Chris Whalen, chairman of Whalen Global Advisors, returns to Forward Guidance to comment on the ample and growing earnings of the big banks (particularly JPMorgan Chase, whose stock surged over 7% on rosy net income and increasing deposits).
Whalen argues that banks’ unrealized losses on their securities due to interest rate risk have gone down dramatically as interest rates have fallen since the collapse of Silicon Valley Bank (SVB) on March 10. However, he expects banks’ cost of funds (what they have to pay for deposits) to continue to rise and he makes the case that the primary headwind for banks is not interest rate risk, but credit risk. Whalen argues that while there could be more bank failures ahead, he expects it will be the outlier banks that fail, not the mainstream banks.
This interview was filmed the morning of Friday, April 14th, shortly after large American banks such as JPMorgan Chase, Wells Fargo, and Citigroup reported their earnings for the first quarter of 2023.
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Timestamps:
00:00 Intro
04:55 “Banks Have Lots Of Commercial Real Estate Exposure”
06:24 Banks’ Unrealized Losses Have Gotten Smaller Over The Past Month
08:25 The Return Of Credit Risk
16:06 Is The Banking Crisis Moderating? If So, Why?
19:18 Van Eck Ad
20:06 There’s A Slowdown in Lending
22:08 Quantitative Easing’s Distortion Of Bank Balance Sheets
24:32 Chris Suggests The Fed Sell Securities Into The Market
28:27 “The Bid For Risk Free Dollar Assets Is Still Off The Scale”
30:12 Recent Rally In Bonds Has Helped Bank Book Value
36:23 “People Love To Say The Word ‘Hedge’ And Then Change The Subject”
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets….(read more)
LEARN MORE ABOUT: Bank Failures
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There Could Be More Bank Failures | Chris Whalen
In the aftermath of the 2008 financial crisis, many banks failed and the government had to bail them out. While the economy has recovered, there are still concerns about the stability of some banks, and some analysts believe that there could be more bank failures in the future.
Chris Whalen, an author and analyst who specializes in banking and finance, recently spoke about the potential for more bank failures in an interview with The Street. Whalen cited several reasons why he believes that more banks could fail in the coming years.
One of the main reasons Whalen cited is the lack of profitability among many banks. According to Whalen, many banks have been struggling to generate profits in the low interest rate environment that has prevailed in recent years. When interest rates are low, it becomes difficult for banks to earn money on loans, which are a key source of revenue for them.
Another reason why Whalen believes that more banks could fail is the fact that many banks have a large amount of exposure to risky assets, such as subprime mortgages and leveraged loans. If these assets were to default, it could cause significant losses for the banks that hold them, which could ultimately lead to their failure.
In addition to these factors, Whalen also pointed out that many banks have weak capital positions, meaning that they don’t have enough reserves to cover potential losses. This could be a serious problem if the economy were to experience another downturn, as it would leave banks vulnerable to losses that they wouldn’t be able to absorb.
Given these risks, Whalen believes that it’s important for the government to be vigilant about the health of the banking system and to take action to shore up any weak institutions before they fail. This could involve requiring banks to hold more capital, putting stricter regulations in place, or even forcing some banks to merge or go out of business.
Despite these concerns, it’s worth noting that the banking system has improved significantly since the financial crisis. Many banks are now better capitalized and have reduced their exposure to risky assets. Additionally, regulators and lawmakers have taken steps to strengthen the banking system and prevent another crisis from occurring.
However, while the risk of bank failures may have decreased, it’s clear that there are still some challenges facing the banking industry. As such, it remains important for both bankers and regulators to remain vigilant and take action to ensure that the banking system remains stable and healthy.
Today’s show is brought to you by VanEck.
Go to https://vaneck.com/ForwardGuidance to access VanEck's Income Investing Yield Monitor.
One of the major weaknesses of a capitalist system is in the banking sector. At any moment, if folks to decide to run on a bank, that bank is toast. Not only now, whenever.
Higher interest rates obviously make holding assets in bonds, but even in the best of times, banks won't be able to cover a run.
