The Institutional Risk Analyst

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Forbearance, Shrinking NIM & Prepayments Menace US Financials

Updated: Apr 14

April 12, 2021 | In this issue of The Institutional Risk Analyst, we look at three key issues that you are unlikely to hear discussed in the financial media as banks and nonbanks begin to report Q1 2021 earnings this week:


  • Poor visibility on “expected” credit losses,

  • Ever shrinking net-interest margin, and

  • Massive loan prepayments in Q1 2021


Simply stated, US banks are twice as expensive as they were a year ago looking at earnings and assets, but have less transparency and greater volatility in terms of credit costs and income going forward.


Leading off earnings for the big boys on Tuesday, we’ve got one of our favorite specialty bank holding companies, Charles Schwab Corp (NYSE:SCHW). On Thursday we have another favorite we wrote about earlier (“Western Alliance + AmeriHome = Big Possibilities”), Western Alliance Bancorp (NYSE:WAL). Of note, that transaction closed in a matter of weeks, no surprise given the capital and operating strength of the bank.


After WAL, we’ll hear from JPMorgan (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), First Republic Bank (NYSE:FRC) and Goldman Sachs (NYSE:GS).


JPM is at a five-year high, this after losing half of its value in the volatility downdraft of April 2020. JPM is up 170% since 2017, illustrating the fact that inflation is not low, even when it comes to relatively pedestrian bank stocks.


GS is up a mere 120% and WFC is down 13% over the same period. FRC is right behind JPM when it comes to equity market performance. The table below shows quarterly dividends declared by the top-five US BHCs.