After PACW there will be another.
1 Like
wtf is going onā¦explains why DPST is trading below 5 after hours. 
Iām confusedā¦this bank just reported what seemed to be ok earnings last week. (ok in the context of current scenario)
Yellen and JPow can stop the bank run right now if they just announced unlimited deposits protection. Boggles my mind why they chose to do nothing and watch these banks die one by one.
DPST soon will be closed (guess work) - RIP, The fund cannot maintain 3x due to high cost involved
Bank just reported what seemed to be ok earnings => Banks should have hedged properly. All FED reports are finding fault with their own (non-control) systems and Banks issue.
Say FRC case:
All these flimsy bank stopped deposit drain when they got FED support for HTM treasuries/bonds
What does it mean? => They had 2.5% yield for HTM bonds (Say 100B), which they collateral with FED borrowed (100B ) at short term one year loan (at FFR 5.00 as last period).
Meanwhile, big depositors drained 100B from the bank and that stopped the money drain.
They need to pay back the 100B in a year and pay 5% interest rate => This goes to future quarterly loss.
To avoid this, banks are trying to sell their securities outside. Bond sellers are there but where is the buyer and at what price they negotiate. Long story short, bank must incur further more Billions loss.
Bank stocks are not worth even at current price, people are selling or shortingā¦etc.
FRC, then PACW then WALā¦etc all regional banks (2022-23 issue) while 2008- big banks.
IIRC: In todayās speech, JPow mentions there used to be 14k banks, now 4k banks. Well, take current opportunity to reduce to 1000 banks. Speed up the process! Yeah, recall JPow did say technology is partly responsible for the current predicament of the regional banks, exactly! They donāt have the management with the right expertise and they are no longer relevant.
1 Like
He said they did not expect this can happen, i.e., 100B transfer over night, they do not have any solutions (M.Barr has to come up with).
All boils to one issue - Banks did not hedge against the loss over the rate hike possibilities as they were expensive. The same is common to all bank holdings, they are forced to hedge against all holdings.
1 Like
.
Say you own $1M worth of a stock. How would you hedge the holding?
If hedging is too expensive, what would you do?
Bill Ackman today:
The regional banking system is at risk. SVBās depositorsā bad weekend woke up uninsured depositors everywhere. The rapid rise in rates impaired assets and drained deposits. Zeroing out shareholders and bondholders massively increased the banksā cost of capital. CRE losses loom. Meanwhile, higher-yield, more user- friendly alternatives beckon @Apple.
The @FDICgov failure to update and expand its insurance regime has hammered more nails in the coffin. FRB would not have failed if the FDIC temporarily guaranteed deposits while a new guarantee regime were created. Instead, we watch the dominoes fall at great systemic and economic cost.
Banking is a confidence game. At this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows, insured and uninsured deposits are withdrawn and āpursuing strategic alternativesā means an FDIC shutdown over the coming weekend. And there is no incentive to bid until Sunday after the failure.
The GSIBs have an unfair competitive advantage as too big to fail means only their uninsured depositors can sleep soundly. Until the playing field is leveled, the regional banks are at grave risk.
Confidence in a financial institution is built over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble. Until investors are rewarded for betting on a wobbling bank, there will be no bid, and the best sale is the last price.
We are running out of time to fix this problem. How many more unnecessary bank failures do we need to watch before the FDIC, @USTreasury and our government wake up? We need a systemwide deposit guarantee regime now.
2 Likes
He is right, we are running out of time, FED+UST+Congress does not seem to understand the urgency! They need to wake up!
Whatever I know, I am sharing (I am not a subject matter expertise)
For stocks or HTM bonds, they may have different hedging instruments (which I do not know) or calculative puts.
Banks hedging is different for different holdings. In case of mortgage holdings or credit card holdings or commercial loans holding, there is a Credit Default Swaps (CDS), they need to buy. In case of loan default, they get money from CDS. It was 15 cents/dollar before Jan 2022 and now it is 57 cents/dollar!
Why it is expensive as they CDS providers increase the rate as the default risk is high now!
It is exactly for us. Two days before had I purchases puts, my price would have been lower when market was in peak as lot of people were bullish. If I buy the same puts, my price is easily 25% or 40% up!
See here, in 2020 CALPERS was about to stop their hedging to save cost, but surprise Mar 2020 drop taught again big lessons..
If not hedged (not for you & not for me), face the future surprises like SVB,FRCā¦etc.
.
Sound smart and logical. Why is it a problem? Why need to fix? IMHO, he talked a lot but he didnāt clearly articulate the problem.
Didnāt answer the questions at all 
or are you implying just donāt hedge 
Your question was not clear. Are you talking about your hedging or bank hedging?
Assuming you are asking about AAPL 100 shares. If hedging is too expensive, it is not economical to buy. If you want to hold, you need to hold those shares. The issue for you is you can not time it, hedging may not give effective returns.
I have some 600 shares of one company, holding last 3 years, it is down 25%. I hedged many times - short term puts and added to my cash, but today it was expensive compared to two days back, kept quiet. Since I was focussing on SPX,NDX, I did not focus on that stock, left the hedging. If it is deeply corrected, I may DCA.
Last three days I was holding this kind of puts, took some profits, left some
You need to have similar puts for hedging, but need to know proper timing (that is the issue). The current market is really challenging (even with all algo help) and suddenly change it.
On a Monday shareholder call, JPMorgan CEO Jamie Dimon was explicit that his bank would not get into the business of low-cost mortgages.
āWeāre not going to be putting a lot of cheap jumbo mortgage loans on our books,ā Dimon said. "First Republic did a great job at service. But being in the low-cost lending business is not what JPMorgan does.ā
That means some Bay Area homebuyers could have a more difficult time accessing mortgages in the aftermath of First Republicās takeover, said Oz Erickson, chairman of Emerald Fund, a San Francisco development firm.
Originalā¦
So the second assumption is correctā¦
fromā¦
So you have decided to anchor on previous price, donāt want to take loss, hold and pray! Instead of selling off the position and lock the losses. Sound familiar? A common financial behavior that lead us toā¦
1 Like
.
Is why no sympathy for regional banks to take risk in such loans. High risk for meagre returnā¦ is not correct risk management.
Not sure what he is implying. That should be the case, canāt affordable to buy a house, shouldnāt buy. Is good for the borrower, good for the bank and good for the economy.
FED has restricted lending standards and also to avoid default risk. In addition, CDS rate is increased from 15 cents/dollar to 57 cents/dollar. Banks are forced to look no-default risk loans !
Some of these banks were fairly well capitalized but no bank can survive a run. So itās to a large extent a confidence game. Trouble is, with numerous scandals over the last few years peopleās trust in the federal government is lower than their trust in the banks. So thereās little the feds can do restore confidence.
1 Like
Repeating what media said? Regional banks screw up. Period. No sympathy! I donāt buy any of the excuses and reasons. Incompetent. Remember, they are professionals, not any Tom, Dick and Harry.