AI Volatility Ebbs, Jensen's Toast, and Large Cap Financials Sidestep
November 12, 2026 | In this issue of The Institutional Risk Analyst, we take a look at the market performance of some of the banks and financials that we track in our Top Rankings page. We have divided the subscriber section into three separate pages and added a new surveillance group for Finance Companies broadly defined, including fintechs, private credit and consumer lenders.
WGA Finance Top 10 | Q4 2026
Subscribers to our Premium Plan now have access to the latest rankings for the top 102 public banks by assets, Peer Group 1; our selection of the top 25 finance companies and over 50 precious metals stocks. We’re going to add mortgage related issuers as well, but that is going to be a very sad story with the 10-year Treasury note back at 5%. Residential mortgage finance is a tiny entrepreneurial community that is about to get much smaller.
Source: dataQollab
Compensation across Wall Street is expected to rise nearly 4% this year, according to a report from Options Group, an executive search and consulting firm that specializes in financial services. “Volatility was the defining feature of the past year, and for many firms it proved profitable,” said Michael Karp, chief executive of Options Group, told the Wall Street Journal.
Although volatility in terms of markets and related revenue and earnings have been a feature of the past year and more, stock prices for US banks have been subdued to say the least. As Charlie McElligott at Nomura mused: “No Juice to Squeeze in VIX -Space…But Realized Vol Feels Like It’s Gonna Stay Higher, with a Higher Floor in VIX.”
Financials & Volatility
The most recent update to the WGA Bank Top 50 features a lot of smaller story stocks, while most of the large cap financials are well down the list. Consider a short list of some of the leaders and losers in the WGA Bank Top 50 and Finance Top 25.
WGA Bank Top 10 | Q4 2026
Tiny Eagle Bancorp (EGBN) is up 108% in the past 12 months — primarily driven by a strong profitability rebound, a sharp drop in credit-loss provisions, and a positive sentiment shift following severe prior headwinds regarding commercial real estate. We rated EGBN when we ran financials at KBRA.
As we noted in our last issue, not all commercial real estate is bad, especially in a town like Washington, where lawyers and related dealings are the chief occupations. EGBN is a commercial lender that banks Washington real estate and law firms, but is still trading below book on a 24 trailing P/E, one reason the $1 billion market cap stock was 74th in the WGA Bank Top 50 in Q4 2026. Size matters.
Next on the list is Merchants Bancorp (MBIN), a $21 billion asset commercial lender based in Indiana which was up 68% in the past year. MBIN ranked in the 90s in the top 102 banks in our test group for the WGA Bank Top 50, but ranks 99th in Peer Group 1.
MBIN rallied significantly—up more than 63.5% over the past 12 months—driven primarily by a strong earnings recovery following a rough 2025, reports MarketBeat. MBIN was trading at 1.27x book value at the close on Tuesday.
The bottom of the list in terms of 12 month total return includes SoFi Technology (SOFI -37%), Capital One Financial (COF -19%), Happen Bank (HAPN -19%), Ally Financial (ALLY -17%) and Synchrony Financial (SYF -14%).
We have written critically about all of these names are have short positions in two stocks. If you wanted to short the whole group, we would not object because we anticipate higher credit and funding costs, and more noise from Washington, as discussed below.
Housing & Affordability
Notice that Democratic politicians are suddenly proposing $1,000 down mortgages and other expedients to address housing affordability. Stay tuned for more craziness. Wharton’s Susan Wachter, for example, writes that the U.S. housing market’s core problem is not financial instability, but affordability. If the obligor cannot afford the house, then they are more likely to default.
Wachter argues that lenders should eliminate down payments and just get young people into homes and mortgages. The only problem with this and similar proposals is that the bottom of the K shaped economy is already taking a kicking in terms of credit, with FHA delinquency in the mid-teens.
At 15% delinquency in FHA, many government lenders are losing money on servicing and related financing costs. Wait until the deb-service-coverage-ratio (DSCR) Ponzi kicks in next year with equally high default rates. Who will service all of these small, high risk FHA mortgages in urban Philadelphia?
