Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Financial Services Highlights: The Race is On


While bank spreads have improved since Tuesday, they are still at the very high end of their 52 week range.


Minyan Peter, who has become quite popular around the 'Ville with readers and professors alike through pieces like his Bank Earnings series, here writes in with some observations on financial services.

In Friday's Federal Reserve report – for the week ended September 12 – bank balance sheets grew by another $70 bln (in addition to the $270 bln of growth over the prior four weeks) while net equity in the bank system declined by $17 bln and deposits shrank by just about $10 bln. While this Friday's Fed report will give us the data for the week leading up to the Fed meeting, it is clear that the acceleration in bank balance sheet growth – particularly funded by non-deposit sources – was of serious concern to the Fed going into its meeting.

Since last Tuesday's Fed meeting we have seen a slew of long term debt issuance by financial services firms – Barclay's (BCS), JPMorgan (JPM), Lehman (LEH), Wells (WFC), Wachovia (WB) and the list goes on. As most of this has been holding company level debt, it was most likely used to bring down commercial paper levels and stretch out debt maturities. I would highlight, however, that while bank spreads have improved since Tuesday, they are still at the very high end of their 52 week range.

Finally, I saw a word today that caught my eye – "re-intermediation". And I expect that we will see this word quite frequently in the months ahead. Put simply, it is the opposite of "disintermediation" and suggests a fundamental shift in the banking system away from an origination for sale/securitization credit environment to a more traditional bank lending model.

With deposit balances shrinking (if not in absolute terms, certainly as a percentage of loans) and capital levels at peak (or beyond) for this credit cycle, it is not clear how the banking system will be able to move smoothly to a re-intermediation model.

While today many bond investors will celebrate the improved transparency of bank balance sheets versus opaque special-purpose commercial paper vehicles, industry-wide consolidation means there are fewer bank names to choose from. How much single name exposure a pension fund or money manager may want of Citigroup or JPMorgan remains to ultimately be seen.

In any case, I would watch your local papers for deposit offers. Irrespective of where interest rates go from here, I expect that advertised CD rates will begin to better reflect the true funding needs of our largest banking franchises. And the race is on.

Position in SKF.

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos