Taps Coogan – 30th of June 2020

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Chris Whalen, Whalen Global Advisors Chairman and author of The Institutional Risk Analyst recently spoke with CNBC about his outlook for US banks ahead of Q2 earnings. While Mr. Whalen had initially forecast that eliminating stock buybacks might be enough to shore up bank balance sheets this year, he now fears that the potential for higher than expected loan losses may put bank dividends at risk too. Contrasting this crisis to 2009, he warns that it isn’t about liquidity this time, it’s about credit losses, more akin to the 1930s.

“A couple of months ago, I would have said… ending share repurchases, which is worth $130 billion for the top 25 (banks) was enough. But, you know, that (loan loss) provisions number that the street put out in the first quarter was big. It was up almost 400%. So what we’ve got to look for in second quarter earnings is what are they doing with provisions. If they come in lower than the first quarter, it tells you that they are getting confident and they have a basic idea of what they’re dealing with for the year. If they comes in (at) the same level or higher, it tells you that they still don’t have visibility. And remember, we are talking about credit loss. There is no vaccine for credit loss… What I’m trying to say is you’ve really got understand that this is a 1930 type situation. This isn’t 2009. This isn’t about liquidity. It is about credit loss… I think losses this year could be twice 2009… You could easily see earnings for this year get consumed by credit loss. And they may get it back later. Remember, provisioning in 2009 was 2.5 times what they actually charged off. So, it looks ugly up front, but then they recover a lot of value over time…”

There is more to the interview, so enjoy it above.

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