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May 12, 2025  | Premium Service  | Most of the finance companies we follow outside of the residential mortgage vertical were down significantly year-to-date, but have bounced strongly in the past month. What is the outlook for nonbank finance and that subset known to some as fintech over the next couple of years? If we assume that there is an accumulating need to purge the system of defaults in areas such as unsecured consumer, credit cards and auto loans, how do finance companies new and old ride out the storm? Does buy-now-pay-later (BNPL) become pay never? We have included some more established large-cap names in our group as a basis for comparison to the emerging fintech stocks, but no surprise that the newer entrants such as Robinhood Markets (HOOD)  and Mercado Libre (MELI)  are among the top performers YTD. The large-cap Alibaba (BABA)  leads the group overall, both in terms of YTD returns and sheer size. BABA has twice the market cap of Blackstone (BX) .  At one point last year, HOOD was up several hundred percent, but has given back much of those gains. Yet the leaders of our finance group have outperformed the broad market, as shown in the table below sorted by 1 year returns. Finance Companies Source: Bloomberg (05/09/25) Note that these larger names have rebounded as the media noise from the Trump tariff strategy subsides, but at the bottom of the list we see the consumer lenders, including the BNPL platforms like Upstart Holdings (UPST) and Affirm Holdings (AFRM) , along with Lending Club (LC)  and Block Inc ( XYZ ) . Fintech firm Klarna halted its planned initial public offering (IPO) earlier this year after the market kerfuffle due to President Donald Trump's sweeping tariff announcements. We had the pleasure of hearing Dr. Art Laffer  speak last week at a the annual dinner sponsored by Nomura (NMR) . He assured the audience that the Trump strategy of provoking negotiations with our trade partners is deliberate and carefully calculated to result in changes in America's terms of trade. And as this post is released, the US and China have agreed to reduce tariffs for 90 days. Look for the markets to react accordingly. In the meantime, however, observed levels of market volatility are likely to remain well-above last year, but that does not mean that some names will not rise. The doom and gloom crowd has once again missed the point that 1) trade deals are likely to be concluded quickly and 2) signs of a recession are building, but very slowly. If the FOMC ever decides to cut ST interest rates, this entire group will likely rally, but the names with more perceived macro and/or consumer risk will underperform.  Source: Bloomberg (05/09/25) Number four on the list of finance company stocks YTD is NU Holdings (NU) , which we own in portfolio. Several Street analysts downgraded the stock at the end of 2024, but the equity remains well-bid and we may add to our position during any weakness.  We view both NU and MELI as attractive ways to benefit from LT economic growth in the Americas through increased consumer finance volumes. Notice that all of these fintech names are outperforming the S&P 500 Index. Source: Yahoo Finance (05/09/25) Looking at HOOD, crypto currency trading after the November victory by President Trump seems to have driven revenue in Q4 2024, but in Q1 HOOD seemed to lose momentum. Earlier in 2024, for example, crypto revenues fell below $100 million, yet notably option volumes have been steadily marching higher. News reports suggest that the growth of options trading volume has to do with increasingly sophisticated retail investors, but we think there are probably several other factors at work. Crypto and options trading are the big headlines at HOOD for the moment. The chart below is from the HOOD Q1 2025 presentation. Perhaps the key factor to watch in the maturation of HOOD is whether growth rates on its core businesses like options and crypto continue to slow.  Many of the once hot new names in fintech are now at the bottom of our list. Once upon a time, names such as Block and LC also had big growth rates, more than a dozen analysts writing research and dozens more blogs and web sites pumping these stocks. While HOOD has a lot of mindshare in the fintech world, it is still a tiny stock and is not really a good comp for say Charles Schwab (SCHW) . The chart below shows our finance group by market cap, with the top YTD returns starting from the left. Notice that MELI and NU have larger market capitalizations than does HOOD, big positives for these stocks when facing large global funds. The payments giant Fiserve (FI) is another substantial player in finance and also mortgages that is often overlooked. Fintech turned bank SoFi Technology (SOFI) remains a tiny stock compared to the rest of the finance/fintech group. The institutional credit managers including BX, Apollo (APO) and Ares Management (ARES) are all sensitive to any sign of a recession, in part because many distressed credit, real estate and other strategies sponsored by these firms are rolling over. As and when a real recession arrives, we expect to hear a lot of complaints from pensions, endowments and other regulated investors about losses in private markets. These losses are coming just as the Trump Administration is cutting federal grants to many of these same institutions. "Private Equity funds have been unable to sell publicly their long-stuck, often-distressed portfolio companies," notes our colleague Nom de Plumber in New York. "The IPO market will not bid enough to recoup the initial privatization buy-out loans, meaning near-certain capital losses for the General Partners and Limited Partners (typically state and corporate pension funds and non-profit endowments)." NDP notes that the alternative exit for the PE manager is to sell the portfolio assets at (overstated) book valuations into newly introduced retail Private Equity/Private Credit ETFs, which then start life with the unrecognized losses. APO has sponsored several such deals. "These ETFs permit retail investors to redeem and re-price not daily, but only at delayed intervals, without assured market liquidity or fair pricing," NDP observes. "It is called Holding the Bag." "The SEC’s decision to publicly voice concerns about State Street Global Advisors’ and Apollo’s private credit exchange-traded fund after it approved the new product has led sources to both question the regulator’s motives and ask what the wider consequences may be," wrote Institutional Investor in March . "The SEC questioned the fund’s liquidity management, valuation practices, and the use of Apollo’s brand in its name, SPDR SSGA Apollo IG Public & Private Credit ETF." For the larger finance names focused on consumers, the risks are fairly straight forward in terms of the economy and unemployment. If employment softens as a result of the Trump trade war and/or fiscal cuts, then assumptions about defaults will negatively impact share prices. Investors know or suspect that the BNPL models have never been through even a modest recession, one big reason why these lenders and issuers of securities backed by such loans are under selling pressure. If the Fed eventually eases ST interest rates, the consumer lenders will benefit immediately, but the institutional credit managers such as ARES, APO and BX will remain under scrutiny until the level of distress in markets like private equity, commercial real estate and commercial credit generally improves. A lot of credit strategies are predicated upon the assumption of selling the asset once the balance sheet has been fixed. But these assumptions may be in doubt. We expect to see a lot of litigation and related noise in coming months arising from private equity and credit strategies, which will not help the valuations of large credit managers. History teaches us that if investor complaints about potential fraud and asset quality become loud enough and managers are forced to repurchase assets, then the alternatives for these firms start to shrink dramatically. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

May 20, 2025  | Premium Service  | Last week we took a look at the results for Robinhood Markets (HOOD) , and asked whether the torrid rate of increase in options trading and crypto currencies is sustainable. After all, what is a crypto token but an option to find a greater fool? Actually, in the current market environment, options and stop loss orders are some of the most effective tools for managing risk. Don’t forget, the next conference call for our premium subscribers is this Friday. Please send any questions to info@rcwhalen.com .

May 28, 2025  | Premium Service  | In this issue of The Institutional Risk Analyst , we provide our latest quarterly Outlook on Housing Finance.  While average home prices are still rising nationally, many markets are already seeing falling home valuations as high interest rates and a dwindling supply of buyers take a toll on residential markets.

June 2, 2025 | Whalen Global Advisors LLC (WGA) has released the latest edition of The IRA Bank Book , the quarterly outlook for the US banking industry published by   The Institutional Risk Analyst . The highlights of the new report include: The 100 largest US banks tracked by   the WGA Top Bank Index  have regained some of the value lost following the start of the US trade war in April 2025. Most bank stocks remain down for the year so far, but The IRA surveys the leaders of our bank surveillance group. Funding costs for US banks fell for the second quarter in a row, part of a larger rally in market interest rates that occurred as equity markets have sold off. Banks are also more aggressive in funding and secured markets. "We won't get beat on price," one JPMorgan banker told The IRA at the MBA Secondary. "We may not like the credit, but we won't get beat on price." Unrealized losses on securities held by banks totaled $413 billion in the first quarter, according to the FDIC . This figure was down $67.5 billion (14%) from the prior quarter and down $103.3 billion (20%) from first quarter 2024, but interest rate risk remains a problem for some large banks.  “The breakdown in the basis trade for the Treasury market at the end of Q1 was a stark warning to the banking industry,” notes WGA Chairman Christopher Whalen. “Rising LT interest rates and yield spreads in the Treasury market could pose a risk to some large banks such as Bank of America.  In   its earning release at the end of Q1 2025 , BAC reported $99 billion or about 20% of the total unrealized losses on securities for the entire US banking industry.” The report notes that WGA does not expect any interest rate cuts by the Federal Open Market Committee during 2025. “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.”  The report notes that Fed Chairman Jerome Powell may remain on the FOMC as governor after his term as chairman ends next year. WGA Chairman Whalen, who just published a new book via Wiley Global, “ Inflated: Money, Debt and the American Dream ,” noted in a recent event with subscribers that the Trump trade policies are introducing structural changes in the Treasury market that may cause LT interest rates to rise.  “Intense competition for assets caused average yields for bank loans and leases to fall again in Q1 2025, but fortunately banks were able to push funding costs down twice as much, boosting earnings,” notes Whalen. “The very timely increase in non-interest revenue for the industry may not be repeated in Q2.  But so long as consumer credit expenses remain benign, industry earnings will remain stable.  There still is no recession in sight.” Copies of the IRA Bank Book report are available to subscribers to the Premium Service  of The Institutional Risk Analyst .  Stand alone copies of the report are also available for purchase in the WGA store . Media wishing to receive a courtesy copy of the report please email us: info@rcwhalen.com Annual subscribers to the Premium Service of The Institutional Risk Analyst login to download the latest copy of The IRA Bank Book below.

