The Institutional Risk Analyst

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 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.

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.

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.

We all were more than a little amused to learn that in the most recent bank stress tests the Federal Reserve Board decided to ignore the massive financial and reputation risk in private equity and private credit. With cash bids for private assets plummeting, and sponsors in full flight due to prospective litigation by jilted clients, how do the Fed and other bank regulators retain any credibility? Our friend Nom de Plumber had an appropriate observation...

Researchers at Apple just released a paper that throws cold water on the "reasoning" capabilities of the latest, most powerful large language AI models. In the paper, a team of machine learning experts makes the case that the AI industry is grossly overstating the ability of its top AI models, including OpenAI's o3, Anthropic's Claude 3.7, and Google's Gemini.

TD was up about 6% over the past three months, the only name in our test group with a positive three-month market return, of note.

Some of the smaller holders of MSRs may ask themselves if selling right now is not the best strategy over a 36-48 month horizon. 

Some of the largest banks by assets have dropped from the top quartile into the bottom half of the distribution for the top 100 banks

And just why do financial firms like HOOD, SoFi Technologies (SOFI) and Block (XYZ) talk about EBITDA in their investor materials?

We think it is notable that AMP has underperformed the other members of the group other than SCHW over the past year.

GS had not appeared in the top 25 since we began the indices a year ago, while MS had made it three times.

Private equity portfolio companies are about 10 times as likely to go bankrupt as non-PE-owned companies.

Yes, net loss rates in percentage terms post default are back up to 2010 levels, but the dollar volume of net charge-offs remains very low.

As and when GS can exit the loss leading credit card relationship with AAPL, the performance of the business should improve significantly.

What does the upsurge in repo rates at the end of September suggest? None of the media who supposedly cover the Fed seem able to ask.

The banking industry has segmented into a handful of above-average performers and JPM is the largest leader of these "winners"

How is Goldman going to extricate itself from this profoundly unattractive business with AAPL without destroying Apple Card?

The Q3 interest rate rally still leaves the industry with a negative capital position since the average securities yield is only 3%