The UK's Q4 2023 banking crisis.

[spygirl]

7 hours ago, sancho panza said:

I lvoe thsoe first two quotes particuarlyl the turd in the pool.So true.

I find it easy to imagine how insiders within banks and the fin services industry find it easy to push the leverage button when the bonuses start running dry nd then because it doesnt come back on them and in fact enriches them,they think they'll jsut blow a little harder next time.

It's one of the reasons why we're where we are.

 

I think I noted ref Nat West that the CRE book looked  solid for where we are given that we're seeing some major shopping centres on the UK going under.50%-70% LTV CRE has about 20% in stage 2 but given the situation and how mnay emoty offices and shops there are ,I'm surprised by that

Yeah I thought it looks like a sizeable trade that could pay out big time if the mian of it was laid down pre Kwame.Prop trading desk tradew ithout the prop trading desk

Resi houses are rarely sold ,which is why its hard to get a good price estimate on them.

And theres lots of resi house in the UK.

CRE - office, shopping centres, rarely change hand. And there just arnt that many of them.

An eager group of investors, buying offices n shopping blocks in some up n coming new town may find that, 15y later when they come to sell, that the town has lost all its jobs and is filled with single mothers n muzzers.

This is my local destination shopping place.

https://en.wikipedia.org/wiki/Brunswick_Shopping_Centre

Opened in 1990. Peak Scabby happy shoppers.

Retail has been on a steep uphill path since 1990.

On 4 April 2017 it was announced that M&G Real Estate were putting the freehold lease up for sale, after over two decades of ownership. The lease was priced at £31.75 million, listed through Knight Frank.[5]

 

2021 -

https://www.retaildestination.co.uk/news/scarborough-group-acquires-brunswick-shopping-centre/

Scarborough Partnership Ltd, an associated company of Scarborough Group International (SGI), has acquired The Brunswick Shopping Centre in Scarborough town centre.

The purchase, when complete, will mark SGI’s return to the shopping centre market, having primarily focussed on developing its portfolio office and residential assets in recent years.

Located on Scarborough’s main shopping street, Westborough, The Brunswick Shopping Centre is the only enclosed shopping and leisure centre in the whole of the borough of Scarborough.

It currently provides 130,000 sq ft of high-quality prime retail space and features 31 outlets with brands including Next, New Look and Holland & Barratt.

SGI is now in talks with Scarborough Borough Council to develop a new vision for the centre, incorporating a range of additional uses including leisure and food and drink, in order to cement it as the premier retail and leisure destination on the Yorkshire coast.

Id doubt theyd have paid anywhere near 31m. I doubt it would have gone for over 10m.

Now I mention this as SGI are one company Im v curious about.

I dont know but I think he rode the fat bloke finance wave in the UK up to 2007. Then he managed to move to ME.

 

 

[twocents]

On 02/04/2023 at 18:18, One percent said:

FIFTY.  

what I can’t understand is why the government haven’t forced these banks to get into a healthy position. Instead, it seems to be as bad, if not worse, than it was in 2008, when they had to introduce emergency interest rates and print billions to keep it all afloat. Seems like they just kicked the can. 

Indeed.  They said it must never happen again and they would force the banks to do that. 

[Virgil Caine]

34 minutes ago, twocents said:

Indeed.  They said it must never happen again and they would force the banks to do that. 

It has and they didn’t.

[twocents]

1 hour ago, Virgil Caine said:

It has and they didn’t.

Before the current banking fiasco is done I'm anticipating them repeating the exact same lies they said after 2008.

Edited May 1, 2023 by twocents

[Virgil Caine]

3 hours ago, twocents said:

Before the current banking fiasco is done I'm anticipating them repeating the exact same lies they said after 2008.

Amazingly it appears when they set up risk assessment of banks viability post 2008 they didn’t include the possible impact of inflation or rapid interest rate hikes in the tests. 

Edited May 1, 2023 by Virgil Caine

[Democorruptcy]

Amerman on First Republic:

Quote

 

One of those nine sources with issues and limitations is now the Federal Deposit Insurance Corporation, which was effectively half consumed by just the First Republic takeover. Per the Wall Street Journal on 5/1/23, the FDIC will cover $13 billion in losses, and lend JP Morgan another $50 billion as part of the terms of the transaction. The total assets of the FDIC are only $123 billion, so that is half their balance sheet with only one bank failure. That means that the FDIC is now guaranteeing $10 trillion in insured bank deposits, with what is now only about $60 billion in free assets. That is about 0.6% of insured deposits.

http://danielamerman.com/va/ccc/K9FirstRepublic.html

 

 

[twocents]

6 hours ago, Virgil Caine said:

Amazingly it appears when they set up risk assessment of banks viability post 2008 they didn’t include the possible impact of inflation or rapid interest rate hikes in the tests. 

