Bank Stocks

[tooqk4u22]

I agree with you, and office is an outright disaster.   But.....banks have been dealing with it quietly over the last two years. Loans on office are typically done at 50-65% ltv but in addition to reserves for losses banks actively sell notes to PE funds, distresses debt funds, family offices and real estate owners and developers (sometimes sold back to borrower at discount) ....property declines 35-50% and bank is still good but wants out and sells the loan for typically 70-85% on the dollar absorbed through normal income and reserves get released.  Don't get me wrong, there is still a lot of pain left in office but the problem is not as great for the banks as people talk about. 

https://therealdeal.com/national/2023/08/17/fortress-buys-1b-of-capital-one-loans/

https://www.nytimes.com/2024/06/24/business/commercial-real-estate-loans.html

Keep in mind that a lot of the office market is small buildings owned or leased to mom and pops, sole proprietorship such as lawyers as well as medical professions....and that segment has not been as negatively impacted like large corporate office.

Also, i didnt read the whole article but I think the article had a typo stating that there is 69 billion sf under construction (total US office sf is probably under 100 billion sf), that probably is millions and even that would seem high as the only office construction over the last five years has been build to suits for large corporations or those that were significantly preleased.   69 billion under construction is commical.

[chasesfish]

Dropping in on the thread for a minute.

I'm going to get quieter on here, I'm slowly exiting a number of my small and mid size bank positions at 20-40% gains.   Most of the meat in both the common and preferred equity trades are gone.   The only place I'm finding some value / mispricing is in inefficient markets on much smaller institutions.

So far on the credit front it's pretty boring.   Incompetent banks are doing incompetent things while reasonably run banks are within or under 2015-2019 loss ranges.   If you want to read the fund, go look at Arbor, Reddy Capital, or Ladder Capital's earnings.   The mREITs are where the fun is.

[reeshau]

Cheers on your success, @chasesfish , and thank you for your comments over the last year plus.  I found them very helpful.

[ChpBstrd]

The thread title changed from "Buy bank stocks on the dip?" to "Bank Stocks".

Maybe now it should be "Sell bank stocks on the run-up?"

Congrats to @chasesfish for converting professional expertise into profits, and thanks for educating panic-prone industry noobs like me along the way. I'm still a bank skeptic, but that could change in the event of a recession, and at that point I'll be better prepared to make decisions.

This whole thread demonstrates the value of this forum.

[chasesfish]

I appreciate it.

We could get another panic that gives up an opportunity, but my guess is it'll be a while before something starts taking down everything like March of 2023 and subsequent doomer scenarios.   The risks are always what you don't see coming (VC backed bank run anyone?)

FWIW, there are still some nice sub $3bil banks with embedded 20-30% gains in their book value as the bond books roll over.   Buying something for 80-90% of that value and knowing that franchises are selling at 140%+ of TBV now is still attractive.   The biggest problem I'm finding is management risk:  How much do I trust management that torched a bunch of equity via bad bond management?   So many of them will milk an institution for salaries for years instead of selling.   I'll keep those to spread out smaller bets and take my 5-10% return a year on the banks and occasionally one will get that 40% sale pop.   

That's far more boring investing than buying discounted prefs and gaining 30% in a year.