The only question is, how likely are the bank runs to occur?
The Fed has essentially printed an unlimited amount of money to backstop the bank runs. It was a good move if it gives folks the confidence to not make runs on their banks. It was a bad move if it doesn't stop the bank runs because it will water down the currency to nothing.
It was a very bad decision to remove the Glass-Steagall Act in the late 1990s, which led to the spectacular failure of huge banks during the financial crisis of 2007–2008. To prevent another disaster, Dodd-Frank and this statute both need to be reestablished right away. What happened with SVB is only the beginning of what will happen if nothing is done to address the current situation.
I will be forever grateful to you, you changed my whole life and I will continue to preach your name to let the world know that you saved me from huge financial debt with little investment, thank you Mrs, Samantha Donald
When the Great Depression and other huge catastrophes occurred, I used to believe that everyone went bankrupt, but they didn't… Some made millions; I also assumed that everyone closed their businesses during those times, but certain some did start new ones. It all depends on your point of view; there will always be moments of prosperity for some individuals and times of depression or recession for others. My primary concern is how to grow my reserve of $220k which has been sitting duck since forever with zero to no gains
Major indexes booked their worst yearly performance since 2008 thanks to drivers like the recession, war, hiked interest rate and inflation which so far doesn't seem to be easing off, so l'm left wondering what 2023 has in store for us investors, l've been sitting on over $745K equity from a home sale and I'm not sure where to go from here, is it a good time to buy or do I wait?
Enjoyed this interview, good info on how banks think about their books.
Ask him about the spread on mortgages He is having going to deliver into an MBS at the end of may
Restructuring of CRE loans will be primarily in liberal states/cities. Horrible places to do business and people fleeing those democrat run slums.
Government policy has thrown the future under the bus for decades. The day of judgment is near. I predict an 80% drop in the stock market. Investors will abandon stocks in favor of real estate. There will be no money in banks… You must devise a strategy for survival.
TL;DR?
For someone like me who learns about the banking sector on the "need to do" basis, listening to Chris Whalen (since 2007) has been invaluable…and even fun
🙂
Just saying, but I have a loan at a bank that is due. It's 5 year term was up, no renewal guaranteed, the bank says that they are renewing it (and I'm sure they are), spread is the same, no renewal fee. They sent me a bill for the full amount of the loan, 1% fee (for what I'm not sure), $5,000 fee if I don't pay it all by the 20th, but talk to them and … "yeah, it's in review". So, when you see lending down, I think some part of it is just an enhanced review process. Everything is moving slow — these are 5 year old assets with a huge increase in income since the loan was done. NOI / Loan Amount is about 16% so I probably could get cash out for maybe 50% more than is currently owed. Some part of the bank loan slowdown is just enhanced due dilligence. Some part is that it's hard to make sense out of a 6% cap rate when the bank is charging you 6.75%. Negative Leverage in general is a sign that I should be waiting for interest rates to drop or cap rates to go up — everyone else is waiting too. No new transactions, no new loans … I see revenue moving up, but profits moving down. Higher rates will lower net income.
Higher rates also mean bad times for the government, so help isn't far away — just a matter of waiting.
With things deteriorating rapidly remember…..Jesus brings us comfort. Jesus brings us joy and hope, knowing that He removed all of our sins at Calvary. If you need some teaching on the matter, the you tube channel, 'faith cometh by hearing' has a fine teaching series titled, 'change of mind' which helped me understand the matter.
Ponzi USD was parked under various entities and they were traded and legitimized by the exchanges
I'm new to stock market /Crypto and would like to invest but I've go no idea on how to make good profits. Pls what's the best approach you'd recommend?
I'm glad I got into trading when I did because it was a turning point for me financially it was my best decision so far
I'm 37 and have been looking for ways to be successful, please how??
I understand that these fat cat big commercial banks make $500M / day on the excess reserve they keep at the fed.. for doing absolutely nothing. They make money in any high/ low interest environment
why is it a good sign that thr trading floor is busy?