Yet again there's been little or none of the most basic and fundamental regulation and risk assessment. 

Laissez faire banking.

[sancho panza]

16 hours ago, Castlevania said:

NatWest had a lot of crap commercial real estate exposure on their books when they went bust last time around. As far as I’m aware it’s not an area they’ve been keen to lend to, and an area they’ve been actively trying to get rid for the past decade plus. 
 

The exposure in your table has declined every year for the past four. If you looked at their exposure 10 years ago I’d imagine it would have been far higher.

It's been going down since 2008 when it was a hefty £2.2 trillion.Inflation adjsuted they've really meat cleavered their laon book int eh intervening 15 years.

Can I ask whetehr you think they've been able to offload all the crud laons from that era or do you think there's some elgacy laons theyve been unable to shift?

There are rumours about Ulster bank having some elgacy issues but Ive not looked closely.

I'm still in sole charge of the kids till the wife gets back thurs mornign but I would like to understadn more about the hedges that skipton have in place and how they work for my learnings.Ill will have a look at the data again when I get the chance.I jsut remember being surprised by the size compared to otehrs iirc

https://www.theguardian.com/business/blog/2012/jan/12/rbs-balance-sheet-uk-economy

[sancho panza]

3 hours ago, twocents said:

Yet again there's been little or none of the most basic and fundamental regulation and risk assessment. 

Laissez faire banking.

but it's not laissez faire banking because theyre not allowed to go bust.A key underpinning concept of capitalism is that badly run firms go under.

[sancho panza]

17 hours ago, Castlevania said:

No, it appears they’ve done what Silicon Valley Bank should have done. Most of their mortgages would be sold fixed, whilst deposits are largely variable (or at least they’d need to increase the interest rate as Bank Rate increases). There’s a mismatch. Given the notional of the derivatives to their mortgage book, it does look like they’ve converted most of that fixed mortgage rate to variable.

Just had a look back at the Skippy and have foudn the releavnt psot

So bascially looking athe maths they've effectively hedged their loan book for the cost of about £400mn? ie £1.3bn in assets(swaps),less change in fair value.

How would these swaps be set up CV,do you know? Would they effectievly be calls/puts on a strike price or would they be a swap with a pension company or other comoanys eeking income?

ALos there msut be a time limit on these swaps eg 5 years.WHat would happent hereafter would these loans revert to the SVR?

I'm keen ot understand if you can help explain it in basic tersm.

[sancho panza]

Some WOlftake on the First Republic sale

https://wolfstreet.com/2023/05/01/first-republic-zombie-bank-dismembered-pieces-handed-to-jp-morgan-uninsured-depositors-bailed-out-stockholders-some-bondholders-bailed-in/

First Republic Bank, after disclosing last week that it’s a zombie, was shut down early today by the California banking regulator and handed to the FDIC as receiver, which then dismembered it and handed the pieces, after “a highly competitive bidding process,” to JP Morgan Chase Bank. These pieces are “substantially” all of its assets — including $173 billion in loans and $30 billion in securities. And JP Morgan assumes all its remaining $92 billion in deposits.

Another bailout of uninsured depositors, including the big banks: All depositors, including uninsured depositors – including the $30 billion that 11 big banks, led by JP Morgan Chase, deposited at First Republic in March to prop it up – have access to their money today during regular business hours. All 84 branches reopen today as branches of JP Morgan Chase.

JP Morgan, in its press release, said that it will also receive a $50 billion five-year fixed-rate loan from the FDIC to fund the asset purchases.

Total cost to the FDIC insurance fund will be about $13 billion, including the costs of bailing out the insured depositors, according to FDIC estimates.

Stockholders got bailed in and wiped out. They’d already been mostly wiped out by Friday evening in one of the most spectacular stock plunges ever.

Holders of the unsecured subordinated bank notes got bailed in and wiped out just about entirely. This is a form of preferred stock. There were two issues, totaling $800 million. For example, the 4.625% bank notes, issued in 2017, traded at less than 2 cents on the dollar this morning, another spectacular plunge.

