The Institutional Risk Analyst

When we consider the track of interest rates during the term of President Donald Trump, it is hard to make the case that the Powell FOMC was not giving the White House everything they wanted and more. Now, however, the US central bank seems to be headed for a policy stance that is closer to neutral than accommodative.

If you look at the abysmal poll numbers for President Donald Trump in terms of his handling of the economy, you can seen why all banks and particularly the consumer lenders are trading so weakly at present. Most of the banks in this group and, indeed, the whole WGA Bank 50 group have reported excellent earnings, but it does not matter. Mr. Market is focused on year-end 2026 and 2027, one reason why we think the FOMC will be cutting the target for federal funds by Spring.

Coming out of Q2 2026 earnings, JPMorgan (JPM) was the leader in all respects, toping $5 trillion in assets and generating net income that has pushed the bank over 1.5% return on assets (ROA). Following JPM was PNC Financial (PNC) and USB, both of which are showing solid growth in terms of asset returns and stock prices. But the fact is that the top seven banks are going nowhere in terms of the equity market, as shown in the chart below.

The first point to make is that neither of these banks is a particularly good financial performer. WAFD is a bottom quartile performer vs Peer Group One and has reported a lot of noise of late in areas like securities losses. WAFD makes its way in life as a small regional bank by keeping low expenses. When we visited the bank years ago during our time leading bank ratings at KBRA, the CEO talked about his predecessor turning off every other lightbulb in the bank’s Seattle of

Bank of America CIO Michael Hartnett notes that it is imperative for the Bessent/Warsh combo to stop higher US Treasury yields, since long duration trades are working ”too well.” We view such talk as wishful thinking from the Sell Side of the market. There is no way for the Treasury to force LT yields down, thus the only alternative is for the Fed to 1) raise ST interest rates and 2) restart quantitative easing (QE), an eventuality that will signal surrender on the fight aga

Over the past 30 days, both gold and silver prices have experienced a notable upward trend, recovering from mid-July dips to close higher in early August near $4,340–$4,400/oz for gold and $63–$64/oz for silver, driven by shifting Federal Reserve policy outlooks and economic data. As rising inflation pressures LT interest rates, we expect to see both gold and silver prices recover from the July lows. As attention increases to the deteriorating fiscal situation of the US...

We have enormous respect for Nierenberg and his team, but wonder why they don't make some obvious adjustments in the business model. For example, NLY has 20% of its capital in agency MSRs and focuses on agency mortgages and MBS, RITM has one of the largest MSR portfolios in the industry and yet is transitioning away from residential mortgages in pursuit of a multi-asset strategy. The result is a business profile that is a challenge to define...

As we noted some time back, whenever the pseudo conversation in Washington regarding inflation (a/k/a “affordability”) becomes difficult, the BLS and/or the Fed moves the goalposts. Just as nobody in Washington wants to talk about the budget deficit or the impending collapse of Social Security, the conversation about inflation is totally contrived and false.

In the second quarter of 2026, Morgan Stanley’s margin and other lending balances increased by $3.0 billion (or 9%) sequentially compared to the first quarter. Year-over-year, these loan balances surged by $10.3 billion (or 40%).

One reason that we believe that consumer loss rates are so low is that more aggressive lenders like HAPN and many others are ready and willing to provide unsecured financing to consumers. Given the signs of stress we see building in the private residential loan channel, we'd be more inclined to take the short side of HAPN -- especially if they are so anxious to take risk in home improvement lending.

The major Wall Street investment firms tracked by the WGA Bank Top 50 followed the industry trend and reported lower credit costs in Q1 2026. Income was higher due to the brisk activity in the capital markets in the first three months of the year, but asset returns and funding costs fell significantly. We suspect that both trends will be partially reversed in Q2 2026 results and very visible in 2H 2026. Suffice to see that Elon Musk was lucky indeed to get his IPO for SpaceX

In Q1 2026, the top seven banks continued to see asset returns decline, but funding costs fell even more. Net interest margin (NIM) decreased from the prior quarter to 3.31 percent, but loan growth driven by AI nonbank lending continued, rising 7.1 percent from the same quarter in 2025.

“One reason why bank credit statistics look so good is that the markets remain awash in liquidity, forcing asset prices up and default rates down,” notes Whalen. "We estimate that there are now $3 trillion in unused loan commitments to non-depository financial institutions."

AMP is one of the highest valued banks in the WGA Bank Top 50 test group, currently just below 7x book value. Last year and in 2024, AMP touched 9x book value because of the strong growth in the bank’s core advisory business. The stock has traded off because of fears that AI will displace investment managers and a more general rotation away from financials after last year’s blazing performance.

Of course, in the muddled markets at present, there are a number of low-scoring banks which have done relatively well in recent weeks. The parent company of tiny Merchants Bank of Indiana, Merchants Bancorp (MBIN), for example, saw its stock price rise significantly in early 2026, 2x the S&P 500 over the past year, driven primarily by its inclusion in a major index and strong financial performance.

This change in posture by President Trump opens the way for Kevin Warsh to be confirmed by the Senate perhaps by May 15th. More important, it provides a way for Powell to retire, which opens a second governor seat on the Board. Big question: Even with the investigation by the DOJ ended, does the Trump White House have the votes to get Warsh confirmed?

“Private debt” gating retail investors is the whipping boy du jour, but not the canary in the coal mine, nor the real problem, nor the real risk. Over-investment and malinvestment in things like data centers or unprofitable business models that require cheap money and are based on hype and suspension of common sense, excessive government spending, inflation and currency debasement, populism and socialist rhetoric manifesting itself in real policy and tax decisions, these are

As we noted in our discussion with Julie Hyman on Yahoo Finance this week, the big question facing banks in Q1 2026 is disclosure about private credit. The big losers in private credit are not banks, but rather institutional and retail investors who were lured into these wholly unsuitable, structurally illiquid investments by the false public statements made by the sponsors.

Whereas in the early part of the year, mortgage lenders were looking forward to lower interest rates and higher lending volumes, the start of hostilities in Iran suddenly reversed this narrative. As we discussed this week in our podcast with Julia LaRoche, the war with Iran will likely keep inflation and interest rates elevated for months or years to come.

The average of non-interest income to assets for the more than 100 large banks in Peer Group One is 1% of assets. AXP’s non-interest income was equal to 18% of total assets at the end of 2025, putting the $290 billion asset bank in the 99th percentile of all US banks based on this measure. Add this to astute management and high asset turns and AXP is the premier bank in the US based upon market valuation.