I'm Back: Where Did I Go? (Special Report)

 Welcome Back

    I just want to start our by saying that I apologize to all of my stock talkers. I have been really bad at getting out these weekly reports over the past month or so. I am hoping to pick back up on providing you information. So where did I go? I was not writing to you guys for a good reason. I decided to pick up an internship at a public accounting firm over the past 4 months. I was doing tax work and let me tell you, the tax season is no joke when it comes to preparing and getting out returns. The time flies by when you are working and doing something you enjoy a ton. I had a wonderful experience and unfortunately I had to give up writing blog posts for the time I was busting out tax returns. I decided to write a little blog to let you know where I have been and also want to provide my opinion on a huge topic currently swarming the economy. 

What is going on with the banks?

    If you haven't heard yet, then you probably have no access to the news, but a bank collapsed a little bit over a month ago. Silicon Valley Bank, which is located in California, had $42B withdrawn from their account during a day and the bank collapsed. Through multiple attempts to try and get suitors to buy the bank, the parent company officially filed for bankruptcy. This threw not only the banking sector into a frenzy, but the economy as a whole. People swarmed to remove money from their bank accounts because they thought it was unsafe to leave it in bank accounts. We saw all banks from large to small start declining in the stock market. Now this is a totally opinionated take, but I firmly think the reaction was overshot. Do we ever think the big banks will ever fail, it will be extremely hard for them too. The government would end up supporting them anyways, to stay afloat. The regional banks are the ones that are more in question at this point, they do not have the support and diversification like the big guns. With most, if not all of the banks having reported earning results for the quarter, we have gotten to see a better view of the health of the industry. 

    Regional Banks are the first key we need to look at. After viewing a majority of the earnings reports, I came up with a couple of common themes that seem to be persistent and here to stay until we see some change from The Fed. The first trend that came to my attention was that deposits saw a drastic decrease at the smaller banks. This comes as people feel a little safer and can sleep a little better at night knowing their money is with a bigger bank. This hurts the smaller banks because they don't have access to as many customers money to use for the sake of investing to make money. This leads to a dramatic effect and the hard truth solution. The smaller banks are going to need to up their interest rates that customers can get for having their money in a savings account. This is going to have a negative effect on the interest rate spreads for the banks. This is because a couple of years ago when they were writing loans at 2-3% for mortgages and other types of lending situations. If they have to start giving 4% yields on their savings accounts, this is going to lead to a drastic decrease in the NII (Net Interest Income) in the upcoming quarters. 

    For the larger banks, it is a whole different story. They are in the driver seat and this is credited to their prestigiousness and reputations. The last quarter were a huge win for the big banks, as they saw a huge influx of deposits and some phenomenal numbers on the earnings report. They have the luxury of not having to give such a high yield on savings accounts because the customers aren't chasing interest rates, they are chasing the security of their money. There is one major concern that a lot of people aren't seeing, and it could play a pivotal role on the outcome of the big banks. COMMERCIAL REAL ESTATE is going to be something to keep a close eye out for in the coming months. JP Morgan is a leader in lending out loans for Commercial Real Estate, The vacancy rates have creeped up over the past year or so, with a lot of small businesses starting to go under with the rising interest rates. We also had a pandemic come upon us, that started a work from home movement. This working from home trend has become quite successful for some companies and led to companies straying from in office work and going fully online. If the vacancy rates continue to rise, it could be bad news for some of these bigger banks with outstanding loans to Commercial Real Estate companies. 

    This is the briefing that I wanted to bring before you. It will be an interesting next couple of months, but I plan and hope to bring you my opinions on things. I'm going to start getting a little more active on this blog and bring some interesting perspectives on various companies. Like always, thank you for reading and stay tuned for some upcoming blogs.