Q1 "liquidity crunch" was noise.

There is however building evidence (signal) for a credit crunch.

If banks are to be held long term, fine but if there is a plan to hold banks for the long term there is a window of opportunity that will be opening.

Disclosure: i aim to hold (really hold) 2 or 3 large commercial banks before reaching senility but maybe it's too late.

-----

Long version:

Thanks to Ed Yardeni:

The Q1 'scare' is noise. Of course noise can be useful for trading opportunities. And deposits (especially uninsured ones) remain wildly elevated in the system.

FDIC Quarterly Banking Profile - First Quarter 2023

Details from Q1 were reported in headlines as deposits accelerating their 'flights' from US banks but numbers under the hood reveal longer trends related primarily to macro stuff (QE, QT, TGA account, RR window) and, shorter term, some money simply (temporarily through MMFs as conduits) left through the RR window and some money (deposits) was temporarily withdrawn from the reporting when unusual banks were (temporarily) taken over by the FDIC-sponsored transactions for larger TBTF banks.

The interesting aspect is that deposits have effectively disconnected from underlying economic activity and the 2020 unusual accentuation of centrally-planned macro stuff goes a long way in explaining the 'transitory' inflation episode.

So, 'we' are basically back to 2019 trends (with still some excess money/deposits sloshing around) but banks have started tightening for some time and, if history is any guide, the next few months should reveal lower loan-lease growth etc etc

 

[gfp]

Another deal for PacWest assets (Fairfax got the lion's share of the first large public deal).  This one curiously leaves out any mention of the size of the discount / mark-down.

 

https://www.businesswire.com/news/home/20230623707825/en/Ares-Management-Acquires-3.5-Billion-Lender-Finance-Portfolio-from-Pacific-Western-Bank

 

edit:

This was in the 8K announcing the deal:

Quote

Consistent with the previously announced strategy of PacWest Bancorp to pursue strategic asset sales and focus on our core community banking business, our bank subsidiary, Pacific Western Bank (the “Bank”), has entered into a purchase agreement to sell a portfolio of Lender Finance loans (the “Portfolio”) with an aggregate commitment amount of $3.54 billion, including an aggregate outstanding principal balance of $2.21 billion, to certain Alternative Credit strategy funds managed by Ares Management Corporation (“Ares”), a leading global alternative investment manager.

 

The first tranche closed on June 22, 2023, with Ares acquiring an aggregate outstanding principal balance of $2.07 billion and assuming $187.14 million of the $1.33 billion unfunded commitment in the Portfolio, resulting in cash proceeds received of $2.01 billion before transaction costs. Additional tranches are currently expected to close in future periods as unfunded commitments are disbursed and then subsequently sold. The sale of the remainder of the Portfolio is subject to customary closing conditions, including the Bank securing certain consents required under certain of the underlying loan and related agreements.

 

This sale, in addition to the approximately $2.36 billion of cash proceeds received from the previously closed sale of National Construction loans, will improve our liquidity and our capital ratios.

 

Edited June 26, 2023 by gfp

[CorpRaider]

I think I'm going to flip out of some $WFC and move the capital to one or more of these, if I can get a decent price. [Not rocket science; going from ~1.2 TBV to ~.80x].

Edited June 26, 2023 by CorpRaider

[Parsad]

Overall, US banks remain in good shape and withstand stress tests:

 

https://finance.yahoo.com/news/all-23-banks-survive-feds-2023-stress-test-203007760.html

 

Cheers!

[Spekulatius]

Results are here.

I noticed that CFG, TFS don’t look that great.

https://www.federalreserve.gov/publications/files/2023-dfast-results-20230628.pdf
 

[benchmark]

30 minutes ago, Spekulatius said:

Results are here.

I noticed that CFG, TFS don’t look that great.

https://www.federalreserve.gov/publications/files/2023-dfast-results-20230628.pdf
 

Interesting to see that Credit Suisse and Charles Schwab at the top, and USB, PNC at the bottom. 

[gfp]

14 minutes ago, benchmark said:

Interesting to see that Credit Suisse and Charles Schwab at the top, and USB, PNC at the bottom. 

 

I believe that is only Credit Suisse's US operating subsidiary, but still it doesn't drum up a ton of confidence in these stress tests when the "strongest" bank by capital on your 12/2022 list has already failed by the time the results are released.

[Spekulatius]

13 minutes ago, benchmark said:

Interesting to see that Credit Suisse and Charles Schwab at the top, and USB, PNC at the bottom. 

Depends on how you look at it. PNC and USB started out with a low capital base because of recent acquisitions. PNC lost only 1.1% of their equity ratio, USB 1.8%.

TFS lost 2.3%, MTB 3.4%, CFG a whopping 3.6%. C and COF also lost quite a bit (credit cards).

 

On the other hand BAC looks great.