June 4, 2025  | Premium Service | Last week at the 2025 Asset-backed & Residential Mortgage Conference sponsored by Bank of America (BAC) , we had the opportunity to hear Jason Granet , Chief Investment Officer, Bank of New York (BK) , talk about the bond market with his counterpart from BAC. It was an impressive discussion. Maybe that’s one reason among several why BK has outperformed  JPMorganChase (JPM)  over the past year and, indeed, over the past five years.

June 9, 2025  | Premium Service  | With the IPO of Circle Internet (CRCL) last week, financial innovation in America took another giant leap forward. Investors in CRCL have the opportunity (but not certainty) to participate in a remarkable business. People who want to create their own payments system may buy “stable coins,” exchanging fiat currency for a worthless token. CRCL then takes the cash and invests it, retaining the spread and also charging fees for users to create their very own coin ecosystems .  Will global retail funnels like Amazon (AMZN) and Alibaba Group Holding Limited (BABA) eventually spawn coins to limit competition? We’re tempted to set up a CRCL account with some of our offshore friends just to check out the “know your customer” (KYC) protocols used by CRCL. The CRCL token is “pegged” to the dollar, which is a remarkable commentary on a new payments mechanism that is supposed to help you escape the broken world of fiat dollars. But if you don't peg a "stable coin" to the dollar, will anyone care? Stable yen? Russian rubles? No, too much volatility. We have always appreciated the speculative potential in bitcoin, ether and other movable tokens, but a “stable coin” issued by an unregulated nonbank strikes us as a truly amazing and innovative way to lose money. FTX and many other examples of coin-based frauds speak loudly to the need for caution, but the rush into stable coins is not informed by past concerns.  As put most succinctly by Friedrich Nietzsche (1844-1900): “Madness is rare in the individual—but with groups, parties, peoples, and ages it is the rule.” John Chancellor , in perhaps the most important economic commentary ever published in The New York Review of Books , observed that: "More accurate historical accounts of speculative manias and advances in the psychology of decision-making have failed to produce any noticeable improvement in financial behavior. On the contrary, over the past quarter-century, we have witnessed a succession of speculative bubbles, from dot-com stocks to the current craze for new technologies such as electric vehicles and cryptocurrencies." Political volatility is another coin risk. Donald Trump Jr. last week seemed to be distancing himself from his father’s meme coin — while defending the family’s broader foray into crypto as a response to being frozen out of the traditional banking system. “I wasn’t involved in the meme coin,” Trump Jr. said in an interview on CNBC’s  “Squawk Box. ” “I’m more focused on the stablecoin, the bitcoin mining.” The key to all of these coins is who is holding the fiat cash. Last week, when Trump Jr. made it sound like he was taking his wallet and walking away from the Trump meme coin project, the result was decidedly negative in the infant market for $WLFI tokens. The very ground shook underneath POTUS, we are told. Eric Trump — who helps run World Liberty Financial alongside Trump Jr. — then made a perfect pirouette and announced late Friday that the Trump token had “aligned” with the company , The Hill  reported, and would no longer being moving forward with a separate crypto wallet. Readers of The IRA with unrealized profits in $WLFI might want to think about taking their money off the table. This is a game you want to play with House money. More generally, some observers worry that the stable coin fad is somehow a threat to the dollar and other non convertible paper currencies, but unless we see stable coins accepting non-dollar payments, the net net in terms of aggregate liquidity seems to be zero.  All coins are a zero sum game. You win when a greater fool looses. After all, CRCL has your cash, you have their play money, and they invest the fiat proceeds into income producing, risk-free assets, which must eventually be kept with a bank. Who has got the money and how quicky can you exit the particular coin back into fiat dollars seem to be the only two questions that matter. The custodian of your fiat should avoid taking any short-term market losses on risk-free "collateral" to avoid spooking the sheep. Remember just how fast cash ran out of Silicon Valley Bank? In the bad old days in Mexico, currency runs took weeks to reach crisis proportions because bank tellers counted very, very slowly. And if your coin sponsor uses unrated offshore banks as "custodians" for your cash, run, don't walk, to the nearest exit. CRCL was up 30% in trading on Friday, but that does not mean that the stable coin party will continue next week. In terms of the rest of our finance company surveillance group, which we discuss below for our Premium Service  subscribers, CRCL is not even close to the top performers – yet.   Many of these stocks, good and bad, have a crypto component. But frankly if given a choice, we’d probably prefer to hold the CRCL common than the stable coin it sponsors. Right? Better to be a taker than a giver of rent in this ethereal marketplace. And since the barrier to entry is obviously low or no load, with a proliferation of turnkey coin offerings as ubiquitous as Salesforce (CRM) , be careful of transient valuations for coin sponsors.   Fact is that locally sponsored wallets are growing quickly around the world, taking share from some of the more established fintechs like PayPal (PYPL) , the large banks and the global card-based wallets. Even Apple (AAPL)  and Google are fighting for share against local offerings. The proliferation of low- or no-cost coin systems is ultimately negative for established players in nonbank finance and payments, including the major card issuers, as we discuss below.  Still worried about interchange fees? Last summer, names like RobinHood Holdings (HOOD)  and Affirm Holdings (AFRM)  were down in the dumps, but the election of President Donald Trump created a powerful updraft that pulled many of the “buy now pay later” stocks up by orders of magnitude. The lack of a broad based consumer recession has also contributed to the general upswell in interest in names that, a year ago, were near the bottom of our group in terms of market performance.  