The Institutional Risk Analyst

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

Several major private credit firms capped investor withdrawals this week, as an accelerated exit wave hit the industry. Firms typically limited redemptions to their customary 5% quarterly threshold. The Ares Strategic Income Fund capped withdrawals at 5% after receiving requests to redeem 14.4% of shares. And Apollo's flagship $26 billion retail-focused fund curbed redemptions at 5% after investors attempted to cash out 16.8% of their holdings.

Anybody focused on investing not concerned about agentic trading is fooling themselves. And it comes from a discussion I had with one of my sons about what may be happening inside virtual chat rooms that now exist that humans cannot enter. Only AI agents can enter these chat rooms. And they work with each other, not necessarily on trading and on strategies, but they work with each other on numbers and issues. Humans are barred from these chat rooms.

The FOMC meeting this week with Chairman Kevin Warsh was about what we expected. Less is more in terms of forward guidance, maybe pivot to even less talk MT. Models being renovated, personnel evaluated. Maybe the end of the idiotic dot plots is in sight? No guidance will be forthcoming from the Chairman.

The contest to see who will acquire the mortgage REIT Two Harbors (TWO) seems to have ended in a defeat for United Wholesale Mortgage Corp (UWMC) and a win for CrossCountry Mortgage, the #2 retail lender in the US behind Rocket Companies (RKT). The TWO Board of Directors unanimously recommended a vote for the proposed transaction with CrossCountry Mortgage at the Special Meeting on June 23, 2026.

In fact, we expect the war with Iran to result in higher interest rates, higher inflation and rationing of key petroleum byproducts in coming months, something that nobody in the Trump Administration seems willing to discuss. If Washington was populated by serious people, the federal government would already be making plans for rationing key refined products.

Many banks, led by the likes of Charles Schwab (SCHW) and Bank of America (BAC), refused to restructure their bond portfolios when interest rates were lower, leaving billions of dollars in potential earnings sitting on the table. As we discuss below, SCHW had a yield on its securities book, which is almost half of the group’s assets, of less than 2% at year-end 2025. Why is this OK?

As of December 31, 2025, Athene had the ability to draw up to an estimated $30.7 billion via advances, inclusive of borrowings then outstanding. But when the funding agreements are added, the total exposure to the FHLBs from APO is over $50 billion vs $74 billion in total capital and retained earnings for the FHLB system.

Once again, the management of TWO seems to have managed to destroy shareholder value in great bloody chunks. Given that the mortgage servicing rights of TWO had a book value of $2.4 billion at the end of Q4, it seems fair to ask whether the best trade for TWO shareholders is to vote against the merger with UWMC and simply sell the MSR.

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.

Institutional investors can and do abide by limits on redemptions for private equity and credit, at least for a while. Retail investors cannot and do not, and will run when there are clear signs of distress and illiquidity. Remember the deposit run at Silicon Valley Bank.

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.

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?

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.

PFSI trades on a trailing P/E of 14x vs ~ 8x for RITM. PFSI trades around 1.6x book vs 0.9x for RITM. Case closed? We have long believed that RITM should spin off its manager to create a comp for PFSI and then externally manage the RITM REIT. Like PFSI, in this scenario the new RITM manager would need to retain the Ginnie Mae MSRs.

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?

Hedge fund mogul Bill Ackman changed his tune and told investors this week that the government should not hurry to release Fannie Mae and Freddie Mac from government conservatorship. This announcement is essentially window dressing on the part of Ackman after FHFA Director Bill Pulte announced that the GSEs would not be released from conservatorship, dashing the hope of long-suffering shareholders.

As we've noted in the past, owning the share of crypto facilitators such as SOFI or Robinhood Markets (HOOD) is a better trade than owning BTC. We have seen a lot of market participants taking profits and moving to the sidelines, one reason why the markets have not seen an explosion in downside volatility -- yet.

We expect the shares of the GSEs to lose ground this week given last week’s bizarre announcement by Federal Housing Finance Agency Director Bill Pulte that the GSEs will not be released from conservatorship after all. After pumping the two stocks for months with the prospect of release from conservatorship, Pulte said Friday that the GSEs would stay under federal control for now, reinforcing their conservatorship status while exploring a limited public offering option.

As Chairman Powell said in the latest FOMC presser, the SOMA reinvestment plan is intended to get their duration down to that of the Treasury debt outstanding by allowing long duration MBS to be replaced by short-duration T-bills. Could the Fed have continued to shrink the SOMA further as Bowman and others have urged?