[Spekulatius]

3 minutes ago, gfp said:

 

I believe that is only Credit Suisse's US operating subsidiary, but still it doesn't drum up a ton of confidence in these stress tests when the "strongest" bank by capital on your 12/2022 list has already failed by the time the results are released.

US subs of foreign banks always looked very strong in stress tests. I guess they are overcapitalized in their US subsidies.

[TwoCitiesCapital]

18 hours ago, gfp said:

 

I believe that is only Credit Suisse's US operating subsidiary, but still it doesn't drum up a ton of confidence in these stress tests when the "strongest" bank by capital on your 12/2022 list has already failed by the time the results are released.

 

This was my thinking as well. How many of the stress tests showed SVB failing before it did? 

 

These are only good as a confidence builder if we assume deposits remain static. As it stands, they're not and system wide deposits decrease basically every week. With the Fed jawboning additional rate hikes, the hemorrhaging will continue and will be felt unevenly across the industry. 

 

There will be more failures and I doubt that these stress tests will necessarily help you identify which one. 

Edited June 29, 2023 by TwoCitiesCapital

[Spekulatius]

1 hour ago, TwoCitiesCapital said:

 

This was my thinking as well. How many of the stress tests showed SVB failing before it did? 

 

These are only good as a confidence builder if we assume deposits remain static. As it stands, they're not and system wide deposits decrease basically every week. With the Fed jawboning additional rate hikes, the hemorrhaging will continue and will be felt unevenly across the industry. 

 

There will be more failures and I doubt that these stress tests will necessarily help you identify which one. 

SVB bank was never subjected to these stress tests. I think even if, they probably would have passed, since these stress tests test for a severe economic decline (deflationary scenario) and not an increase in interest rates. In fact they mostly assuming the opposite (declining interest rates). As far as I know, no stress test ever tested for a stagflationary scenario that would have showed the weakness around AOCI in SVB and other banks.

 

This goes to show that the things no one expects are the ones to worry about.

Edited June 29, 2023 by Spekulatius

[TwoCitiesCapital]

24 minutes ago, Spekulatius said:

SVB bank was never subjected to these stress tests. I think even if, they probably would have passed, since these stress tests test for a severe economic decline (deflationary scenario) and not an increase in interest rates. In fact they mostly assuming the opposite (declining interest rates). As far as I know, no stress test ever tested for a stagflationary scenario that would have showed the weakness around AOCI in SVB and other banks.

 

This goes to show that the things no one expects are the ones to worry about.

 

That's what I was getting at. Not that SVB had been subject to the same public stress tests as the SIFI banks, but they WERE regulated by the same agency and oversight (though held to different rules).

 

But the point is, even though the agency responsible for their regulation was ALSO the one responsible for raising rates, at no point did they say "what happens when we raise rates and should that be considered in these banks governance and regulations". 

 

I don't think you're gonna glean much from the stress tests this time around because nobody is asking what happens if the system hemorrhages deposits for the next 6-months, credit losses rise 1-2 pts, and treasuries are at 6% and still hampering bank liquidity. And even if you take all of that into account - it's still probably NOT going to help you identify where the panic starts which is all that really matters for these liquidity driven failures. 

[Dalal.Holdings]

I'm amazed that it seems interest rate risk wasn't added to this year's "stress tests"...

[Gamecock-YT]

Stress tests have always been a joke. The only one that’s ever had any teeth was the covid re-run in the beginning of the pandemic. They are a check the box exercise at this point. The internal scenarios the banks run are incredibly more punitive and a lot more dynamic to

market conditions. The Fed is always fighting the last crisis, that extends to stress testing as well. 

[Parsad]

About friggin' time!  Not sure why this was never implemented in the beginning.  Cheers!

 

https://www.cnn.com/2023/07/10/business/bank-regulation-fed-barr/index.html

[DooDiligence]

Another 2% seems reasonable. Amounts to another $25B for ShittyBank (if I read this right).

 

https://www.citigroup.com/rcs/citigpa/storage/public/b3ad230331.pdf

 

I'm also not bothered about mark to market losses with BRK but a bank, yes.

 

===

 

[gfp]

So midsize banks have already stopped expanding credit since March and, while generous in its "negative haircut," programs like BTFP are at least as expensive as other funding sources (currently 5.5%).  Midsize bank profitability is going to look horrible by at least the 3rd quarter, if not already in the results we start to see next week.  

 

https://www.frbdiscountwindow.org

 

Edited July 10, 2023 by gfp

[Paarslaars]

Is also reflected in today's price for most of them..

[Dalal.Holdings]

https://www.pacwestbancorp.com/news-market-data/news/news-details/2023/Banc-of-California-and-PacWest-Announce-Transformational-Mergerand-400-Million-Equity-Raise-from-Warburg-Pincus-and-Centerbridge/default.aspx

 

PACW and Banc of California to merge. $400M equity raise included. Wholesale funding reduction. PACWP preferred stock becomes Banc of California Preferreds under the same terms. Halted after hrs.