But not today, as shown on the table below. Finance Surveillance Group Source: Bloomberg (June 6, 2025) We wrote about HOOD and Coinbase (COIN)  last month. One big surprise has been Block (XYZ) , which many had given up for dead but has come surging back on renewed buying interest. Perhaps trading off 80% from the all-time highs, which we enjoyed BTW, has finally made the stock compelling. We got into XYZ (f/k/a “Square”) when many equity managers discovered fintech during COVID and exited when the stock surged over $200.  Notice in the chart below that both COIN and XYZ appear to be dancing to the same tune. Our basic concerns about the XYZ business remain, but seeing the stock up is positive for the sector. Fact is that XYZ has over 4 million sellers and processed over $228 billion in payments across 5.2 billion transactions in 2024, which still makes them one of the smaller players in payments. The proliferation of stable coins and other digital wallets that operate outside of traditional financial networks is a competitive threat to platforms like XYZ, but all are trying to gain operating and pricing leverage in the coin wave. Spending by American Express (AXP) cardholders hit $1.55 trillion in 2024, a 6% increase over the $1.46 trillion in 2023. We own AXP and see them as a dominant player in the upper reaches of consumer credit vs the AFRM and Upstart (UPST) , which are very deliberately catering to the lower quartile of consumer credit. The likely delta on the credit book of BNPL models is likely to be quite volatile and perhaps even surprising to the inhabitants of Wall Street, who as a group are as jaded as were market participants in the 1920s. The chart below shows the finance surveillance group by market capitalization, then sorted with the best 1 month returns starting from the left with CRCL and HOOD. Source: Bloomberg (June 6, 2025) Finally, we want to point out that the traditional managers such as Apollo Global Management (APO) , Ares Management (ARES) and Blackstone (BX) are underperforming the crypto-charged finance group. The PE ratio on APO has doubled since last year, so perhaps the pace of value creation in the world of private credit has finally cooled. We remind our readers that returns available from public markets are typically superior to the returns offered in private equity and credit, with a lot less heartache and more liquidity. For example, Blue Owl Capital (OBDC) , one of the smaller alternative private credit managers in our finance group, just got wacked by a couple of defaults on its commercial real estate portfolio. "Two bankruptcies have sent occupancy tumbling at a 6.5M SF nationwide real estate portfolio owned by New York-based alternative investment manager Blue Owl Capital," reports BisNow . "S&P Global downgraded the credit rating of three classes of debt on a $275M CMBS loan backing the 42-property retail, industrial and office portfolio after occupancy fell from 100% to a little more than 36%, the ratings firm said last week." Managers with exposure to commercial and multifamily real estate portfolios stand a high risk of financial loss and also reputation damage in blue state markets such as New York, where more radical political candidates are talking about freezing rent to help inflation-battered consumers. These risks are largely idiosyncratic and asset-specific, but the fact that some of the larger managers of private strategies are lagging behind the group suggests that investors may be starting to discount these names to reflect these risks. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

June 19, 2025  | Premium Service  | Yesterday a fund controlled by Bayview Management announced that it will acquire all of the outstanding shares of Guild Mortgage (GHLD)  common stock that it does not already own in an all-cash transaction valued at approximately $1.3 billion in aggregate equity value. Some observers had thought that Bayview might be for sale, but instead an investor in a Bayview fund is taking the best run purchase mortgage shop in the US private. “The transaction has already received shareholder approval from McCarthy Capital Mortgage Investors , LLC, which holds the majority of Guild shares, meaning no further stockholder action is required,” reports National Mortgage Professional . The deal is expected to close in the fourth quarter of 2025.  This is the second major transformational M&A transaction in the mortgage sector this year and has dramatic implications for the remaining top players who have not yet found a dance partner.  The drivers for these transactions are a combination of strategic factors and cost reduction, since many lenders are stretched on cash in a hypercompetitive, low-volume market for residential loans. The outlook for interest rates and mortgage volumes is not positive given the latest meeting of the Federal Open Market Committee. Bayview controls #2 mortgage servicer Lakeview Loan Servicing, according to Inside Mortgage Finance . The addition of #24 GHLD with $95 billion in unpaid principal balance (UPB) of loans does not move Lakeview past #1 JPMorganChase (JPM) , but it does put the two firms under common ownership. The originated mortgage servicing rights (OMSRs) created by GHLD are high quality purchase assets with low prepayment characteristics. It appears from the press release that Bayview will continue to operate the GHLD as a separate licensed mortgage business: “Guild will operate as a privately held, independent entity as part of Bayview’s portfolio, and be strategically aligned with Lakeview Loan Servicing.”  GHLD at 16th in lending in Q1 (IMF) is a much stronger lender than is Lakeview ranked below 30th, which may well be part of the rational for the transaction. We have owned the GHLD stock and should have just kept it through the ebbs and flows of the mortgage business. For GHLD, a well-managed but relatively small operation is now affiliated with a huge mortgage servicer and the related cash-flows, a safe home for a gem of a purchase loan business in increasingly difficult times in the mortgage sector. Because of the unique fund structure of Bayview, acquiring GHLD makes a lot of sense and leaves the enlarged business able to compete against the Rocket Companies (RKT) , Redfin (RDFN)  and Mr. Cooper (COOP)  combination. This transaction ups the pressure on the remaining top players among the 25 top lenders and servicers, but particularly United Wholesale Mortgage (UWMC)  and Rithm Capital (RITM) .  The former is a loan production machine, but UWMC lacks a large, stable servicing book to support the lending operation and has been bleeding cash. The latter has a large servicing book, but RITM earns an equity market discount due to the REIT structure and relatively high overhead compared to peers such as RKT or COOP or GHLD.  In the absence of Fed rate cuts and a rally in longer-dated Treasury bonds, aggressive business models such as UWMC seem unsustainable in terms of loan pricing.  The gain on sale for mortgages, for example, is a non cash item that reflects the future receipt of mortgage servicing fees. Many issuers in the mortgage sector today are literally out of cash and are leveraging remaining assets to maintain operational liquidity. News that the Treasury intends to increase the issuance of T-bills will be good for stocks, but will likely steepen the yield curve and possibly increase mortgage rates as a result. In such an environment, you could make a case for combining UWMC and RITM to create a comp for the binary of PennyMac Financial (PFSI)  and PennyMac Mortgage Trust (PMT) , but the overhead cost reductions required would be massive. Truth is, it’s hard to see the leadership of either RITM or UWMC combining with another entity, but the cost pressures in the industry today are driving radical change.  "Independent mortgage banks (IMBs) and mortgage subsidiaries of chartered banks reported a pre-tax net loss of $28 on each loan they originated in the first quarter of 2025, compared to a net loss of $40 per loan in the fourth quarter of 2024," according to the Mortgage Bankers Association’s (MBA) newly released Quarterly Mortgage Bankers Performance Report. And remember that the loss referenced above is a GAAP measure and does not reflect the actual cash reality facing many mortgage firms. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

June 23, 2025  | Premium Service  | In this issue of The Institutional Risk Analyst , we set up the top seven commercial banks for our Premium Service  subscribers as we approach Q2 2025 earnings. Neither tariffs nor the military conflict with Iran seem to be fazing global markets . Housekeeping note: We are preparing to launch a new version of The IRA website in the next week or so. Your patience with the construction process is appreciated.

June 27, 2025  |  Premium Service  | In this issue of The Institutional Risk Analyst , we return to some past themes and ponder asset allocation in 2H 2025. One of they key themes we identified in pass missives is the tendency for both stocks and bonds to climb the proverbial wall of worry.  As of Friday’s opening, equity benchmarks are touching record levels and the 10-year Treasury was back down to 4.25% yield, as we predicted. And yes, despite dire predictions, the dollar remains the default currency for global markets.  “I think the dollar is still the number one safe haven currency, and I don't think it's -- you know, I would say these narratives of decline are premature and a bit overdone,” Fed Chairman Jerome Powell told the House Financial Services Committee this week.  The problem is not that the other nations of the world will stop using the dollar as a means of exchange and finance, or a reserve asset. The problem is that the other nations of the world have no reason not to make free use of the global dollar. The global role of the dollar as a "reserve currency" is an anomaly, the byproduct of two world wars that left all of the antagonists broke by the time of the Bretton Woods Agreement in July 1944. Choosing the fiat paper dollar as the default global reserve currency 80 years ago reflected the fact that America was the victor and possessed a viable currency  – and a nuclear arsenal – that gave Washington unchallenged economic leadership for half a century.  Now the world is slowly migrating to a multilateral currency structure with gold and other precious metals serving as an independent reserve asset and store of value, as was the case before the First World War. What global currency will replace the fiat paper dollar? None. As this article is written, gold is now the second largest reserve asset for central banks after the dollar. “The initiation in 2002 of the Shanghai Gold Exchange (SGE) was of great strategic significance, both for gold and the global monetary system,” notes veteran gold fund manager Henry Smyth in an interview in The Institutional Risk Analyst . “Now it is completely clear what happened.” The markets have almost nearly clawed back the losses incurred since the start of the Trump Administration, but the growing pile of problematic assets is going to eventually force the Fed to cut interest rates – even as some inflation indicators are starting to move in the wrong direction.   “With stock indexes virtually eradicating this year’s drawdowns, we’re getting close to the stage where FOMO and greed typically set in,” writes Simon White of Bloomberg . “That calls for caution rather than abandon as periods of greed often to lead to downside rather than upside in stock prices.” One momentum situation that we highlighted earlier in the year is the GSEs, Fannie Mae and Freddie Mac, which are up 40% YTD on speculation about possible release from conservatorship.  We continue to think that the odds of actual release are still 50/50, especially watching the retreat of the Trump White House on many priorities in the “big beautiful bill.”   We’d urge our readers to put sell orders underneath any positions in the GSEs, banks and nonbank financials in anticipation of a headline-driven pullback.  We expect Q2 2025 earnings to be relatively positive, but we also expect ST investors to take gains as reporting begins. We are profitable on our purchase of American Express (AXP) , for example, but we are adjusting a sell order to reflect the gains. As you can see in the chart below, the banks shown in the Invesco KBW Bank ETF (KBWB)  are outperforming the S&P 500 by 3x.  We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders. With credit pressures building in financials and across the credit markets, we are not wedded to any of these positions that may come under pressure due to rising levels of delinquency or simply profit taking. Below are the top performers in our bank surveillance group as of today’s opening. Notice that JPMorgan (JPM)  is now #10 and Goldman Sachs (GS) , Northern Trust (NTRS)  and Synchrony Financial (SYF)  are catching up with sector leader SoFi Technology (SOFI) . Bank Surveillance Group Source: Bloomberg (06/25/2025) The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

July 3, 2025  | If we told you that large cap financials are outperforming both the S&P 500 and bitcoin over the past month, what would you say?  And with the Fed stress test results out and banks increasing share repurchases and dividends, the party in financials may just be getting started in 2H 2025.