 

 

https://wolfstreet.com/2023/05/01/heres-the-great-deal-jp-morgan-got-on-first-republic-according-to-jp-morgans-victory-lap-in-front-of-investors/

So JP Morgan Chase won the “highly competitive bidding process” for the dismembered pieces of First Republic. It will cost the FDIC’s insurance fund about $13 billion, the FDIC said. Even the uninsured depositors were made whole, mainly the 11 banks, including JPM itself, that put in $30 billion on deposit at First Republic back in March to prop it up. Stockholders and preferred stockholders were bailed in and wiped out. We discussed all this here.

But JP Morgan came out this morning and in a presentation to its shareholders bragged about the great deal it got – another instance of a bank and its owners getting rich off yet another government bailout.

This is how JPM will benefit, according to JPM:

• A one-time “bargain purchase gain” of $2.6 billion in 2023.
• “Over $500 million” in annual net income accretion.
• All producing an “IRR” (internal rate of return) of over 20%.
• “Accelerates growth initiatives” in JPM’s U.S. wealth strategy.
• “Increased penetration with U.S. high net worth clients.
• “Adds prime locations in affluent markets” (including San Francisco Bay Area, Los Angeles, Portland, Seattle, New York City, Boston, Jackson (Wyoming)…
• “Accretive to tangible book value per share.”

JPM bought assets it then wrote down to $184.7 billion:

• $172.9 billion in loans at book value, which JPM wrote down 13% to $150.3 billion.
• $29.6 billion in securities, which JPM continues to carry at par.
• $5.0 billion in other assets, which JPM wrote down to $4.8 billion.

Edited May 1, 2023 by sancho panza

[sancho panza]

On 29/04/2023 at 23:53, sancho panza said:

Tiem will tell but banks with regional bias in their loan books to these states will be the msot excpsoed to runs I suspcet.

https://studybuff.com/which-states-are-non-recourse-states/

There are currently 12 non-recourse states: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington.

https://mishtalk.com/economics/the-great-escape-from-california-new-york-and-illinois-accelerates

Flight from California, New York, Illinois, and New Jersey continues unabated and at an accelerated pace.

[wherebee]

3 minutes ago, sancho panza said:

https://mishtalk.com/economics/the-great-escape-from-california-new-york-and-illinois-accelerates

Flight from California, New York, Illinois, and New Jersey continues unabated and at an accelerated pace.

Thing with NY and NJ is that there are huge areas which are small town/country/farming.  I have many friends who live in those places now, and they are like the English small town/countryside setup - good communities, good people.  They get smacked by the insane policies that the blue politicians impose from the big cities.  It's a tragedy.

[twocents]

2 hours ago, sancho panza said:

but it's not laissez faire banking because theyre not allowed to go bust.A key underpinning concept of capitalism is that badly run firms go under.

Indeed they don't accept the crisis consequences of laissez faire banking though it's laissezz faire until they're about to go bust.

Edited May 2, 2023 by twocents

[Castlevania]

5 hours ago, sancho panza said:

Just had a look back at the Skippy and have foudn the releavnt psot

So bascially looking athe maths they've effectively hedged their loan book for the cost of about £400mn? ie £1.3bn in assets(swaps),less change in fair value.

How would these swaps be set up CV,do you know? Would they effectievly be calls/puts on a strike price or would they be a swap with a pension company or other comoanys eeking income?

ALos there msut be a time limit on these swaps eg 5 years.WHat would happent hereafter would these loans revert to the SVR?

I'm keen ot understand if you can help explain it in basic tersm.

They’re all interest rate swaps in the Building Society. They’d be with an investment bank as the counterparty.

Most mortgages over the past few years have been issued with a fixed rate for 2-10 years. This means that the interest rate received by the Society by the customer is fixed for the period of the fix. However, the Society’s deposits are largely correlated to Bank Rate. As interest rates rise they must pay more in interest. This is a problem if the interest you receive on your issued loans is largely fixed. So by entering into interest rate swaps (receive floating, pay fixed) they can convert the fixed interest rate received on their issued mortgages to a variable rate. 
 

