Banks Are Cleaning House Of Their Bad Assets | Chris Whalen
Episode publishedPodcast: Forward GuidanceForward Guidance
Transcript preview
Preview only
Jack: Forward guidance is brought to you by VanEck, a global leader in asset management since 1955. You'll be hearing more about a VanEck ETF later on. But for now, let's get into today's interview. We are smack in the middle of big bank earnings. Last week, JPMorgan, Bank of America, all the big banks reported, and banks continue to report.
So to break it all down, I'm so glad to be joined once again by Chris Whelan, veteran bank analyst of Whelan Global Advisors and the institutional risk analyst. Chris, great to see you again. What are the big themes for you as you've been probing the analyst calls? We all know, okay, so and so, they beat earnings. It wasn't as good as expectations.
That doesn't really matter. The stock went up. Who cares? In terms of the big themes, I'm talking about credit. I'm talking about net interest margins.
I'm talking about capital markets. What stands out to you?
Chris: Most banks have seen continued shrinkage in net interest margins. You know, we've talked about this, but it's like, Groundhog Day. You have the same earnings quarter after quarter, but people react differently. And so the street has been backing away from the large caps really since May, which is when, you know, JP and the rest of them peaked. And what you've seen is that the a smaller group, a higher performing group, is now leading the way.
And it's kind of interesting, this evolution. But I think the managers are clearly anticipating that net interest margin, the other things you and I look at are gonna be flat and credit is inching up. It's not going up fast. It's mostly commercial, but we just wrote a piece yesterday about Pinnacle Financial down in Nashville, and they just did a fairly significant house cleaning, sold a lot of low coupon bonds, took a a pretty big loss, almost $1,000,000,000 for a $50,000,000,000 bank. And then they did a a credit risk sharing transaction with a very well known, hedge fund on the street and,
They They they they have a pristine book. I don't think you're gonna see a lot of defaults on this book. Right? So bottom line, Jack, it costs you 12, 14% to window dress your balance sheet and and free up a little cash internally. Because if you take the risk weight on the asset from 50%, $4 for every $100 worth of loans, right, down to say 0, because you have treasury collateral and you've raised big pile of money.
Right? The money's sitting there. The Fed can see it and they say, oh, good. If there are losses on the book, then the investor gets paid back less than par. It's very similar to the transactions Fannie Mae and Freddie Mac have done, and these are good with the Fed.
If you follow the Fed's guidance on these transactions, then, you don't even need to ask them. They'll they'll just approve it as long as you check all the boxes. You know, a lot of stuff going on in earnings, Jack, to answer your question. There's a lot of stuff going on behind the scenes with commercial real estate. There are some signature properties, for example, that are going to foreclosure now in New York City, and we got some every day, by the way, in commercial.
Keep exploring with a free account.
A free account preserves the short preview. Upgrade to Pro for the full transcript and episode chat.