July 7, 2025  | Last week the Trump Administration rolled the Congress, including the House Freedom Caucus, in a very convincing fashion. The big beautiful bill was signed on July 4th and a parade followed, featuring B-2 bombers, marching bands and fireworks on the Mall. Given the implications of the Trump tax legislation for inflation and market volatility, The Institutional Risk Analyst observes, the perfectly scripted and sanitized celebration in Washington could be the high point for Trump II.  “Nobody cares about the national debt anymore,” reports  Punchbowl News , one of our favorite morning reads. “After years of voting against debt-limit increases – and bragging about it – nearly every Republican has now voted for a $5 trillion debt-limit increase. This is a radical change in GOP orthodoxy, and all because Trump didn’t want to have to cut a deal with Democrats. Only Senator Rand Paul (R-KY)  and Rep. Thomas Massie (R-KY)  refused to go along, and Trump lashed out at them repeatedly.” Of course, the logic behind a $5 trillion increase in the authorized limit on the federal debt is that this solves a political problem. Whether the markets will accept trillions in new debt thanks to President Trump’s budget and the Congressional response is another matter. In effect, the US is returning to a COVID era “hot” policy combo of fiscal stimulus and, eventually, lower short-term interest rates, that prevailed during the Biden Administration, but with a pro-business, anti-government rhetorical veneer. As Punchbowl  notes, Republicans attacked the Congressional Budget Office estimate that the big beautiful bill adds $3.4 trillion to the national debt by 2034, but that’s actually the low end of estimates. The Cato Institute projects the total addition of new debt will be more than $6 trillion .  “The increased willingness of the Treasury to fund more of the deficit using bills is likely to lead to a structural rise in inflation and falling longer-term real yields,” opines Simon White  at Bloomberg . “The amount of bills outstanding is already elevated and it may soon go higher after Treasury Secretary Scott Bessent indicated he less favors funding at the long-end of the curve.” As we describe in “ Inflated: Money, Debt and the American Dream, ” the public market for Treasury debt was created by the Federal Reserve Board in the 1950s and funded in the repurchase market. This fragile construct has been slowly disintegrating since 2008, when many of the nonbank primary dealers were annihilated. This is why we suggested earlier this year that Treasury Secretary Scott Bessent  allow investors to buy discount bonds in the market to pay tariffs and taxes (“ Should Treasury Accept Debt for Tax Payments? ”).  You can raise the debt ceiling in Washington, but somebody must sell Treasury debt to an investor. This is one reason that Secretary Bessent has suddenly stopped talking about issuing more long-bonds. Now apparently he wants to follow his predecessor, Janet Yellen in issuing T-bills to finance the federal debt.  Issuing mostly T-bills to finance new and existing debt is the last resort before the US will be forced into a default or outright restructuring. But of course, nobody is talking about that this week in Washington. Right on time to coincide with the latest tax cuts, the Fed’s annual bank stress tests were just released. The analysis focuses almost entirely on credit risk and ignores the key risk facing US banks, namely market risk due to the federal budget deficit and the Fed efforts to keep the Treasury market open. 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 taken the DFAST Table 10, “Projected losses by type of loan for 2025: Q1–2027:Q1 under the severely adverse scenario,” which includes 22 banks, and compared it to net losses vs average assets in Q1 2025. Then we added net loss from Q1 2025 from the FFIEC and created a ratio between the actuals and the stressed loss rate, and sorted the group from highest to lowest. We’ve marked the irrelevant banks in blue. All of them could be dropped from the Fed DFAST analysis next year. As we noted with the previous DFAST tests, the most interesting information provided by the Fed is the stressed loss rate, which tells you how the Fed Supervision & Regulation staff view the bank. The change from the current baseline is dramatic in most cases, but some banks see far larger changes than others, an indirect comment on the bank’s business model.  Of note, Joshua Franklin at the FT reports that the Fed ignored private equity exposures in the 2025 stress tests , a remarkable confession of incompetence by the Fed staff. But why are some of these banks even in this stress test? There are several banks from Canada and the EU the ought not even be on this list at all, such as BMO, Deutsche Bank, UBS and RBC USA. Call it politics. Why are back-office shops like the Bank of New York (BK) , State Street (STT)  and Northern Trust (NTRS)  in a test that emphasizes credit risk?  There are several fast-growing lenders that ought to be included in this group such as Synchrony Financial (SYF)  and First Citizens (FCNCA) . Add KeyCorp (KEY) , now the largest player in commercial real estate with the exit of Wells Fargo (WFC) , and add Fifth Third (FITB)  if you are going to include wholesale lender M&T Bank (MTB) .  