[sancho panza]

Ambrose on one.Printed over in full because it's a humdinger.Not news tut basment but interesting to see this out there in teh MSM

cross psot from main thread for reference purposes

https://www.msn.com/en-us/news/us/half-of-americas-banks-are-already-insolvent-–-this-is-how-a-credit-crunch-begins/ar-AA1aDhwV

The twin crashes in US commercial real estate and the US bond market have collided with $9 trillion uninsured deposits in the American banking system. Such deposits can vanish in an afternoon in the cyber age.

The second and third biggest bank failures in US history have followed in quick succession. The US Treasury and Federal Reserve would like us to believe that they are “idiosyncratic”. That is a dangerous evasion.

Almost half of America’s 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under US accounting rules but that does not make them solvent. Somebody will take those losses.

“It’s spooky. Thousands of banks are underwater,” said Professor Amit Seru, a banking expert at Stanford University. “Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.”

The full shock of monetary tightening by the Fed has yet to hit. A great edifice of debt faces a refinancing cliff-edge over the next six quarters. Only then will we learn whether the US financial system can safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic.

A Hoover Institution report by Prof Seru and a group of banking experts calculates that more than 2,315 US banks are currently sitting on assets worth less than their liabilities. The market value of their loan portfolios is $2 trillion lower than the stated book value.

These lenders include big beasts. One of the 10 most vulnerable banks is a globally systemic entity with assets of over $1 trillion. Three others are large banks. “It is not just a problem for banks under $250bn that didn’t have to pass stress tests,” he said.

The US Treasury and the Federal Deposit Insurance Corporation (FDIC) thought they had stemmed the crisis by bailing out uninsured depositors of Silicon Valley Bank and Signature Bank with a “systemic risk exemption” after these lenders collapsed in March. 

The White House baulked at a blanket guarantee for all deposits because that would look like social welfare for the rich. Besides, the FDIC has only $127bn of assets (and less very soon) and may ultimately require its own bailout. 

The authorities preferred to leave the matter vague, hoping that depositors would discern an implicit guarantee. The gamble failed. Depositors fled First Republic Bank at a fast and furious pace last week despite an earlier infusion of $30bn from a group of big banks. 

White knights probing a possible takeover of First Republic recoiled once they examined the books and discovered the scale of real estate damage. The FDIC had to seize the bank, wiping out both shareholders and bondholders. It took a $13bn subsidy along with $50bn of loans to entice JP Morgan to pick up the pieces. 

“No buyer would take First Republic without a public subsidy,” said Krishna Guha from Evercore ISI. He warns that hundreds of small and mid-sized banks will batten down the hatches and curb lending to avoid the same fate. This is how a credit crunch begins.

The share price of PacWest, the next on the sick list, fell 11pc in late trading on Monday. That will be the bellwether of what happens next. 

The US authorities can contain the immediate liquidity crisis by guaranteeing all deposits temporarily. But that does not address the greater solvency crisis. 

The Treasury and the FDIC are still in the denial phase. They blame the failures on reckless lending, bad management, and over-reliance on foot-loose uninsured depositors by a handful of banks. This has a familiar ring. “They said the same thing when Bear Stearns went down in 2008. Everything was going to be alright,” said Prof Seru.

First Republic lends to technology start-ups, but it chiefly came unstuck on commercial real estate. It will not be the last on that score. Office blocks and industrial property are in the early stage of a deep slump.  “Where we stand today is a nearly perfect storm,” said Jeff Fine, real estate guru at Goldman Sachs.

“Rates have gone up 400 to 500 basis points in a year, and financing markets have almost completely shut down. We estimate there’s four to five trillion dollars of debt in the commercial (property) sectors, of which about a trillion is maturing in the next 12 to 18 months,” he said.

Packages of commercial property loans (CMBS) are typically on short maturities and have to be refinanced every two to three years. Borrowing exploded during the pandemic when the Fed flooded the system with liquidity. That debt comes due in late 2023 and 2024.

 

Could the losses be as bad as the subprime crisis? Probably not. Capital Economics says the investment bubble in US residential property peaked at 6.5pc of GDP in 2007. The comparable figure for commercial property today is 2.6pc. 

But the threat is not trivial either. US commercial property prices have so far fallen by just 4pc to 5pc. Capital Economics expects a peak to trough decline of 22pc. This will wreak further havoc on the loan portfolios of the regional banks that account for 70pc of all commercial property financing. 

“In a worst case scenario, it could create a ‘doom loop’ which accelerates a real estate downturn that then feeds back into the banking system,” said Neil Shearing, the group’s chief economist.

