Are Top-4 US Banks Spotting A "Black Swan"?

This article is authored by an executive advisor of Alberta Advisory and is sponsored by Madfoatcom.

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The Top-4 US Banks (Bank Of America, Citi, JP Morgan Chase and Wells Fargo) are surely feeling the brunt of a stressed economy.? This trend has been largely publicized and analyzed during the past few years.?

However, it’s alarming how this trend is gaining both speed and momentum.? Speed-wise, the Top-4 US banks are witnessing tangible swings in profitability drivers in the span of a year.? Momentum-wise, multiple forces of delinquency, climbing interest expense and tepid asset growth are in tandem play to undermine both banks’ liquidity and profits.

While the diagram is self-explanatory, it’s worth providing additional data insights to “color the canvas”-

1. The accumulative loss provisions and reserves clocked up to USD 39.5 B, amounting to 8% of interest income.
2. Treasury yield curve has been continuously inverted - meaning that short-term bonds yield more than longer ones - since early July 2022. We are living the longest inversion in history according to Deutsche Bank.? This is a risky situation that devalues banks’ long term investments and exacberate losses in case of fire sales.
3. JP Morgan foresees the top US Banks to sell USD 34 B of debt to raise funds this year.
4. China has systematically shed off its US Bonds over the past decade where it used to hold 14% of US Treasury bonds in 2011 and now it barely holds 3%.
5. NY Federal Reserve Bank reports a spike in serious delinquency rates (more than 90 days) from 1.02% (Q4 2022) to 1.42% (Q4 2023).

Finally, remember that a Black Swan event is typically triggered by a major institution taking an overnight decision to de-risk, de-leverage or simply go bust, sparking a ripple effect in the market.

We should all be optimistic and hope for a better future, but the sky is turning from cloudy to grey!

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Disclaimer:

This article provides the personal views of the author. The words and other content provided in this article, and in any linked materials, are not intended and should not be construed as investment, financial, consulting or otherwise advice.

While the author has exercised diligence in the collection, analysis and representation of the business and market information provided, the author and the sponsor disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations contained in this article prove to be inaccurate, incomplete or unreliable, or result in any tangible intangible or otherwise damages.

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