Right? The good news is that the banks mostly passed the Fed's absurd stress tests with flying colors. The bad news is that the Trump Administration's growing enthusiasm for issuing T-bills is going to weight upon bank asset returns as financial repression comes back into fashion. Just as banks and the Fed financed the government's cash needs during the Great Depression and World War II, in future the banks are going to be forced to be buyers of T-bills as the Fed inevitably restarts quantitative easing, which has the effect of increasing reserves and bank deposits. Notice in the chart below that as gross interest income has risen dramatically post-COVID, net interest income has been flat. As the economy slows, loan yields and deposit rates are falling. Source: FDIC Here's a delicious thought: What if the FOMC was forced to fold its arms and do nothing in terms of balance sheet expansion in the face of far larger fiscal deficits? Whether or not Chairman Powell or his successor change the federal funds rate target is a matter of indifference. But if the Fed does not rapidly grow the system open market account (SOMA) to soak up some of President Trump's mounting red ink, then inflation will rise significantly, the dollar will test the lows of Trump I and gold will soar. QE, after all, cushions the immediate impact of fiscal deficits on inflation, but inflates the banking system dollar-for-dollar. Does anyone in the Trump White House get the joke? Somewhere, former Federal Reserve Board Chairman Ben Bernanke is laughing. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.

June 30, 2025  | In this issue of The Institutional Risk Analyst , we do a quick review of about a couple of current issues in the political economy. We’ll be publishing a look at the consumer lenders for our Premium Service  subscribers later in the week. We wish all of our readers a safe and happy Fourth of July holiday.  On July 4th, remember those who have defended our Union. Mega Deficits : The Senate passed the “big beautiful bill” last night 51-49. Now it's up to the House whether they go home before July 4th. Senator Charles Schumer (D-NY)  insisted that the 943 page bill be read aloud, his most significant contribution to date for better governance in the Senate. Despite such theatrics, Trump rolled the opposition in the Senate, but is this a good thing? Jim Lucier at CapitalAlpha: "Investor perception of the One Big Beautiful Bill has been colored by the campers that we hear from. The problem is, they are not the happy ones. Instead, we hear complaints about Medicaid, SALT, and to a lesser extent, clean energy tax credits. We also hear generalized complaints from Republicans who feel that the bill is too big and bloated, costs too much, increases the debt, and is loaded with pork, social engineering, and “member priorities.” The bill polls badly in numerous surveys. We hear about budget cuts in important social programs. All of this is true. However, the bill also has fans who have been biding their time until the bill clears its Byrd Bath." Our concern is that the BBB will increase the deficit by trillions and push LT yields and spreads up even more than already seen in 2025. Donald Trump's volatile style for governing has caused interest rates and, more important, spreads to rise considerably since January. Equities have regained 25% since Trump II began, but what is the cost of Donald Trump in the market for residential mortgages and credit more generally? Trillions... WolfStreet : "The spread between the 10-year and 30-year Treasury yields has widened to 56 basis points, the widest spread since October 2021, except for the wild gyrations on April 2 Liberation Day." Trump says he wants to see FF at 1%.  But in the event, what happens to 10-year Treasury notes, which have been going sideways all year? We can make a good case for slowly pushing fed funds down to ~ 3% to help originations, but the BBB may push the 10-year Tereasury over well over 5% by next year. Ask Bank of America (BAC) CEO Brian Moynihan how he feels about a 5-6% yield on 10-year Treasury notes. Big Banks : The proposed rule to amend the enhanced supplementary leverage ratio (SLR) looks like a big concession to the banks by US regulators. The SLR measures a bank's Tier 1 capital against its total leverage exposure, without regard for the Basel III risk weight of the assets. The change caps the difference between simple leverage and the bogus Basel measure of "risk-weighted assets." This is a significant and historic retreat by US regulators. The FDIC's stubborn retention of the basic leverage ratio in the early 2000s (h/t Sheila Bair ) helped save a lot of banks from failure in 2008. Written opposition from former Vice Chairman Michael Barr came in a 3 ½-page statement , which strangely disappeared from the main page on the Fed’s website over the weekend. Barr said the plan would reduce capital requirements by 27% at the GSIB subsidiaries, resulting in a $210 billion drop in bank capital. Barr also argued that the proposal is “unlikely to significantly enhance Treasury market intermediation, especially in times of stress.” Ditto. Banks have little reason to hold long-dated Treasury paper. He added, however, that he remains “open to working towards a much more modest eSLR reform if paired with Basel III implementation.” Bank purchases of Treasury paper are basically limited to runoff from existing exposures and MBS payoffs. Notice that Treasury holdings by banks have rebounded to 2020 levels, but MBS is still down $600 billion vs pre-COVID levels, as shown in the chart below. Source: FDIC The proposal states that "a binding or near-binding leverage capital requirement can disincentivize