Source: MBA, FDIC
The Democrat controlled City of Philadelphia provides grants of up to $10,000 or 6% of the purchase price (whichever is lower) to help with down payments and closing costs. Of note, tou must complete free, City-funded one-on-one housing counseling before signing an Agreement of Sale. We wrote about the festering loan deed fiasco in the Philadelphia Sheriff’s office this week in National Mortgage News.
The Philly home price grant is structured as a 15-year forgivable loan, meaning you must stay in the home as your principal residence for 15 years to avoid partial repayment. Will it work? A four percent inflation rate says no. Higher prices for fuel, food and other necessities in 2027 could significantly boost credit expenses in the coming year.
Democrats, of course, will look for all sorts of innovative ways to address affordability. Like capping credit card rates at 10%, a pet idea of Senator Elizabeth Warren (D-MA). The only problem with this idea is that the 20% plus interest rate offsets the cost of credit for inferior borrowers across the enterprise. Citi and CapitalOne come to mind. The chart below shows average credit card receivables and net losses c/o the FDIC. The anomaly in 2009 was when banks were forced to take credit card footings back on balance sheet, but overall utilization rates are still below 20%.
Source: FDIC
Source: FDIC/WGA LLC
Whenever progressives see a situation where inflation is an issue, they first try to delete the cost of private capital – and it never works. Bleeding edge consumer lenders like SYF write off 5% of total loans in good years. Cap card rates at 10% and only rich people will have cards. Of course, Senator Warren knows that her proposal makes no economic sense, but she does not care. It sounds good.
Looking at nonbank financials this week, GreenDot (GDOT) led declines at -9.37% including after-hours, pay us later lender Upstart (UPST) was down -8.09%, second-biggest mover and 21 of the 25 symbols on our Financial surveillance list declined Tuesday.
To prove that there is a loving and forgiving God, the leader among the Finance group was Chime Financial (CHYM), followed by two recently redeemed dogs, Block (XYZ) and PayPal (PYPL). The last two stocks had been trashed so badly earlier in the year that they almost had to bounce – and they did.
The financials on both names are not particularly good, but as we’ve learned with Citigroup (C) and Toronto Dominion (TD), performance is less important than popularity. Citi is up 20% YTD and is the best performer of the top five banks, but with the worst financials.
Source: FFIEC
TD was up 31% YTD and is clearly overvalued, but there are another dozen smaller names in the WGA Bank Top 50 that have likewise overperformed. TD's $500 billion US operation is a below peer performer with above peer credit costs. A comparison with the other super regionals in the $500 billion asset size category -- USB, PNC, TFC -- is decidedly unflattering.
And then there is SoftBank Group Corp. (SFTBY), which peaked around $29 in June but has been cut in half since then. SoftBank Group Corp. reported its first net loss in almost two years after a $3.7 billion writedown over its US data-center projects and AI valuations dipped around the world, Bloomberg reports:
“The company swung to a ¥1.12 trillion loss in its fiscal second quarter after writing down non-refundable advance payments it made to secure power-generation equipment for its US data centers.”
But the bigger problem for SFTBY is that the circular finance game in AI has outgrown the players, leaving CEO Masa Son with a lot of stocks he can no longer pump. He literally ran out of cash.
This is a familiar problem going back to the days of Fisk & Gould and the gold corner of the 1869. The two scoundrels launched an audacious scheme to involve President Ulysses Grant in their conspiracy, which depended crucially on preventing the Treasury from selling gold. But it did sell gold.
The markets have been net sellers of AI for some time. As the options on AI datacenters go bad, we suspect a lot of players will be confessing to imprudent financial commitments and walking away from related obligations.
Of note, AI darling NVIDIA Corporation (NVDA) is also down, but it would be incorrect so say that the tawdry episode between CEO Jensen Huang and the supposed Chinese spy is the reason for the stock’s poor performance. In fact, as the AI bubble has been slowly deflating, NVDA has basically gone sideways and is down 12% YTD vs 30% for bruised SoftBank. Will Huang survive? The Wall Street Journal says no, but the compute of AI will live on (h/t Mickey Maini) long after he is dust.
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