Chris Whalen on Big Bank Earnings and the Return of Credit Risk

Chris Whalen, chairman of Whalen Global Advisors, returns to Forward Guidance to comment on the ample and growing earnings of the big banks (particularly JPMorgan Chase, whose stock surged over 7% on rosy net income and increasing deposits). 

Whalen argues that banks’ unrealized losses on their securities due to interest rate risk have gone down dramatically as interest rates have fallen since the collapse of Silicon Valley Bank (SVB) on March 10. However, he expects banks’ cost of funds (what they have to pay for deposits) to continue to rise and he makes the case that the primary headwind for banks is not interest rate risk, but credit risk. Whalen argues that while there could be more bank failures ahead, he expects it will be the outlier banks that fail, not the mainstream banks.

This interview was filmed the morning of Friday, April 14th, shortly after large American banks such as JPMorgan Chase, Wells Fargo, and Citigroup reported their earnings for the first quarter of 2023. 

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Timestamps:

(00:00) Intro

(04:55) "Banks Have Lots Of Commercial Real Estate Exposure"

(06:24) Banks' Unrealized Losses Have Gotten Smaller Over The Past Month

(08:25) The Return Of Credit Risk

(16:06) Is The Banking Crisis Moderating? If So, Why?

(19:18) Van Eck Ad

(20:06) There's A Slowdown in Lending

(22:08) Quantitative Easing's Distortion Of Bank Balance Sheets

(24:32) Chris Suggests The Fed Sell Securities Into The Market

(28:27) "The Bid For Risk Free Dollar Assets Is Still Off The Scale"

(30:12) Recent Rally In Bonds Has Helped Bank Book Value

(36:23) "People Love To Say The Word 'Hedge' And Then Change The Subject"