The Institutional Risk Analyst

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.

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."

“The delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources,” said Reggie Booker, MBA’s Associate Vice President of Commercial Real Estate Research. “The largest increase was among CMBS loans, driven by rising delinquencies in both multifamily and office properties. Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile.”

The surprise pre-release of Q4 results led to a significant drop in JPMorgan's stock price and took down the entire sector along with it. But is this the only negative surprise likely to come from JPM? We think not. CNBC’s Jim Cramer said on X yesterday that investors should buy JPM on the dip, but we disagree. In fact, the markets seem to know something about JPM. Maybe this explains why Citigroup (C) has outperformed the House of Morgan all year.

We have published the latest edition of The IRA Bank Book for Q4 2025. Entitled "Defaults Fall, Market Risk Grows," the report details how indicators of consumer credit risk are falling even as risk to financial markets from institutional and commercial credit, crypto tokens and market exposures grow. Bank income has reached record levels in Q3 2025, but what happens in Q4 2025 and 2026?

“Moynihan is trying to demonstrate that the business can grow and hedge funds different investors in stock want price appreciation not just dividend. The decision to host the investor day was made long ago - JPM does it every year. Jamie Dimon has taken away the excuses of big banks that they can’t grow.”

As we note in a recent article published by The Daily Reckoning, “The Bezzel: Is it 1925 All Over Again?,” that tales of woe regarding the Fed-fueled credit boom in commercial real estate and private credit will continue to grow in number in 2026.  When it comes to fraud, cockroaches are an inconvenience, but wharf rats carry the plague and are an existential threat.

Is the impending ZoMa administration in NY City Hall any worse than the devastation caused by the 2019 Housing Stability & Tenant Protection Act of 2019? We think that the panicked crowd of New York landlords and developers have greatly exaggerated the impact of ZoMa, who is a slick salesman but has even less substance that the disastrous Mayor Bill de Blasio. 

The latest statements about a possible stock offering for the GSEs seem to be designed to boost the share price in the near-term and do not provide any more information than we had when such statements were made previously.  Given the management changes announced yesterday and the other requirements for a successful offering, we have a hard time believing that a GSE stock offering will occur this year.  Notice how the shares of Fannie Mae popped for a couple of days this week

The first obvious point from the Q3 2025 earnings and commentary so far is that the larger banks in the US and Europe are starting to back away from private credit markets. When you hear Goldman Sachs (GS) CEO David Solomon and JPMorgan CEO Jamie Dimon making cautionary statements about private credit and recent disasters like First Brands and Tricolor, that tells you that they are trying to mitigate potential shareholder lawsuits down the road.

So the $200 billion asset Fifth-Third Bank (FITB) is buying $80 billion asset Comerica Incorporated (CMA)? Is this the start of a wave of similar transactions among regional banks? Hopefully not. This deal neither creates great value nor promises significant synergies, but it does make for a bigger regional bank with so-so financial metrics. Essentially FITB is rescuing CMA shareholders.

Below we set up Goldman, Morgan Stanley and the other asset gatherers as we go into Q3 2025 earning this week.  As you might expect, GS is ahead of where it was a year ago in terms of non-interest income, earnings overall and equity market value.

With the FOMC cutting the target for fed funds one quarter point last week, we expect to see funding costs for banks continue to fall, part of the larger narrative that has seen bank loan demand and share repurchases leaving a great deal of dry powder.  Deposits are growing 2x loans, meaning that the balance must go into securities. One of the reasons that lenders of all sorts have been pushing down loan yields is to capture assets in a market that is short quality duration.

In this edition of The Institutional Risk Analyst, we ponder the world of credit and investing as sovereign nations see their debt ratings sinking below that of global corporations. Meanwhile, the price of gold is reaching new highs. Then we set up the Q3 earnings of the top-seven US depositories for subscribers to our Premium Service as we surge into quarter end with equity markets at all-time highs and global central banks turning the money spigots wide open.

PNC went down less in April, but then lagged the leaders in our bank test group, not exactly a rousing vote of confidence in the $550 billion bank. The acquisition of FBHC may not help. The traditional rule of thumb in banking is that paying anything more than 1.25x book for a bank is usually not recovered.  We do not have a position in PNC.

If we were to select one characteristic that describes the financial markets today it would be confirmation bias. The human tendency to interpret new evidence as confirmation of one's existing beliefs or theories is among the most powerful and dangerous trends in financial markets, especially when the predominant passive investment strategies favor a net-long position. Nowhere is confirmation bias more apparent than the market for private-equity backed IPOs. 

The largest bank loan portfolio increases reported by the FDIC were in loans to non-depository financial institutions and broker-dealer loans to purchase or carry securities, including margin loans. This situation is inherently unstable.

The prospect of Zohran Mamdani becoming Mayor of NYC and the rise of other socialist elements in the Democratic Party means that owners of New York real estate are facing effective expropriation of their property.  And the real losers are New York consumers.