The Institutional Risk Analyst

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.

Of note, JPM's CFO Barnum said in response to a question that “I haven't heard anything to suggest that the private [credit] deals are performing differently from the public deals. It probably is true at the margin that some of the new direct lending initiatives involve underwriting at slightly higher expected losses, and that's significant because, as we've been discussing here, the wholesale charge-off rate has been very, very low for a long time."

“The delinquency rate for commercial mortgages increased in the second quarter of 2025 across most major capital sources,” said Reggie Booker, MBA’s Associate Vice President of Commercial Real Estate Research. “The largest increase was among CMBS loans, driven by rising delinquencies in both multifamily and office properties. Delinquency trends continue to reflect differences in property type, loan structure, geography, and borrower profile.”

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..."

The surprise pre-release of Q4 results led to a significant drop in JPMorgan's stock price and took down the entire sector along with it. But is this the only negative surprise likely to come from JPM? We think not. CNBC’s Jim Cramer said on X yesterday that investors should buy JPM on the dip, but we disagree. In fact, the markets seem to know something about JPM. Maybe this explains why Citigroup (C) has outperformed the House of Morgan all year.

“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.

Is the impending ZoMa administration in NY City Hall any worse than the devastation caused by the 2019 Housing Stability & Tenant Protection Act of 2019? We think that the panicked crowd of New York landlords and developers have greatly exaggerated the impact of ZoMa, who is a slick salesman but has even less substance that the disastrous Mayor Bill de Blasio. 

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.

“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?