 

Quote

Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock.

 

Quote

Each outstanding share of 7.75% Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series A, of PacWest will be converted into the right to receive one share of a newly created series of substantially identical preferred stock of Banc of California with the same terms and conditions.

 

Seems like PACWP holders might make out well..surging after hrs. Even the common holders don't get washed with this one.

 

Deals like this one can breathe a lot more confidence back into bank equities (common and preferred) than the FDIC mediated sweetheart deals of earlier this yr.

 

Edited July 25, 2023 by Dalal.Holdings

[tnathan]

As an overall note, the earnings of regionals / community banks has been super variable and not surprising. Banks with variable rates loans and relatively strong deposit franchises have been able to keep or expand NIM, while banks that screwed themselves with long term fixed rate securities / loans are essentially screwed for the near term. Some have been biting the bullet and selling securities in order to get into more rate sensitive assets, but it's not totally clear if that is the right strategy at this point (especially if rates start to come down and then you get screwed again if you don't lock in longer term). If you do own banks, it is well worth owning specific stocks and not the KRE etf (or similar) given the difference in performance across the sector. The market has clearly rewarded strong performers, but has also rewarded weak performers, which suggests a lot of the moves in the recent weeks are etf driven.

 

I am buying more OZK, which I've been buying for the past couple months - the results are really incredible and it's not being valued as it should. Great management team as well that is stepping into some of the market paralysis and using excess capital to take share. I think generalist investors are throwing every bank with construction loans out which is not fair to best in class orgs.

[Dalal.Holdings]

Not to mention, banks like $USB bounced back hard after they built up CET1 to 9.0% end of Q2 and forecast 9.5% by EOY (originally they were saying 9.0% at YE23). 

 

Seems like HoldCo's short thesis was pretty flimsy

[UK]

https://www.wsj.com/finance/banking/tiny-bank-called-republic-first-faces-test-of-depositors-faith-df0f1225?mod=hp_lead_pos5

 

So far Republic First has managed to live on, and its depositors largely have remained loyal. Deposits as of June 30 were down just 10% from a year earlier. 

...

In May, Republic First Bancorp, the bank’s holding company, said it would stop making interest payments on its debt. Earlier this year, it tried and failed to raise $125 million to shore up its finances. Its stock now trades for 30 cents a share on the over-the-counter marketplace, and its stock-market value is $21 million. Republic First’s total equity, or assets minus liabilities, was $183 million as of June 30, according to its quarterly report with banking regulators. However, that excluded $304 million of unrealized losses on bonds that it labeled “held to maturity,” which means the losses don’t count on its balance sheet. The losses are the result of lower bond values, which declined when interest rates rose and could rebound if rates fell. Republic First still hasn’t filed audited financial statements for 2022, which it blamed in part on its “former executive team’s failure to maintain adequate internal controls.” For regulatory purposes, the bank said it was well capitalized as of June 30. Silicon Valley Bank, Signature Bank and First Republic Bank all were deemed well capitalized shortly before they failed, based on their reported regulatory capital.

[Cigarbutt]

This thread is fed just in case banks start to look 'interesting', when?

FDIC just released their recent bank profitability/stability report:

FDIC: PR-72-2023 9/7/2023

In a nutshell, what happened in early 2023 (apart from 'abnormal' banks) was mostly noise.

Still, there seem to be many misconceptions about some aspects: deposit growth, funding costs, healthy private balance sheets etc

1-Deposit growth

Despite the widespread notion about deposit flights to safety, deposits' levels are now mostly determined by central tools (QE/QT and commercial banks expansion or de-expansion of government debt held as security (asset)) and deposits' levels remain above pre-pandemic trend by a lot. Of note: real growth in main street all loans and leases has become anemic/negative lately.

2-Deposit cost

Despite the notion of exploding deposit cost and the flight of capital to MMFs, real data does not show this rise in cost.

3-Weird notion of bank hoarding 'money' as mentioned in:

US banks hoard $3.3 trillion in cash amid fears of an economic slump (msn.com)

Of course, the 'money' is there:

But it's not a result of 'hoarding' as banks are forced-fed 'money' as interest-bearing reserves:

To suggest that private decisions about savings/deposits haven't been influenced by command-and-control factors or that obvious supply-side issues were the main factor at play is, at the very least, quite intriguing.

 

[gfp]

What's amazing in that last chart is how little bank reserves the system "needed" until recently, when all of a sudden QE apparently pushed a ton of un-needed bank reserves into the system by swapping one interest bearing government liability for another.  Now the Fed has this balance sheet where they own long dated paper in an inverted yield curve environment and they are increasing the stimulus into the economy by running the Fed at a loss (paying net interest into the economy).  Just another example of the Fed having it totally backwards and stimulating while they say they are trying to tighten...