Christopher Whalen

Entropy, Volatility and Deflation

New York | This week in The Institutional Risk Analyst, we return to the activities of funds operating in the world of distressed real estate and corporate debt. We noted a few months back that some of the biggest players in the distressed debt industry were preparing for a comeuppance in the market for collateralized loan obligations or “CLOs.” New funds were be created to absorb and profit by busted CLOs and distressed financial institutions such as Deutsche Bank AG (DB).But the anticipated

Deutsche Bank, GSEs & Systemic Risk

New York | In this issue of The Institutional Risk Analyst, we ponder how the actions or inaction of policy makers can create systemic events. In the next issue, we’ll dive into Q2 2019 earnings for banks and non-banks. Of interest, the Q2 edition of The IRA Bank Book is now on sale at our online store. News last week that the leadership of Deutsche Bank AG (DB) is planning to cut one out of six jobs at the bank, this in an effort to regain financial health, drew some positive attention from

Mortgage Prepayments Vex Ginnie Mae

New York | Last week The Institutional Risk Analyst participated the Ginnie Mae Summit in Washington. The event was packed and featured some important discussions about the state of the residential mortgage market. We received applause from the audience for suggesting that FHA resolution costs for defaulted loans should be the same as the GSEs. But hold that thought. And there were lighter moments. Federal Housing Finance Administration head Mark Calabria continued to backpedal skillfully

What if No Rate Cuts in 2019??

New York | This week we announce the publication of The IRA Bank Book for Q2 2019, a publication of The Institutional Risk Analyst. In this issue we ask some important questions, including:** Why is Capital One Financial (COF) a better comp for Citigroup (C) than JPMorganChase (JPM)? ** Why are loss rates for real estate exposures of US banks moving back into positive territory? ** Will funding costs for banks continue to rise even as long-term Treasury yields fall dramatically? ** And just when

Aftermath: Interview with James Rickards

New York | Last week in The Institutional Risk Analyst, we gave you a taste of today’s interview with author and consultant Jim Rickards to talk about his latest book, “Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos.” As usual, Jim has a commanding view of the ebb and flow of the global political economy. His first chapter in which he describes the fateful role of former Fed Chairman Ben Bernanke in choosing the current monetary policy mix sets the stage for an important

Bank Margins Squeezed by Unsafe Fed Policies

New York | A year ago in The Institutional Risk Analyst, we predicted that net interest income for the US banking industry would flatten out and decline around Q1 2019. Sure enough, that is precisely what has happened. We wrote in The IRA Bank Book for Q1 2019:”The cost of funds for US banks continues to grow at four times the rate of interest income, suggesting that the net-interest margin earned by banks may start to decline in 2019. Rising funding costs are being felt the most by smaller

Is it Too Late for Tesla?

New York | In May of last year, we suggested that it may be time for Elon Musk to declare victory and sell Tesla Motors (TSLA) to one of the top global auto manufacturers (“Should Elon Musk Sell Tesla?”). BTW, notice the nifty new search feature on the top of The IRA pages.A year later, we watch as the likes of Audi AG and Daimler AG hammer away with advertising in new and old media displaying well-executed electric car offerings. Owing to a shortage of operating cash, TSLA has no response in

Squeeze Play: Rising Funding Costs, Flat to Down Yields

New York | This week The Institutional Risk Analyst is participating at The Mortgage Bankers Association Secondary Conference, one of the most important events of the year for the housing finance industry. One topic we heard a lot about from various attendees is that the volatility seen in Q1 2019 has thankfully subsided this quarter, but the continued deterioration of the effective spread on loans and securities, and rising prepayments, are big concerns. On Sunday afternoon we heard a panel at

Achim Dübel on Deutsche Bank AG

New York | In this issue of The Institutional Risk Analyst, we talk to our friend Hans-Joachim (Achim) Dübel of FINPOLCONSULT in Berlin to provide some context for the latest troubles affecting Deutsche Bank AG (DB) and the German banking system more broadly. Dübel is one of those rare independent analysts of the banking sector in the EU and has worked on a number of internal and external debt restructurings.But first we need to comment on the end of Q1 2019 earnings and, with it, the top of the

Falling Real Estate Prices & the Return of Risk

“Stock prices have reached what looks like a permanently high plateau.”Irving FisherAutumn 1929New York | Is the free ride over for financials? For the past decade, banks and other leveraged players have basked in the warm embrace of artificially low interest rates and not quite so low yields on various asset classes. The just completed cycle of Q1 2019 earnings for public companies suggest that the outlook for financials may be a good bit less accommodating than the recent past. One trend we