tag:blogger.com,1999:blog-4815867514277794362.post7589262822029868023..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Turning Japanese? Comments on the latest bank resultsJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-4815867514277794362.post-63566460948494434162010-08-10T12:38:19.266+10:002010-08-10T12:38:19.266+10:00Having lived in Japan for quite a few years I thin...Having lived in Japan for quite a few years I think people are missing a very important point about whether the US will be "turning Japanese"... simply that is it quite amazing & very Japanese that Japan hasn't had any major social disruption over the past 10-15 years. And I think this a something that needs to be taken into consideration when looking at the US (or even China once their Japan style property bubble bursts) -> there is no way the US will remain stable socially like Japan. If the US can't get itself out of a rut within 5 years everything will become much more bleaker than simply stagnating bank financials...Monko Animehttps://www.blogger.com/profile/17578975475879198683noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-59906610446471446622010-08-08T14:12:05.216+10:002010-08-08T14:12:05.216+10:00Japan banks have had a low interest rate for a lon...Japan banks have had a low interest rate for a long time with a society that has traditional been a saver but look at the Japanese economy at the moment. They have been in a recession for over 10 years.Japan-Australiahttps://www.blogger.com/profile/07970708785185874284noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-38526187399598178922010-07-27T07:19:43.795+10:002010-07-27T07:19:43.795+10:00John,
In your past experience with past bank cycle...John,<br />In your past experience with past bank cycles, how long does it take for balance sheets to start growing again?<br /><br />I mean, we are so far not long past the recession. It seems reasonable to me for balance sheets at this stage of the recovery to be anemic and even shrinking. People are probably still quite risk averse, and so are banks -- underwriting standards are unusually tight right now.<br /><br />But the question is, how long does it take to turn that around?<br /><br />What did you see from the Asian and Scandinavian crises?Mike Thttps://www.blogger.com/profile/02533667143855420661noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-29163869160551409492010-07-25T02:15:49.835+10:002010-07-25T02:15:49.835+10:00Regarding BofA's deposits, with an all-in cost...Regarding BofA's deposits, with an all-in cost of deposit funds of 44 bps in 2Q10, I think we can say that BofA has one of the most attractive deposit franchises anywhere on the planet. That deposit cost of funds is probably in the lowest 2% of all US banks and, consequently, is quite valuable. Now, full disclosure, I'd never invest in BofA because I believe it to be unanalyzable (I doubt even the CEO really understands what's going on down in the bowels of the company), but the value of the bank's deposit franchise is not in question - it's world class.Hu Flung Punoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12291472784866208512010-07-22T22:28:28.442+10:002010-07-22T22:28:28.442+10:00Thanks for laying out this analysis in such detail...Thanks for laying out this analysis in such detail, JH. While I would agree with your points on the banks being able to earn their way out of trouble, I remain more worried about the bombs lying around in their trading books--the Bailey Savings and Loan part might be fine, but who knows what lurks in the derivatives part which will overwhelm it?But What do I Know?noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45253558924423270532010-07-22T12:25:15.803+10:002010-07-22T12:25:15.803+10:00In most cycles the curve leads the economy. If th...In most cycles the curve leads the economy. If the US does head down again, the economy will be leading the curve...flatter.<br /><br />In contrast to the normal situation, where a steep curve drives Net Interest Margins and also (usually) forecasts stronger economic growth (fees).<br /><br />Now you get a bizzaro world situation where the curve squeezes margins and, as opposed to the central bank raising rates and thge market pricing in potentially slowing growth, we get the central bank doing nothing and rates falling because the curve is telling you that slowing growth is not a potential but a probable outcome.<br /><br />Just saying that you can't assume that falling rates are an automatic win for banks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-52700944099799135132010-07-22T10:44:26.555+10:002010-07-22T10:44:26.555+10:00Hi there,
Good analysis. Look, I don't want t...Hi there,<br /><br />Good analysis. Look, I don't want to throw a wet blanket on everyone...but how can you even <em>think</em> of trusting the numbers these jackasses report? For example, take Bank of America:<br /><br /><a href="http://www.bloomberg.com/news/2010-07-10/bank-of-america-tells-sec-that-10-7-billion-of-trades-wrongly-classified.html" rel="nofollow">Bank of America Incorrectly Classifies $10 Billion of Trades </a><br /><br />I mean....they are <em>lying</em> to the SEC and <em>they're not going to jail!</em><br /><br />So...my question: How are you hedging against this kind of behavior in your portfolio? That is, how are you insuring yourself against wholesale, outright fraud by the major banks.