Silicon Valley Bank’s travails were different. Its sin was to park excess deposits in what is supposed to be the safest financial asset in the world: US treasuries. It was encouraged to do so under the risk-weighting rules of the Basel regulators.

Some of these debt securities have lost 20pc on long maturities – a theoretical paper loss only until you have to sell them to cover deposit flight. 

The US authorities say the bank should have hedged this Treasury debt with interest rate derivatives. But as the Hoover paper makes clear, hedging merely transfers losses from one bank to another bank. The counterparty that underwrites the hedge contract takes the hit instead.

The root cause of this bond and banking crisis lies in the erratic behaviour and perverse incentives created by the Fed and the US Treasury over many years, culminating in the violent lurch from ultra-easy money to ultra-tight money now underway. They first created “interest rate risk” on a galactic scale: now they are detonating the delayed timebomb of their own creation. 

Chris Whalen from Institutional Risk Analyst said we should be wary of a false narrative that pins all blame on miscreant banks. “The Fed’s excessive open market intervention from 2019 through 2022 was the primary cause of the failure of First Republic as well as Silicon Valley Bank,” he said.

Mr Whalen said US banks and bond investors (i.e. pension funds and insurance companies) are “holding the bag” on $5 trillion of implicit losses left by the final blow-off phase of the Fed’s QE experiment. “Since US banks only have about $2 trillion in tangible equity capital, we have a problem,” he said.

He predicts that the banking crisis will keep moving up the food chain from the original outliers to mainstream banks until the Fed backs off and slashes rates by 100 basis points.

The Fed has no intention of backing off. It plans to raise rates further. It continues to shrink the US money supply at a record pace with $95bn of quantitative tightening each month. 

The horrible truth is that the world’s superpower central bank has made such a mess of affairs that it has to pick between two poisons: either it capitulates on inflation; or it lets a banking crisis reach systemic proportions. It has chosen a banking crisis.

[sancho panza]

16 hours ago, Castlevania said:

They’re all interest rate swaps in the Building Society. They’d be with an investment bank as the counterparty.

Most mortgages over the past few years have been issued with a fixed rate for 2-10 years. This means that the interest rate received by the Society by the customer is fixed for the period of the fix. However, the Society’s deposits are largely correlated to Bank Rate. As interest rates rise they must pay more in interest. This is a problem if the interest you receive on your issued loans is largely fixed. So by entering into interest rate swaps (receive floating, pay fixed) they can convert the fixed interest rate received on their issued mortgages to a variable rate. 
 

Just double checked the Cov and they have afull book of swaps as well which makes perfect sense.LIke you say,it's  good thing.

A couple of thoughts.

1) whislt they have hedged their IR risk,they haven't hedged the risk of someone stopping paying their mortgae/drop in real estate prices or the risk of the counter party going bust.

2) also,at the end of the 2/5/10 year fix if the mortgagor is unable to port their mrotgage then they move onto Covs variable rate,so the people who have equity and can move will, and the people who can't won't.WHich could pontentially end up with the weakest banks having the bulk of the struggling clients and the strongest banks having the pick

3) The investment banks that are the other side of these trades will emerge weaker as a result of being of the wrong side ,a point that the Telegraph article above makes.

 

23. Derivative financial instruments
The Group elected to continue to apply the hedge accounting requirements of IAS 39 as permitted under IFRS 9.
Risk management strategy
Derivative financial instruments, predominantly interest rate and cross currency swaps, are held solely for the purposes of mitigating
interest rate risk, foreign exchange risk or interest rate and foreign exchange risk together, as explained in the Risk Management
Report. Where appropriate, they are designated as hedging instruments within either fair value or cash flow hedge relationships
under the terms of IAS 39. Derivatives can hedge specific assets or liabilities such as liquidity or wholesale instruments (sometimes
referred to as ‘micro’ hedges) or portions of a portfolio of fixed rate mortgages or savings products (sometimes referred to as ‘macro’
hedges).
For micro hedges, the Group establishes the hedging ratio by matching the notional amount of the derivatives with the principal of
the instruments being hedged. For macro hedges, the Group establishes the hedging ratio by matching the notional amount of the
derivatives with the principal of that portion of the portfolio being hedged and manages this on a monthly basis by entering into
interest rate swaps.
Where interest rate risk is hedged, only the interest rate risk element of the underlying position is designated as the hedged item and
therefore other risks, such as credit risk, which are managed but not hedged by the Group, are excluded.

