The Institutional Risk Analyst

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.

“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.

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.

We infer the size of the NDFI portfolio of individual banks by subtracting the aggregate NDFI series of the FDIC from Other Loans & Leases. In 2010 when the FDIC first started gathering the data, NDFI loans were less than a quarter of the “other loans and leases” (OLL) category, but today they are 60% of OLL and growing fast.

As we told Daniela Cambone last week, the collapse of private equity and credit could be one of the biggest busts we've ever seen on Wall Street. Why? Because the world of private equity and credit is entirely illiquid, something that retail and even institutional investors cannot tolerate in times of market stress.

APO CEO Marc Rowan has argued that private markets are superior to public markets due to consistent excess returns (1.5% higher annually), better diversification, and lower risk than traditionally assumed. The debacle around OWL and other examples suggests that Rowan is mistaken and that public markets are superior to private schemes.

Tech bellwether Nvidia (NVDA) dropped dramatically last week, but less than the stock had fallen in January or in December of last year. Cisco Systems (CSCO) tumbled 11%–12.3% on a downbeat outlook, making it one of the largest single-day drops last week. Microsoft (MSFT) is down 20% since January due to investor fatigue over the absurd AI narrative. Are these stocks a buy on the bounce?

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...

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.

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.

The Trump FSOC document reads like a Marvel comic book and is entirely laudatory towards crypto fraud, but uses the same idiotic language as former Treasury Secretary Janet Yellen in describing the grave systemic risks posed by residential mortgage servicers. The report states incredibly: "The continued use of U.S. dollar-denominated stablecoins is expected to support the role of the U.S. dollar in the international financial system..."

As we have said consistently, it is better to own the shares of stronger crypto enablers like HOOD and SOFI than the tokens themselves. It is the enablers who profit at the expense of the remaining true greater. We were watching a fascinating conversation with independent technology analyst and advisor Benedict Evans earlier this week and he made the point that serious technologists have largely abandoned crypto as an area of study.

Does the Trump White House understand that the professional staff of the GSEs are preparing to roll out yet another capital increase for the residential housing market in 2025? Does Director Pulte understand that the changes are being advanced by the staffs of the GSEs in his name and with his apparent support? We suspect that the answer is no.

Most public companies are so invested in the false gospel of AI that they dare not even hint at the truth, namely that the vast majority of AI projects will never be profitable or even relevant. As LeCun notes, consumers will benefit from more robust search tools, but the AI that emerges in the next decade will be too feeble and too fallible to be deployed by business. Recall the costly fiasco of the early AI charade called "Watson" from IBM.

“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.

The accumulation of delinquent loans in the mortgage complex since COVID has gotten to the point where residential loan defaults have no place to go but up. Higher delinquency levels will enable investors to pay less for mortgage loans in the secondary markets, adding to cash losses per loan that are already several points vs the loan balance. It's not about "gain on sale" but rather cash received.

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.

If the Powell FOMC crashes the short-term markets, again, because the Board staff mismanages the required level of liquidity, Powell will need to resign same day but the real loser will be the Trump Administration. Neither the public nor members of Congress will understand who caused the latest market upset, but they will be happy to blame Donald Trump and members of his team.