<br /><br />Note...I'm <em>not</em> asking as a troll...I'm just curious. I used to spend lots of time reading financials from companies, but the past two years have shown me that you can get burned by assuming that what these people are writing is, in fact, accurate. I've completely lost faith in our corporate / SEC reporting system, and I want to know what's keeping you from losing faith as well (since you're obviously diligently reading this stuff).<br /><br />I know...this comment borders on flamebait, but I just want to ask the question (since no one else did). I totally understand if you bounce this comment.<br /><br />For reference, I'm a technical day trader of S&P E-mini futures, and I'm looking forward to everyone's responses! :)<br /><br />Stephenstephennoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10063673175669739712010-07-22T03:40:59.884+10:002010-07-22T03:40:59.884+10:00Surprised with those kind of credit card loss rate...Surprised with those kind of credit card loss rates you would call BAC a high quality card portfolio. Their loss rates are easily the highest of the six largest CC issuers in the US, and are currently running about 2x AmEx's loss rate. Even (formerly down market) Discover has card losses 400bp - 500bp lower than BofA's card book.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1113907636501105542010-07-21T18:54:31.484+10:002010-07-21T18:54:31.484+10:00John
Interesting comments all. I'm in Europe a...John<br />Interesting comments all. I'm in Europe and the picture here is slightly different thanks to the interplay between sovereign yields and short-term ECB money. It seems to me that until Greece/Portugal/Spain actually default it is very hard not to make money playing the curve here. We'll learn more on Friday when the stres tests come out.<br />Meanwhile I'm fascinated by just how tight pricing on the card book is in the table you've published. I alwasy thought the UK card space was competitive but that's only becuase I hadn't looked to hard at the American space. <br />I buy into your general thesis (diminished competition leading to outsize returns) but I do wonder what happens before we get there and what the impact of more expensive money will be. It is all very well repricing a book, and a few bips make a huge difference to the bottom line, but the two movies I worry about are the 1970s stagflation vs Japan, not the 1990s Swedish recovery vs Japan.Jonathanhttps://www.blogger.com/profile/17522305190536100879noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-25166318142691399942010-07-21T15:04:43.050+10:002010-07-21T15:04:43.050+10:00There are some banks with a surprising proportion ...There are some banks with a surprising proportion of funding in very large deposits - Hudson City (HCBK) springs to mind.<br /><br />BofA however is the main transaction account for more Americans than any other. I suspect that there are more "franchise deposits" here than in any other place.<br /><br />======<br /><br />The issue is not large deposits are hot - although some are. Some deposits are just there because - well - that is where your relationship is... <br /><br />BofA deposit cost suggests lots of "franchise" deposits.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-73334801360937125262010-07-21T14:16:05.388+10:002010-07-21T14:16:05.388+10:00One other aspect I was wondering about depositor f...One other aspect I was wondering about depositor fickleness risk. What share of deposits would top 10% (or maybe 5% is better) depositors account for? <br /><br />I don't follow BoA hence these seemingly basic questions crop up. I am sure this is already taken care of.<br /><br />All bestRahul Deodharhttps://www.blogger.com/profile/13354874480198485819noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-42808227123190682492010-07-21T13:47:35.870+10:002010-07-21T13:47:35.870+10:00When you have committed 25% of the portfolio, I am...When you have committed 25% of the portfolio, I am sure your assessment is spot on as it usually is. <br /><br />When the loan book shrinks, there is always a chance that the most promising and lower risk borrowers are closed first. So the overall quality of the residual book may not be as good as historical. Of course, if banks continue to generate new loan book it masks the effect. But a minor recessionary headwind may make such a situation unstable. <br /><br />Best of luck.Rahul Deodharhttps://www.blogger.com/profile/13354874480198485819noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-59814873211185938152010-07-21T13:05:21.083+10:002010-07-21T13:05:21.083+10:00Banks are wont to cry "we'll all be roone...Banks are wont to cry "we'll all be rooned!" whenever someone proposes any regulation, or disclosure. They rarely are.<br /><br />A lot of the problem will be households deleveraging. This won't go on forever.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68555632700838527672010-07-21T12:11:18.276+10:002010-07-21T12:11:18.276+10:00A few comments:
-I was concerned about the rising...A few comments:<br /><br />-I was concerned about the rising level of repurchase demands from the monolines; which ultimately means FRE & FNM are looking for their pound of flesh for the bank's past sins. This is similar in character to non-performing loans, but isn't on the loan book. <br /><br />- Credit union competition- see:<br />https://www.penfed.org/productsAndRates/loans/vehicleLoans/autoLoans.asp?intcid=ad-penfed-specoffers-299AUTOLOANS<br /><br />a stunningly low rate!<br /><br />- a friend was pressured by a bank to close his relationships, including a HELOC. He isn't working, but was able to pay it off in full. Banks are behaving unreasonably toward their borrowers.<br /><br />- On the plus side, on the OZRK call the CEO opined that the next set of lending opportunities would be when commercial real estate loans depart from the structured vehicles they are in to be re-fi'ed back at the banks.Richhttps://www.blogger.com/profile/15333565680808748761noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67990549418583703492010-07-21T11:06:48.941+10:002010-07-21T11:06:48.941+10:00John,
