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Christopher Whalen

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By: R. Christopher Whalen

Oct 31, 2019
5 min

Repo Madness: The Rest of the Story

New York | The Federal Open Market Committee cut the target for short-term funds another quarter point last night, raising the question as to whether the central bank can actually defend the 1.75% upper bound of the new policy range. Fact is, demand for short-term funding is pulling rates higher as the year draws to a close. Ray's Camp, The Flowage, Princeton, Maine We got to dine with the risk committee this week, revealing new aspects of the recent repo kerfuffle that dese

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By: R. Christopher Whalen

Jul 1, 2019
8 min

Deutsche Bank, GSEs & Systemic Risk

New York | In this issue of The Institutional Risk Analyst, we ponder how the actions or inaction of policy makers can create systemic events. In the next issue, we’ll dive into Q2 2019 earnings for banks and non-banks. Of interest, the Q2 edition of The IRA Bank Book is now on sale at our online store. News last week that the leadership of Deutsche Bank AG (DB) is planning to cut one out of six jobs at the bank, this in an effort to regain financial health, drew some positi

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By: R. Christopher Whalen

Apr 14, 2019
4 min

Funding Headwinds Grow for US Banks

Orlando | This week The Institutional Risk Analyst is participating in the Information Exchange sponsored by Black Knight, Inc. (BKI), the premier provider of integrated technology, data and analytics for mortgage lenders. We'll be joining Laurie Goodman of Urban Institute, Chris Flanagan of Bank of America, Sam Khater of Freddie Mac and Ed Pinto of American Enterprise Institute for a Super Session on the housing economy. With long-term interest rates falling, the mood in th

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Forget Everything You Heard About Rising Interest Rates

By: R. Christopher Whalen

Apr 8, 2019
4 min

Forget Everything You Heard About Rising Interest Rates

La Jolla | This week The Institutional Risk Analyst is in La Jolla for The Chairman's Conference of The California Mortgage Bankers Association. Click here to download our keynote presentation. Last Friday we got to talk banks with Brian Sullivan on CNBC. We noted that investors need to forget everything they were told in 2018 about rising interest rates. Many investors got killed last year positioning for rate increases in 2019. Hint: When your prime desk coverage is sell

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By: R. Christopher Whalen

Mar 17, 2019
8 min

HELOCs and Transformational REPO

New York | We had a great trip last week, participating in Ellie Mae’s (ELLI) Experience 2019 and surveying the rich (and water sodden) agricultural sector due north of the Golden Gate Bridge. You may have seen the announcement that ELLI has agreed to a buy-out led by Thoma Brava for $99 per share. Suffice to say the valuation is well-above the 50-60% of book value that most of ELLI’s customers in the world of mortgage lending enjoy. That is, the few that are actually public

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By: R. Christopher Whalen

Jan 9, 2019
7 min

Bank OZK: Fundamentals vs. Uncertainty

Richmond | The 10 year Treasury bond peaked in yield at just shy of 3.25% around Thanksgiving. Since then, the world’s most important interest rate benchmark has rallied, pushing yields back down to just shy of 2.55%. Most of this move is probably due to the exodus of investors from equity markets, but even with a stable dollar and relative market calm the 10 year continues to climb in price/fall in yield. QE and a lot of talk aside, deflation remains the dominant underlyi

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By: R. Christopher Whalen

Nov 4, 2018
5 min

Profile: The Challenge for Deutsche Bank

New York | When we first heard news reports about a new investor in Deutsche Bank (DB), we of course assumed that this meant the purchase of new shares and thus an increase in capital. But no, it was merely an “activist investor” taking a stake in existing shares. Is this really news or merely a sign of a top in large bank stocks? The DB common is trading a hair over $10 or just 0.3x book value and has a beta of 1.5. Douglas Braunstein, founder and managing partner of Huds

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By: R. Christopher Whalen

Oct 23, 2018
6 min

Leveraged Loans and Liquidity Risk

New York | This past week, readers of The Institutional Risk Analyst awoke to see that banking exemplar Bank of the Ozarks (OZK) had taken a loss on two legacy loans on regional mall properties in the Carolinas. First and foremost, this event shows that commercial real estate many parts of the US have still not recovered from the 2008 bust. Bank OZK, as it is now known since shedding its bank holding company, had previously reserved for the write-down. Our friends at Kroll

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By: R. Christopher Whalen

Aug 7, 2018
6 min

Which Are the Best Performing US Banks?