Page 181

 

[Chewing Grass]

41 minutes ago, sancho panza said:

“No buyer would take First Republic without a public subsidy,” said Krishna Guha from Evercore ISI. He warns that hundreds of small and mid-sized banks will batten down the hatches and curb lending to avoid the same fate. This is how a credit crunch begins.

This is interesting and poses  a question.

I dump everything above the HR Threshold into Mr Pension to avoid paying tax now and the cunts running the country not raising that threshold has resulted me dropping my hours from 40 to 34 per week.

Now if Mr Fund value tanks as Banks is Blue Chip then in New Venezulan Repuplic of the UK then paying into the pension to avoid tax is a waste of time if the Pension Co's and their 'investments' get toasted.

At what point do I pay more tax and start buying stuff instead.

[sancho panza]

@Castlevania

Just looking at the Hinkley and Rugby.Their annual report is light on data.

it seems small for their loan book of circa £650mn compared to the skippy and cov.Given that,it would be intersting to understand the duration risk for want of a better phrase, resulting from the shortfall ie they've covered some loans not all.

 

 

Page 54

 

[wherebee]

50 minutes ago, Chewing Grass said:

This is interesting and poses  a question.

I dump everything above the HR Threshold into Mr Pension to avoid paying tax now and the cunts running the country not raising that threshold has resulted me dropping my hours from 40 to 34 per week.

Now if Mr Fund value tanks as Banks is Blue Chip then in New Venezulan Repuplic of the UK then paying into the pension to avoid tax is a waste of time if the Pension Co's and their 'investments' get toasted.

At what point do I pay more tax and start buying stuff instead.

My rule is buy things that you'll know you need to use/replace when they are good value now.  For example, bought a vacuum cleaner.  It was great, tough, and good price.  After 3 months, we went back and bought another one, and stuck it in storage in the loft.  When the first one dies, we'll have a second one.

We lose out on the investment returns of that 80 bucks, but I am damn sure the price for a good VC will be inflation linked at the least (plus regulations for net zero might make future ones weedy like the EU).

[sancho panza]

Here comes the mother ship.435 sides long.NatWest full report and hopefully some interesting stats.

Must say it's an impressive amount of detail overall.

https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/annual-reports/ar-2022/full-annual-report-2022.pdf

Quick refresher

Page 299-301

Page 317 My comment-surprisingly high number of staff in India

Page 328 MC-Pension assumptions-interesting to see them laid out.UK 's current excess death rate must make life easy for pension providers looking at these stats ref one year increase in longevity

Page 338-MC- sizeable derivatives exposure.Whilst the net exposure is £5bn+,it's worth noting that market cap is £24bn today at £2.70

Page 341-MC- interesting to see set up of assets in terms of size of level 2 assets and the stated definitons above the data.

 

Page 348-Maturity analysis.Intersting to see how skewed the balance sheet is in terms of lend long/borrow short.Not a critiscism but when you see it in black and white you realise how exposed banks are to people shifting deposits around

Assets-£317bn under 12 months £377bn over 12 months

Liabilities-£558bn under 12 months £120bn over 12 months

 

Back later.Got to plant courgettes.

Edited May 3, 2023 by sancho panza

[sancho panza]

More NatWest

https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/results-center/17022023/nwg-annual-report-and-accounts.pdf

Page 356-My comment: 40% rise in stage 2 assets yoy.Not to the same scale as some of the BS's but then they appear to haev been migrated onto Standardized Approach from IRB leading to reweighting of assets

It's still signficant though imho and only really includes 3 months of higher rate environment

Page 362-MC-details of additional tier 1 captial.worth reading the explantory notes below as these are the sort of coco's that got rolled over in the Credit Suisse bust

Page 366-MC-details of the CET1-interestign to see the hike in cashflow hedging reserve which seems unduly large but beyond my understanding.reading elsewhere they have started running an £800mn buyback scheme,one does wonder whetehr they should be paying taxpares back first.

Page 386-Huge array of subdsidiaries,fully owned and not fully owned.I don't know how easy it would to be fully on top of so many,especially where ownership is partial

Page 394:cost income ratio looks a little high.They've jsut given teh CEO a raise to £5.25mn I believe

Page 398:Net interest margin.Worth noting the amount of accounts that NatWest run that are non interest bearing which no doubt underpins earnings to a substantial degree.Essentially free money.Not that it's likely to go anywhere as punters will stay with the big banks to get thier moeny back

Page 402:MC:country by country breakdown.