Do you have any concerns regarding the recen...John,<br />Do you have any concerns regarding the recent regulatory reform (Dodd-Frank) as follows:<br />1. will institutional bondholders in major US banks be comfortable with a new wind-down procedure that has no precedent?, and<br />2. will the removal of systemic support for US banks trigger credit downgrades and increase the cost of funding by the end of the year?<br />ThanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68922593694422666342010-07-21T08:12:46.793+10:002010-07-21T08:12:46.793+10:00Wow, rarely has a post had so many different sub-t...Wow, rarely has a post had so many different sub-topics. In increasing order of importance, I respond -- and feel free to reply offline, you know how:<br /><br />-You have a key error in your cultural reference. After "no sin" comes not "no credit cards" (your most important line for analogy purposes), but rather "no you." <br /><br />-MTG reported today, and although they reported their first profit in 3 years, they also said they expect to lose money in 2010, and 2011, and 2012, and 2013 -- because delinquencies get seasonally worse from here, HAMP modifications are basically done, 2005-07 vintage mortgages have "burned out," and (unstated but implicit) housing gets worse again from here.<br /><br />-On JPM's results, you say "charge-offs are falling." The passive voice is key. An inarguable restatement is "JPM reduced its charge-offs." A slightly less arguable restatement is "JPM reduced its charge-offs even though almost every single macro indicator deteriorated in May-July and housing and CRE face imminent headwinds from, respectively, mortgage resets/recasts and debt maturities (i.e., extend and pretend can't last forever)."<br /><br />I say everything above as someone who has his fund long BAC. Your core point of "earnings power will overwhelm losses on the old book" is powerful. It is merely a matter of how powerful: "enough" or "hugely"? "Not enough" seems unlikely, because...<br /><br />On your brilliant dissection of Rosenman's list of #1-4 vs. #5, as in so many cases we are back to _the_ core investing question of the decade: assuming short-term deflation is coming, (a) will the Fed go all-in to stop it, and (b) can they succeed? We continue to think the answer to (a) is "undoubtedly" and to (b) is "probably," i.e. they will do "better" than the Japanese. (That's "better" in terms of deflation, not necessarily in terms of national well being.) The yield curve, bank earnings, and much else ride on the answer.Robert in Chicagonoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72722004843797980522010-07-21T08:12:08.226+10:002010-07-21T08:12:08.226+10:00John,
Just to make sure I understand, are you re...John, <br /><br />Just to make sure I understand, are you really asking:<br /><br />For the medium to long term, will the US grow below trend like Japan?<br /><br />My understanding is the low loan demand in Japan was a consequence of the very slow growth of the Japanese economy. Without economic growth, there were little demand for loans. <br /><br />I think it is still really hard to argue the US economy will turn Japanese.<br /><br />Another question I have is:<br /><br />What are the good investment themes if the US economy does turn Japanese? US Treasury? Chinese banks?狂猪https://www.blogger.com/profile/16599529315620633684noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-79351364702314950152010-07-21T03:52:12.242+10:002010-07-21T03:52:12.242+10:00so the main driver of this would be extremely low ...so the main driver of this would be extremely low household demand for credit? (as opposed to interest rate spread or credit availability?)<br /><br />plausible in the short term, but hard to square in the long term with american culture as we know it.babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-42285744475668989212010-07-21T03:21:45.281+10:002010-07-21T03:21:45.281+10:00I guess the banks are getting their just deserts. ...I guess the banks are getting their just deserts. They got their bailout and now they should take their lumps. There is no way hearts should bleed for the likes of Lloyd Blankfein and Jamie Dimon. And, ditto for people who bet on the banks.Elwood Andersonhttps://www.blogger.com/profile/09381075536666844667noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-49810896128669485132010-07-21T03:03:16.154+10:002010-07-21T03:03:16.154+10:00I get your macro thesis. It is interesting. It p...I get your macro thesis. It is interesting. It probably has more punch on the bigger names.<br /><br />For what might be a contrary view, if you ever want to talk to my former employer, Eric Hovde, I would be happy to make the introduction.<br /><br />https://www.hovdecapital.comDavid Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-38384463887766379142010-07-21T02:03:31.741+10:002010-07-21T02:03:31.741+10:00The US banks will only go Japanese if long rates c...The US banks will only go Japanese if long rates continue falling. At 3% on the 10 year, banks will play the carry trade all day to report a decent profit. I think that's the main difference between the US and Japan...the Japanese banks can't even make a spread on JGBs!Andrewnoreply@blogger.com