fung_derf
1 year ago
Hope I'm allowed to re-post this, but this sums up our current bank crisis.
What the SVB closure may mean for markets
The closure is unlikely to trigger a crisis, but may have other impacts.
BY JURRIEN TIMMER, DIRECTOR OF GLOBAL MACRO FOR FIDELITY MANAGEMENT & RESEARCH COMPANY (FMRCO), FIDELITY VIEWPOINTS – 03/13/2023 5 MIN READ
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Key takeaways
Regulators have put new measures in recent days to help ensure that the Silicon Valley Bank (SVB) closure doesn't escalate into a broader banking crisis.
However, what happened at SVB is indicative of a more widespread mismatch between bank assets and liabilities, which could have implications for bank profit margins.
It's too soon to tell if the events of the past week will influence the trajectory of the Fed's rate-hiking cycle.
News has been breaking fast in recent days in the aftermath of the closures of Silicon Valley Bank (SVB) and Signature Bank. While the news cycle has been moving quickly and markets are still adjusting, here is an initial look at what has happened so far, and what it may mean for markets.
What happened at SVB
About the expert
Jurrien Timmer is the director of global macro in Fidelity's Global Asset Allocation Division, specializing in global macro strategy and active asset allocation. He joined Fidelity in 1995 as a technical research analyst.
In very simple terms, SVB experienced massive deposit growth over the past few years. This was at least in part driven by a boom in venture capital. It invested a chunk of these deposits in long-dated bonds, at a time when yields were at generational lows.
As interest rates rose, the prices of those long-dated bonds fell (bond prices move inversely to interest rates), creating substantial investment losses for SVB. After SVB announced that it had lost $1.8 billion in asset sales, the bank attempted to raise additional investment capital last week, but was unable to. Many customers then rapidly withdrew deposits, and finally the bank was seized by regulators on Friday.
Once the dust has settled, we can discuss the causes of the SVB episode. But for now, the more pressing questions are: Could the events of the past week have the potential to escalate to a systemic event, such as a large-scale banking crisis? Even if not, could there be other impacts for the financial sector? And what might this episode mean for the Fed's rate-hiking cycle?
Here is my opinion, at this initial stage, on those questions.
This is unlikely to escalate into a systemic bank crisis
The US's primary safeguard against bank runs is, of course, FDIC insurance. FDIC standard insurance covers up to $250,000 per depositor, per bank, per account ownership category. While there was initially a lack of clarity over what might happen to SVB depositors holding more than that amount at the bank, the Fed, FDIC, and Treasury issued a joint statement over the weekend confirming that depositors would have access to all their money starting Monday.
Another weekend announcement from regulators was the creation of the Bank Term Funding Program, or BTFP, to serve as an additional backstop. The BTFP will lend money to banks that need cash to meet deposit withdrawals, and let banks use some types of bonds and debt assets as collateral for those loans (with the intention of helping to prevent repeat occurrences of what happened at SVB—so that banks don't need to sell bonds at losses in order to meet withdrawals).
In my opinion, these measures should help reduce any risk that the incident triggers a systemic event.
But further, it's important to remember that this has been primarily a liquidity event (i.e., there were insufficient liquid assets on hand to meet immediate cash demands), rather than a solvency crisis (such as one in which a bank simply has insufficient equity relative to its debt). The financial crisis in 2008 was both, and the regulation that followed has left the banking sector in a much stronger position.
Yet, there could be broader implications for the financial sector
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At the same time, this episode does bring to light the fact that banks have been paying depositors much less than competing short-term vehicles do. This typically happens during tightening cycles, but the spread is particularly large now—with banks generally paying about 0.5% on deposits right now, compared with a 4.5% average money-market yield.
After the events of the past week, banks may now have to start competing for those deposits, by paying higher rates. But paying higher rates on deposits could eat into net interest margins (the difference between what banks earn on the loans they make and pay on the deposits they hold), impacting the overall profitability of the financial sector. Even if they don't start offering higher rates on deposits, any banks that use the new BTFP lending facility will have to pay a rate significantly higher than current deposit rates.
So, even though SVB is unlikely to lead to a systemic crisis, it seems that there could indeed be some lasting repercussions for the financial sector.