Edited May 4, 2023 by sancho panza

[sancho panza]

Credit risk section-where the intersting stuff is.Point to note NatWest Market cap is circa £27bn

Page 196-details of their modelling which is a tad more sophisticated thatn the likes of the BS's but still contains clear and present risks of confirmation bias

 

Page 207-MC-we get details of stage 1/2/3 and get an idea of the trend

From 2021-2022,we get a 58% increase in stage 2 in the retail segment.private banking sees a drop,commercial rises 30%.So basically the bulk of the deterioration in it's loan book is in retail.

There's obviously a possiblitiy these laons can be moved back to stage 1 but given the current macro backdrop that seems unlikely

Page 210-MC- we get a breakdown of stage 2 which shows that as of year end 22 ,the bulk of the retail changes weren't related to missed payments but ot other criteria but collectively £5 billion are in stage 3 already which is default stage.

Also worth noting that the total amount of loans in stage 2 £46billion

Also a 60% rise in retail laons being mvoed to stage2

Page 211-MC-data on stage 2 including breakdown by loan type.Interestingly Mortgages have gone up from 11,543 Stage 2 to 18,787 a 63% increase

Page 221-MC-key thing here is to look at the size of

1) that BTL book-£20.5bn,t

2) the interest only loan book at £21.5billion

3) anotehr £9bn mixed ie part IO.

Now obviously many of these may have equity but I would suspect they are legacy laons from back in the day.That's a substantial exposure to a hosuing downturn right there.

What's also surprising is that the average LTV's of mrotgages in stage 1/2/3 is relatively similar apparently indicating it not being a predictor of deterioration.

Page 220-what's surpising here is that Stage 2/3 ratios are actually generally higher in the lower LTV sections eg stage 2 in <50% LTV is 10.2% and stage 3 is 1.3%.for >70%<80% it's 8.3% and 0.003% which is not what you'd expect.

Page 221-40% exposure to teh Sotuh East in terms of mortgages,which you'd expect from a High St bank.Makes you wonder how the likes of the Cov etc have ended up with more exposure to Londinium than NatWest

Page 234-gives a break down of the stage 2 data and why laons have been moved from Stage 1,the clear growth in stage 2 is evident(PD=probabaility of default )

 

Page 250-Details of tier 1 and risk weighted capital..Worth consdiering this in the light of the size of their market cap and stated equity. of circa £33bn.NatWest are stating the rise in RWA's due to changes in IRB

Edited May 4, 2023 by sancho panza

[jamtomorrow]

12 hours ago, sancho panza said:

Point to note NatWest Market cap is circa £27bn

2) the interest only loan book at £21.5billion

Also worth noting that the total amount of loans in stage 2 £46billion

Hope you don't mind @sancho panza, I pulled some snippets that make you go "hmmm" when you see them together.

This seems different in character from the problems at US banks - less duration mismanagement, more just solvency chickens coming home to roost after a decade or more writing loans into an economy that was running on fumes.

There's no JPM to play "bigger fish" in the UK, which means it's a minute to midnight for pretending we can continue to have private banking here.

[sancho panza]

4 hours ago, jamtomorrow said:

Hope you don't mind @sancho panza, I pulled some snippets that make you go "hmmm" when you see them together.

This seems different in character from the problems at US banks - less duration mismanagement, more just solvency chickens coming home to roost after a decade or more writing loans into an economy that was running on fumes.

There's no JPM to play "bigger fish" in the UK, which means it's a minute to midnight for pretending we can continue to have private banking here.

Appreciate that summation JT.There's a lot of data in the NatWest posts and trying to sum it up in a few words is incredibly difficult but I think your point is well made.Stated equity is £37bn,market is saying let's call it £27bn in the real world.That's not a lot underpinning such a big asset base.

There's no getting around it.We've gone froma 2% IR environment to a 4.5%/5% environment and stage 2 was likely already rising before Trussonomics was given a go for a month.Some of these banks are likely already making huge adjsutments in their modelling given that fact and downgrading even more as we speak to stage 2.

WHich begs the question of when we will find out that these issues have come home to roost?

Looking at NatWest and seeing the govt have already nudged the sale of their stake to the right, suggests the insiders are aware and jsut waiting to see if 'Hope' can get things back to normal.Unfortunately,their version of 'normal' is hsitory's verion of abnormal.