The Institutional Risk Analyst

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.

“A higher money price of gold is best read as a symptom of a weaker currency. It isn't really the gold going up, it's the dollar or fiat currency in general going down.” That seems to me to be right. And then he says, “The value of gold lies in being independent from political discretion. Fiat money is a claim on the future discretion of politicians.” Isn't that good?

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.

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.

Owners of crypto tokens hold nothing except an option to sell their flutter to a greater fool. The real worry for the future is that another financial debacle — à la FTX — where crypto was revealed to be pure fraud will surprise the markets as burned punters flee their speculations. The fact that crypto prices are increasingly being supported by stock issuance and schemes like perpetual futures contracts (Perps) suggests the end of the game is nigh.

SOFI is up almost 300% while the Bitcoin futures traded on the Chicago Mercantile Exchange are up less than 100%.  Below we provide some thoughts on the banking group as we head into September. 

Whalen Global Advisors LLC (WGA) has published the latest edition of the WGA Top 50 Banks, the fifty top performing large commercial banks in the US. Drawn from the members of Peer Group 1 and other sources, WGA screens the group based upon five proprietary measures of financial and market performance.

Smaller issuers of stable coins will soon be competing with Verizon (VZN) and JPMorgan (JPM), while platforms offering turnkey coin solutions will multiply like Lantern Flies. 

Imagine if the Fed had to tell the public that federal deficits were bad for bank safety and soundness? We haven't had a Fed chairman since Arthur Burns who would speak publicly about the inflationary aspect of federal deficits.

We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders.

We noted in the most recent IRA Bank Book that the Q1 2025 banking industry data from the FDIC was showing improvement in certain commercial line items, particularly non-owner occupied real estate. But is this another head fake by desperate banks trying to conceal rancid commercial real estate exposures?

The intriguing thing about private coin empires is that they are obviously not a positive for existing payment systems, yet neither are they dependent upon crypto. Larger sponsors may be able to create exclusive coin ecosystems without actually touching crypto assets at all. Fiat to AMZN coin, “ZON,” is really all that the sponsor needs.

As of yesterday's close, BK was right behind SoFi Technology (SOFI) leading the bank surveillance group higher. BK closed yesterday at 14x forward earnings and 1.6x book value, roughly the same PE multiple as JPM but at a lower book value multiple.

“Our operative assumption is that the strong economy and continued high inflation expectations will mitigate against any interest rate cuts in 2025,” Whalen notes. “We expect to see the FOMC end the shrinkage of the central bank’s balance sheet, which should help to increase the very low growth rates for bank deposits.”

Even a small decrease in prepayments due to higher LT interest rates could significantly impact the fair value of the Bank of America mortgage portfolio, forcing unrealized losses higher. If LT rates continue to rise, one veteran banker told The IRA yesterday, then BAC and several other large banks are going to start to literally shake apart from unrealized losses on COVID era assets.

While GHLD provides a lot of good information about their business, the investor disclosure provided by UWMC is a bad joke, especially when you remember that UWMC is the largest nonbank lender in the US. The Q1 2025 press release is just 9 pages in length and lacks some of the most basic financial information available from UWMC’s peers.

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.

When President Donald Trump says the Fed should cut interest rates, he is probably right – at least speaking from the perspective of the real estate markets.

When Elizabeth Warren and Maxine Waters spoke publicly against the CapitalOne-Discover transaction, they were actually supporting the monopoly position of JPMorgan and other large banks. By opposing CapitalOne-Discover and, indirectly, supporting JPM, Warren, Waters and other progressives are actually hurting low income consumers.

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.