Potential implications for the Fed's rate-hike cycle
There's an old adage that says during Fed tightening cycles, the Fed usually keeps raising rates until something "breaks." In 2007 it was subprime mortgages, in 1998 it was Long-Term Capital Management, and so on.
In my view, the key question right now is whether the collapse of SVB and the creation of the BTFP mark the "breaking point" for this Fed cycle. Because if so, it has implications for the valuation of all assets, including stocks.
What happened at SVB speaks to the overall asset-liability mismatch that is now happening for many institutions. Banks generally borrow at the short-term end of the yield curve (i.e., with deposits), and lend at the long-term end of the yield curve (i.e., with bonds and mortgages). Under normal conditions, short-term rates are lower than long-term rates, and so banks keep the difference between the short-term rates they pay and long-term rates they earn.
But currently the yield curve is "inverted," with short-term rates significantly higher than long-term rates. This inversion is, essentially, a by-product of the Fed's rate-hike cycle. And it's also led to the mismatch experienced by SVB and other institutions.
And herein lies the dilemma that the Fed faces. On the one hand, inflation remains too high and unemployment is at multi-decade lows—which suggests more rate hikes. But now, the Fed needs to create a liquidity backstop to solve a problem that is the very by-product of this rate-hike cycle.
I'm inclined to think that if the SVB saga fades into the background, then the Fed will resume its hawkish posturing. But if SVB is actually a shot across the bow that the Fed is going too far, then it will be a moment of truth for the Fed and for this market cycle. In that case, the Fed might have to choose between financial stability and containing inflation expectations.
stevo51
1 year ago
HBAN RECORD Quarter: Huntington Bancshares Inc HBAN:NASDAQ
HUNTINGTON BANCSHARES INCORPORATED REPORTS 2022 FOURTH-QUARTER EARNINGS
PR Newswire
7:00 AM ET
Delivers Record Full-Year Net Income and Achievement of Medium-Term Financial Targets
2022 Fourth-Quarter Highlights:
-- Earnings per common share (EPS) for the quarter were $0.42, an increase of $0.03 from the prior quarter. Excluding the after tax impact of Notable Items, adjusted earnings per common share were $0.43.
-- Net interest income increased $58 million, or 4%, from the prior quarter, refl ecting net interest margin expansion of 10 basis points to 3.52% and higher average total loans and leases.
-- Pre-Provision Net Revenue (PPNR) increased $36 million, or 4%, from the prior quarter to $893 million. Excluding Notable Items, adjusted PPNR increased $41 million, or 5%, from the prior quarter to $908 million.
-- Average total loans and leases increased $1.9 billion, or 2%, from the prior quarter to $118.9 billion. Excluding the decrease in PPP loans, average total loans and leases increased $2.1 billion, or 2%, from the prior quarter.
-- Average total commercial loans and leases increased $1.8 billion, or 3%, and average total consumer loans increased $184 million from the prior quarter.
-- Ending total deposits increased $1.6 billion and average total deposits decreased $336 million from the prior quarter.
-- Net charge-offs of 0.17% of average total loans and leases for the quarter.
-- Nonperforming assets have declined six consecutive quarters.
-- Allowance for credit losses (ACL) of $2.3 billion, or 1.90%, of total loans and leases at quarter end.
-- Common Equity Tier 1 (CET1) risk-based capital ratio increased to 9.44%, within our 9% to 10% operating guideline.
-- Board of Directors approved a $1 billion share repurchase authorization for the next eight quarters.
2022 Full-Year Highlights Compared to Full-Year 2021:
-- Earnings per common share (EPS) for the year were $1.45, an increase of $0.55. Excluding after tax impact of Notable Items, adjusted earnings per common share were $1.50.
-- PPNR increased $1.4 billion, or 88%, from the prior year to $3.1 billion. Excluding Notable Items, adjusted PPNR increased $0.8 billion, or 36%, to $3.2 billion, r eflecting the benefits of the TCF Financial Corporation ("TCF") acquisition and organic growth.
-- Net income attributable to Huntington Bancshares Incorporated increased 73% to $2.2 billion.
-- Maintained solid credit quality with net charge-offs of 0.11% of average total loans and leases.
-- Completed the cost synergy program related to the acquisition of TCF.
-- Delivered on efficiency strategies through the continued optimization of the branch network by closing 63 branches during the year and announcement of an additional 31 branch closures to occur in the first quarter of 2023.
