Current Bank selloff

I have been spending a lot of time on the banks these past few days. I have about 8% of my portfolio. I now own BAC, WFC, PNC, USB, FITB, MTB.

They of course are all being pulled down by recent events. The main areas of concern seem to be:

a)underwater investment portfolio with realized or unrealized marks depending on AFS or HFS carry on the balance sheet. This weighs against overall capital levels. I would add that current net interest income levels reflect these low rate investments. Plus unrealized marks to the positive on many floating rate loans or low cost deposit products don’t have similar positive marks.
b) Potential run off of low cost deposits (either to competitor banks or higher rate products) impacting net interest margins. It is possible that the 4 major banks may be experiencing a net inflow under current circumstances. This is also most relevant to banks with a higher concentration of non core or uninsured deposits.

All banks are exposed in some ways to all of these observations. SIVG had high non-core deposits or hot money as we used to call it in the industry and high unrealized investment securities losses. In fact in excess of 100% of stated equity! Signature and FRC are both exposed to the same extent. Plus in the case of SIVG their assets were not in a category that the FHLB usually allows for collateral to raise cash.

None of the above banks are exposed to the same degrees. However depositors may react irrationally and pull funds anyway.

I spent the evening going through USB 10-K this evening. They have been particularly weak the past few days. I can’t find anything unique to them that would explain this. The do, like most of the regionals, have a lower initial capital base. So less to absorb investment losses. Their equity is $45 BB plus and their unrealized marks as of 12/31 was $18 BB pretax. However their ASF portfolio was $7 BB of the $18 BB and is already reflected in their equity level. The remaining $11 BB after tax is only about $9 BB or 20% of equity give or take. They also recently bought Union banks from MUFG getting about $50 BB in loans and $80 BB in deposits mostly in California. Likely mostly core insured deposits. So no red flags here. They should have ample collateral to raise cash from the FED if liquidity proves to be an issue. However, not sure if they are a winner or loser in the deposit game so far. Could be either. I would also guess as the 5th largest bank in the US that they would be characterized a systemic. So why is it getting clobbered? Any insight?

I would add that the recent treasury rally is addressing some of the unrealized loss on the securities. I would think that some may use this to lighten up a bit.


few good links here about the topic :slight_smile:


Welcome gaucho

Gator, I have been watching PACW for some covered call opportunities. Have you seen anything on this financial? It’s pretty good return for one week. This call information was from Friday 3/17 at the close…doc

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