KRE - Regional Bank Index

There are 79 million shares outstanding and over 60 M shares sold short, and some reports claim 90% of the shares are sold short. That’s serious negativity. With a little bit of good news, the stock could rocket. Of course the reason there is so much short is because folks are thinking there are more bad news to come in the sector. In a very long time, I directly opened a 5% position in this name. Hoping for some short squeeze. :slight_smile:


If the rally continues, it could very well get back to $60. I am debating whether to take some profit.

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I missed taking the profits. I will close the position after the dividend ex-date.

Price seems to have settled down to a stable $43 or so. High on the 5 yr chart is almost $80. From the days when people thought rising interest rates would increase profits.

Is the risk of bk over with stronger regulation? If yes could have potential to double over time.

< Is the risk of bk over with stronger regulation? > I don’t know. I don’t know what is the total exposure of regional banks in CRE, when economy slows down, how much delinquencies, and write-off bad loans are going to be, and lastly there is a serious regulatory overhang. Regulators sleep on the wheel and then overreact. Looks like we may be getting overreaction. May be not. I have a 5% position, I don’t think I want that that. Also I had a large exposure to banks. Luckily I closed most of my BAC & WFC trading positions I opened and closed the puts that I sold on some regional banks like PNC. I failed to take profits on this.

We may get a double, but it is not something that is going to be quick. I want to step aside and wait for better opportunities.

I am looking at some banks preferred’s with 6.5% to 7% yield. Even if the inflation is 3% (instead of FED goal of 2% ), there is a real return at the current yield. Something to think…

I sold 10% of my position at little over $45 and still keeping the 90% of my original purchase. The decline in interest rates has fueled the rally in this name. Even with the sharp move, still it is down YTD by 11%. If it closes around this range, it would be 2 down years. This index in the past has moved up pretty sharply. This is a mean-reversion holding. $57~58 first target, $64~ $65 second target and $70+ 3rd level target. In any case, I will keep an eye on the interest rates and trade accordingly

They tell us higher interest rates will be more profitable but outstanding commercial loans might be in trouble. A risk for banks.

Do you think that risk has been resolved?

The benefits of higher interest rate is “transitory” Yes they will earn more on the loans but the deposit cost eventually catches up. Generally higher interest rate is positive if it increases gradually. A sudden sharp increase means the banks investments are (mark-to-market) loss. A gradual increase means the banks are able to invest in higher interest rate instruments gradually and mitigate that risk. Higher interest rate, net-net, used to widen the NII margin. We are living in the app-world. Folks have discovered to click few buttons and move money. So deposit costs move up immediately. The deposit walk (not run) is still going on in many small/ regional banks. this is seen in the record money-market funds. (also the root cause of SVB failure).

Now, the lower interest rates help some of the commercial properties to refinance. But commercial real-estate is a wide class that covers ( office building, apartments, medical office, hotels, warehouses, etc). I think outside of Office building rest of the sector is doing okay. So not all commercial loans are going to go bad. Generally US has overbuilding problem in all sectors of Real estate except housing. So even in non-office building sectors there is going to be some loss depending on the location.

This is where stock picking comes into play. If you can identify the right stock, you can beat Index significantly. I wanted to buy RF (Region Financials) I could not pull the trigger because in addition to KRE, I have a huge allocation to C, WFC, BAC, MA, V, PYPL, BRK (all financials). I was worried about the allocation. Once I reduce and when the opportunity presents I want to add some regionals. But when the opportunity presents there is no guarantee you have the guts to pull the trigger.

I have sold most of my KRE position on Jan 17th as part of my raising cash. At that time I was not expecting the CRE will play out this quickly. With NYCB announcement and subsequently today Janet Yellen talking about it KRE is under pressure. NYCB had to write down because regulators forced it, not because the loans have gone bad. I am sure, FED, treasury will make sure this is not going to become an issue, especially in an election year. But the amount of loans that are maturing is staggering and refinancing them are going to create some distress.

We may be heading towards May 2023. I am still long on big banks (C, WFC and BAC) except for small KRE position I am out of all other banks.

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