The Institutional Risk Analyst

With the sharp move upward in gold and silver prices, and growing concerns about the stability of the dollar and US financial markets, investor interest in precious metals is increasing dramatically. Despite the big price movements seen in 2025, we believe that the appreciation of gold against the fiat currencies and worthless crypto tokens is in the early stages. Remember, bitcoin is a fraud, nothing more.

The good news is that Webster is not a bad bank and SAN is not overpaying, although the low level of capital and reserves may represent be a significant expense for SAN in the near term. We kind of liked the fact that SAN’s management team had avoided another bank acquisition and instead focused on consumer finance...

We hear that the PennyMac fiasco was largely caused by Bill Pulte and the Trump Administration. Most people in the markets don't realize that the GSEs had already bought a ton of mortgage-backed securities (MBS) in Q4 of last year. This market manipulation tightened mortgage spreads 15-20bps and increased mortgage prepayment speeds without a corresponding offset from hedges in the Treasury market. This set up PennyMac and other mortgage lenders for a disaster.

But the key factor that generated investor angst was under-performance in terms of loan recapture, an illustration of the hyper-competitive market in residential mortgages. True retention = Retained fundings divided by total run off. On that basis, we figure that PFSI retained less than 1/3 of mortgages that prepaid in Q4 2025. After touching $160 in late January, PFSI closed yesterday below $95 per share.

The addition of Kevin Warsh as Fed Chairman does not change the ST calculus on the FOMC in terms of support for further rate cuts. Even as a former Governor, Warsh begins his term as leader of a minority on the Committee, especially if former Chairman Powell remains on the Board. This is why the inability of Trump to blame Powell for the astronomical increase in home prices, as we discuss below, is so remarkable.

US banks and nonbanks are entering a period of increased uncertainty in terms of earnings and rising credit costs, yet another reason why financial stocks are retreating.  We published a comment on the risks to banks from loans to private equity funds (“Does Private Credit Hurt Bank Stocks?”).  Bank credit costs have been so low for so long that they have nowhere to go but up.

As we told Bloomberg TV last week, not only has the President's attacks not forced Powell out, but he has made this decidedly mediocre Fed chief a progressive martyr. As a result of Trump’s ill-considered attacks, Powell will likely remain as a Governor through 2028, depriving the President of an opportunity to appoint another governor for a 14-year term.  How does this mess serve the agenda of President Trump?

This week in “The Wrap,” we report in summary fashion about the latest events in Washington and Wall Street this week. The Trump Administration departed from Davos with a variety of “wins,” but there was nothing substantive about housing affordability or really anything else.

And as we predicted several months ago, Fannie Mae and Freddie Mac are at the bottom of the list now instead of the top, reflecting the fact that release from conservatorship has been shelved in favor of the GSEs buying back their own debt. Using the balance sheets of the GSEs to buy MBS basically makes them instruments of public policy, but this does not preclude President Trump from directing an equity offering after the midterm elections.

GS had a remarkable year in 2025, as shown in the table below. It is good to see the firm back on track after the disastrous experiment in retail banking and credit cards.  This is really one of the few pages in the GS public disclosure that has any useful information, which is a major reason that the Fed's Y-9C is must reading for analysts of Goldman Sachs.

President Donald Trump, Bill Pulte and Commerce Secretary Howard Lutnick have apparently met a couple of times in recent weeks to consider policy initiatives for spurring housing. Meanwhile, the GSEs have begun to buy and/or retain mortgage assets in an effort to push down mortgage rates, an effort that is unlikely to have much effect.

But more to the point, the comingled worlds of private equity and credit may be the biggest scandal to hit Wall Street in a century. Most bank loans to PE sponsors "secured" by private company assets are actually non-recourse, so there is no recovery for the bank in the event of default. We think these factors are just some of the reasons that exposures to private equity and credit may be the most risky part of bank loan portfolios.

If SCHW could but find a competent team to manage the bank's assets they could vault to the top of this group in terms of financial and equity market performance. In the meantime, we hope that the folks at the Fed figure out how to publish the Y-9C and related documents for Raymond James.

Only the Fed under Janet Yellen was dumb enough to buy $3 trillion in MBS, costing the taxpayer hundreds of billions in losses without really affecting mortgage rates. A mere $200 billion from Donald Trump is a rounding error, pure populist political pulp -- another progressive political display that will have zero impact on LT interest rates. In fact, the childish suggestions coming from the White House on housing may continue to push LT interest rates up.

LC is clearly succeeding where the larger banks are not in terms of both loan originations and loan sales, which are shown in the chart below. If LC can continue to create assets and also sell loans to investors, that is an indication of a healthy business. But the big question for us is how much of the consumer lending opportunity can LC capture and retain? The table below shows the gross loan yield, net loss rate and net income vs average assets for LC and its bank competi

When the Fed took net loan loss rates for banks down to ~ 50% of par in 2021 vs 95% after 2008, they enabled some very stupid and foolish behavior by investors and lenders. These behaviors are only partly described by the nominal level of interest rates because, of course, we must account for leverage in calculating the full scope of the prospectives losses. Lend More Upon Default (LMUD) has concealed the scope of the disaster and even pushed down reported loan default rates.

Half of COF assets are allocated to consumer loans, with single digits in real estate and C&I exposures. The bank was in the 94th percentile of Peer Group 1 on nonaccrual real estate loans in Q3, the 97th percentile in 90+ day past due C&I loans and the 94th percentile in 90+ day past due for other loans and leases, which includes loans to nonbanks. We expect COF to have high levels of delinquency in its consumer book, but these other credit metrics are a little troubling.

Silver has always been the common man’s metal, but the unique combination of industrial necessity and monetary appeal has helped to resolve its historical "identity crisis," making it both an industrial input and an investment asset. 

Kevin Hassett's comments on Federal Reserve independence may have undercut his chances for the top Fed job. President Donald Trump has observed in recent days that there are “two Kevins,” Hassett and former Fed governor Kevin Warsh, who we personally support.

Of note, JPM's CFO Barnum said in response to a question that “I haven't heard anything to suggest that the private [credit] deals are performing differently from the public deals. It probably is true at the margin that some of the new direct lending initiatives involve underwriting at slightly higher expected losses, and that's significant because, as we've been discussing here, the wholesale charge-off rate has been very, very low for a long time."