New York | Which are the best performing banks in the US? Equity returns for the entire industry averaged 11.4% in Q1’18, up from 9.6% for all of 2017. There are some smaller banks, however, that generated returns on equity (ROEs) far higher than the average. Large banks tend to significantly underperform smaller peers. Growth rates, margins and equity returns all increase as size declines. In this issue of The Institutional Risk Analyst, we look at some of the better perfo

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By: R. Christopher Whalen

Feb 26, 2018
4 min

Large Cap Financials & Asset Inflation

New York | None other than Warren Buffett of investment fame started off the week complaining to Becky Quick of CNBC that there’s not enough big things to buy. Railroads? Airlines? Not even Wells Fargo & Co (NYSE:WFC) suffices to satiate Mr. Buffett's hunger for assets. With over $120 billion in cash burning its way through his trouser pocket, the best that the Sage of Omaha can come up with is buying one of the most overvalued stocks of all, namely the computer cult led by

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By: R. Christopher Whalen

Feb 21, 2018
7 min

Wells Fargo & Co Gets No Respect

"Al", retired Wells Fargo stagecoach pony New York | Wall Street more than bounced last week as the secular shortage of stocks quickly snapped investors out of their collective funk. But one once stellar performer in the large cap financials, Wells Fargo & Co (NYSE:WFC), hung back from the surging crowd. In years gone by, Wells was the quiet exemplar of operating efficiency among large banks, but no more. Today WFC is the bank that everyone loves to hate. But while WFC may

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By: R. Christopher Whalen

Sep 11, 2017
5 min

Goldman Sachs & the Volcker Rule

Austin | Last week we heard optimistic noises coming from some of the top executives in the world of mortgage finance at the Americatalyst 2017 event. Falling interest rates have managed to get new applications for mortgage refinancing even with purchase loans for the first time in months, this as the 30-year mortgage has fallen back to pre-election levels. We're still calling for the 10-year Treasury to go to 2% yield or lower. The good news for Q3 ’17 earnings is that pro

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By: R. Christopher Whalen

Jul 18, 2017
5 min

Bank Earnings & Fed Chairs

New York | Earlier this week we appeared on CNBC’s “Squawk Box” to talk about bank earnings and the Fed. The results from the top-four banks – Bank America (NYSE:BAC), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) – are really no surprise to readers of The IRA. The largest banks all beat small on revenue and earnings, but showed weakness on fixed income and the mortgage banking lines. We suspect that there will be even more pain on the mortgage banking

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By: R. Christopher Whalen

Apr 12, 2017
4 min

How Much Lower Will Bank Stocks Fall?

Since the November 2016 election, large cap financials have moved sharply higher, in the case of Bank of America (NYSE:BAC) up almost 60%. This spasmodic upward movement in reaction to the election of Donald Trump reflected both the collective desire of professional managers to increase allocation to financials but also the shared frustration of investors with the chronic under-performance of large banks. Let’s face it; there’s a whole generation of managers on Wall Street w

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For Big Banks, Profits Not Capital is the Issue

By: R. Christopher Whalen

Apr 9, 2017
9 min

For Big Banks, Profits Not Capital is the Issue

This week brings the start of Q1 2017 earnings for many banks, large and small. In order to better inform the subsequent prognostications, we borrow a line from the Passover Seder and ask: why is this bank different from all other banks? This question is not only important to understanding bank financial performance and earnings, but also to appreciate the subtleties of the evolving regulatory narrative in Washington around big banks and “too big to fail.” Last week, White

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