-- Successfully implemented additional Fair Play enhancements and expanded expertise and capabilities with the acquisitions of Capstone Partners and Torana.
Huntington Bancshares Incorporated (Nasdaq: HBAN) reported net income for the 2022 fourth quarter of $645 million, or $0.42 per common share, an increase of $244 million, or $0.16 per common share from the year-ago quarter.
https://mma.prnewswire.com/media/1840939/Huntington_Bank_Logo.jpg
Return on average assets was 1.41%, return on average common equity was 16.0%, return on average tangible common equity (ROTCE) was 26.0%.
CEO Commentary:
"We are very pleased with our outstanding financial performance for the fourth quarter which included the fourth consecutive quarter of record PPNR," said Steve Steinour, chairman, president and CEO. "The year was marked by the successful execution of key strategic initiatives and acquisition synergies which further expanded our capabilities and supported the achievement of our medium-term financial targets.
"Record full-year PPNR was driven by higher net interest income and noninterest income, along with disciplined expense management. We delivered broad-based loan growth and continued to grow our high quality deposit base over the course of the year. Strategic areas of focus for fee income also expanded, with capital markets achieving record revenue, withstrong core performance plus the acquisition of Capstone. We completed the cost synergies from TCF, which provided additional scale and efficiencies in numerous areas across the bank, even as we continued to invest in key revenue-producing initiatives.
"Credit continued to perform very well, with full-year net charge-offs of 11 basis points, well below our through-the-cycle target, and nonperforming assets declined for the sixth consecutive quarter.
"Given our growing capital base, and robust profitability profile, we are pleased to ann ounce a share repurchase program as we enter the new year, consistent with our capital priorities. While we recognize the uncertain economic outlook on the horizon, we enter 2023 from a position of strength. Huntington has never been better positioned to navigate through various economic scenarios, with solid capital levels and top tier reserve profile guided by our aggregate moderate-to-low risk appetite through the cycle. Business line momentum continues in the new year and we are driving value for shareholders."
The fourth quarter 2022 earnings materials, including the detailed earnings press release, quarterly financial supplement, and conference call slide presentation, are available on the Investor Relations section of Huntington's website,http://huntington.com/ In addition, the financial results will be furnished on a Form 8-K that will be available on the Securities and Exchange Commission website at www.sec.gov.
Conference Call / Webcast Information
Huntington's senior management will host an earnings conference call on January20, 2023, at 9:00a.m. (Eastern Time). The call may be accessed via a live Internet webcast at the Investor Relations section of Huntington's website, www.huntington.com, or through a dial-in telephone number at (877)407-8029; Conference ID #13734972. Slides will be available in the Investor Relations section of Huntington's website about an hour prior to the call. A replay of the webcast will be archived in the Investor Relations section of Huntington's website. A telephone replay will be available approximately two hours after the completion of the call through January 28, 2023 at (877)660-6853 or (201)612-7415; conference ID #13734972.
Please see the 2022 Fourth Quarter Quarterly Financial Supplement for additional detailed financial performance metrics. This document can be found on the Investor Relations section of Huntington's website, http://www.huntington.com.
Ecomike
2 years ago
$HBAN The heat is one folks.
Second Consecutive Quarter of Record Net Income with Total Revenue Up 9% Sequentially
2022 Third-Quarter Highlights:
Earnings per common share (EPS) for the quarter were $0.39, an increase of $0.04 from the prior quarter.
Net interest income increased $143 million, or 11%, from the prior quarter, reflecting net interest margin expansion of 27 basis points to 3.42% and higher average total loans and leases.
Noninterest income increased $13 million, or 3%, from the prior quarter, reflecting strength in capital markets supported by full quarter impact of Capstone.
Pre-Provision Net Revenue (PPNR), excluding Notable Items, increased $109 million, or 14%, from the prior quarter to $867 million.
Average total loans and leases increased $3.0 billion, or 3%, from the prior quarter to $117.0 billion. Excluding the decrease in PPP loans, average total loans and leases increased $3.3 billion, or 3%, from the prior quarter.
Average total commercial loans increased $1.8 billion, or 3%, and average total consumer loans increased $1.2 billion, or 2%, from the prior quarter.
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