bank-affiliated broker-dealers from intermediating in the U.S. Treasury market, which may create problems for the smooth functioning of U.S. Treasury markets and of U.S. financial markets more broadly." This is baloney. Banks fund their primary dealer units on an arm's length and largely secured basis, so the aggregate net leverage of the dealer should not be a big consideration for a top-25 bank. The Treasury market/bank industry PR lobbyist angle on the Fed's eSLR proposal is a little fake-out for the financial media. This not about buying more Treasury debt but instead buying back more bank stocks. Sabe? Barr: "[M]uch of the capital that is freed up at the holding company level, where not otherwise constrained, is likely to be diverted to returning equity to shareholders, rather than intermediation." As we wrote for our subscribers, you can see the financing for dealers and non-depository institutions from banks in "other loans" in the FDIC data, as shown below. Source: FDIC The problem with Basel and the current proposal is that the assets are risk weighted for credit loss , not market risk. Market risk is a secondary consideration in the economist daydream known as the Basel framework. Alongside the discussion of risk weighted assets, banks should be forced to publish a risk weighting of assets and liabilities based upon option-adjusted duration . When Silicon Valley Bank had 40% of total assets in agency and government MBS ( " Who Killed Silicon Valley Bank?) The IRA Bank Book Q1 2023 ") , that was a red flag with a zero risk weight for Basel purposes. The bank looked fine under the world view represented by the Fed's latest proposal. But nobody at the Fed seems willing or able to discuss duration in public much less before Congress. This might require a discussion of how the federal budget deficit threatens the safety and soundness of US banks. Silicon Valley Bank Source: FDIC (Q1 2023) The eSLR change effectively means that the fantasyland world of risk-based capital under the Basel framework will always be the highest capital requirement for large US banks. The change does not address the true risk to large banks, namely market risk, and continues the Basel fixation with credit risk that is now some 40 years out of date.  Yet nobody at the Fed or other agencies seem willing to make obvious changes. Many of our readers don't appreciate that in the 1980s our dear departed friend and fellow Lotosian , Fed Chairman Paul Volcker, helped to design the Basel Accord as a way of hiding the insolvency of the largest US banks, this the result of the LDC debt crisis. US banks were not allowed to write down LDC debt until after Volcker left office in 1989. But forty years later, the chief risk to US banks comes from the US Treasury and its alter ego at the Federal Reserve Board, and related market volatility. The eSLR change does nothing to address the extreme market risk scenario caused by the Fed’s quantitative easing during 2020-2022, which led to the failure of Silicon Valley Bank and trillions in unrealized losses to US banks.  We agree with Governor Barr that the change does not necessarily make banks buy more Treasury debt, unless the Fed restarts QE. In the event, banks will be forced to purchase more Treasury debt for portfolio and then mostly T-bills as the core of the US economy hyperinflates. The dealer portfolios are a matter of indifference depending on your view of the probability of default for the United States. We can make a good case for fed funds at 4% or lower. It is mainly a constraint on new asset creation/warehouse finance. The long end is where we price new bonds and loans. Since the Treasury is now adopting the approach to debt issuance of former Treasury Secretary Janet Yellen , meaning mostly T-bills, banks are likely to support this issuance to the extent to which deposits grow in the system. But as Yellen discovered and Treasury Secretary Scott Bessent now appreciates, the fact of the Treasury issuing mostly T-bills may not pull LT interest rates down. The Institutional Risk Analyst (ISSN 2692-1812) is published by Whalen Global Advisors LLC and is provided for general informational purposes only and is not intended for trading purposes or financial advice. By making use of The Institutional Risk Analyst web site and content, the recipient thereof acknowledges and agrees to our copyright and the matters set forth below in this disclaimer. Whalen Global Advisors LLC makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in The Institutional Risk Analyst. Information contained herein is obtained from public and private sources deemed reliable. Any analysis or statements contained in The Institutional Risk Analyst are preliminary and are not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in The Institutional Risk Analyst represent the judgment of Whalen Global Advisors LLC at this time, and is subject to change without notice. The Institutional Risk Analyst is not an offer to sell, or a solicitation of an offer to buy, any securities or instruments named or described herein. The Institutional Risk Analyst is not intended to provide, and must not be relied on for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. Whalen Global Advisors LLC is not acting as fiduciary or advisor with respect to the information contained herein. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the subjects addressed in The Institutional Risk Analyst. Interested parties are advised to contact Whalen Global Advisors LLC for more information.