impact of low interest rates

[hyten1]

any loan officier around there, i am very curious, what banks are looking for and what loans are they giving out (we are strictly refering to residential mortgages here).  my understanding is residential mortgages is only 25% or so of the big banks loan vol.

[ERICOPOLY]

Eric,

 

I'm an idiot - should have heeded my own warning of not thinking clearly. I misread something you said previously, and I had WFC's 3.5%+ NIM in my head.

 

WFC's historical NIM was up in the high 4% (2006) or 5% range (1990s), not today's 3.5%.  Here is a quote from their 2006 annual report:  "Our net interest margin was 4.83% for 2006 and 4.86% for 2005."  And that wasn't their best year -- they had NIM in excess of 5% in the late 1990s.  In 1996 it was 5.87% and 5.86% in 1997 -- that's nearly 6% NIM!

 

It shows it on that spreadsheet you attached.

 

So they too are getting squashed and will make a lot more money down the road.

 

[bmichaud]

What I struggle with though is that while a rise in WFCs NIM from 3.5 to 5 would appear to be a giant boon to earnings, they are already earning a significant return on assets and equity, relatively in line with historic norms when adjusted for leverage.

 

I'm a TBTF world, is WFC going to earn 20% on equity?

 

If BACs core earning power shines through, I can easily see a 1% roa or 10% roe, implying at least a $20 stock price. Will it get a WFC-like 1.5% roa or 15% roe?

 

Tough to say.

[ERICOPOLY]

What I struggle with though is that while a rise in WFCs NIM from 3.5 to 5 would appear to be a giant boon to earnings, they are already earning a significant return on assets and equity, relatively in line with historic norms when adjusted for leverage.

 

I'm a TBTF world, is WFC going to earn 20% on equity?

 

If BACs core earning power shines through, I can easily see a 1% roa or 10% roe, implying at least a $20 stock price. Will it get a WFC-like 1.5% roa or 15% roe?

 

Tough to say.

 

 

I want to US to give up it's freedom and go back under the rule of the UK.  They approved a 20% corporate tax rate. 

 

These banks like WFC and BAC that earn most of their profits in the US will be paying in excess of 30% rates.  That's 50+% more tax!  If they hit the 35% ceiling it's 75% more. 

 

So perhaps there is additional room for ROE boost at some point, although it feels like waiting for Santa Claus.

 

Does it make sense that the banks could take on more risk (wider credit availability) if they were able to keep more of the profit?  Clearly you would make more loans at a 0% rate than at 100% rate -- there must be some impact between 35% and 20%.

[locatevalue]

exactly.. I closed on a house in september and had to use cash. Couldn't borrow a cent from the banks.

 

 

wanted a massive 50% from the bank which would have put the loan at less than my annual salary. Way less than our combined annual salary and at a very low % of our net worth.

 

 

I guess the banks decided that me renting a house at three times the price of the repayment per month was sensible fiscal policy.

 

 

All one has to do is look at all the 100% cash deals that were done the last few years by investors.

 

Does anyone with 2 cents of brains in their head really believe these investors all wanted to be doing 100% cash deals?  They wanted to buy all they could!  But nobody would lend to them.

 

Not at 25%LTV.

Not at 50% LTV.

Not at 75% LTV

Not even at 5% LTV!

 

Completely madness to believe there is no loan demand.

 

 

I agree , I am working on a loan and its kind of ridiculous the way this process works. Its like banks are once bitten twice shy!.  They look everything as risk and forget about HELOC. Even normal loans so hard to get for investment properties i am working with broker and so many stupid things like i need to take policy for loss of rent, Even i told them i have income which supports debt to income ration even if they dont consider my networth or liquid asserts as reliable source for their payment. They all lack commonsense, plain and simple just going by book.

By the way  BAC, Wells  denied to give me investor loan, I am going with local bank after calling so many banks finally i found few who are working with investors. Its kind of very sad, I was talking to some senior execute in bank and it looks like most of foreclosures are done by investorsn and HELOC in last crises so they added so many strict conditions to qualify and some banks decided not to even do them.I would say its stupid they should just charge more and get on with it. I didn't like BAC decided not to do loans from 3rd party origiination, rather they should have hiked the prices and keep that business as well.

[Mikenhe]

Of course Eric - the answer is to set up your own bank....

[Morgan]

I'm surprised you're having so much trouble Eric. In my little town in WV, we've been able to secure loans for multifamily properties relatively easily despite using more leveage and being (a lot) less wealthy than you.

 

The only things I can think of that would benefit us is that we run an apartment business (50 units now), and the market is different here (gas boom). Bu still just from what you say, you seem like a solid credit. Have you applied to a number of other banks? 

[DoddDisciple]

Hi, Morgan: I'm from around the same area. What bank(s) are you using? The loan I got on a personal residence was almost completely in line with what others have described on here - a lot of red tape and hassle - course that was 2-3 years ago.

[Morgan]

Hi, Morgan: I'm from around the same area. What bank(s) are you using? The loan I got on a personal residence was almost completely in line with what others have described on here - a lot of red tape and hassle - course that was 2-3 years ago.

 

The first loan we got was in early 2007 and it was from Citizens Bank. All the other loans are through WesBanco and we got them in the last two years. We haven't been turned down by them thus far (knock on wood). Hope that helps.