The BAN Report: The 30MM Seasoned Loan Portfolio / Bank Earnings Roundup / Strong Retail and Job Numbers / Walgreens Closes Stores / Tulsa Exploits Remote / Appreciating Roger Goodell

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The 30MM Seasoned Loan Portfolio

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Clark Street Capital’s Bank Asset Network (“BAN”) proudly presents: “The $30MM Seasoned Loan Portfolio.” This exclusively offered portfolio is offered for sale by one bank (“Seller”). Highlights include:

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• A total outstanding balance of $28,548,550 comprised of 63 loans

• Weighted average seasoning of 13 years with a weighted average remaining maturity of three years

• WAC of 6.06% on all loans

• 4 all-or-none pools: Church, Hotel, Multi-family, and Commercial

• Nearly all loans secured by first mortgages on commercial properties in Chicago (79%), Milwaukee (11%), and Memphis (7%) MSAs

• 50% of the loans are performing, 34% sub-performing and 16% non-performing

• Proven bank seller

 

Loan Sale Announcement

Thursday, October 17, 2024

 

Due Diligence Materials Available

Monday, October 21, 2024 

 

Bid Date

Tuesday, November 12, 2024

 

Closing Date

Thursday, December 5, 2024

 

The NDA is available here.
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Please reach out to jwinick@clarkstreetcapital.com with any questions.

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Bank Earnings Roundup

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Many of the largest banks have now released their earnings. A couple of early themes so far:

 

Investment Banking Surges

 

Since rates started spiking in 2022, we’ve observed a slowdown in nearly all transactional activity, including investment banking. The drop in rates has led to an uptick in investment banking deals. The pure Wall Street Banks (Goldman and Morgan Stanley) had solid earnings led by an uptick in investment banking.  

 

Results (Morgan Stanley) were boosted by a 56% surge in investment banking revenue from a year earlier to $1.46 billion, exceeding the $1.36 billion estimate.

 

“I am bullish on IPOs and M&A coming back,” said CEO Ted Pick. “It may take some time…I think these are going to be global, mature companies that are very much going to need our advice.”

 

The bank advised on big IPOs in the past three months that included cold storage giant Lineage (and airplane engine maintenance services firm Standard Aero.

 

Pick, appointed to the bank’s top job on Jan. 1, succeeding James Gorman, also cited the firm’s investment banking presence in Europe and Asia as a possible driver of future growth.

 

Running a global investment bank is going to pay for years to come,” he told Wall Street analysts.

 

Competitors Goldman Sachs reported a 20% surge in fees on Tuesday, while Citi saw a 31% investment banking gain in its Q3

results on Friday.

 

It follows a string of strong earnings from their US rivals after two years of high interest rates slammed the brakes on mergers and acquisitions.

 

Higher interest rates makes it more expensive for major corporations to secure the financing they need to sign megabucks M&A deals.

 

When dealmaking activity slows down or pauses for a couple years, it often surges back when market conditions improve. We see no reason why this trend won’t continue for several quarters and Wall Street Banks should overperform. The WSJ noted three trends from the largest 4 banks.

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Consumers are still spending

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Bank of America said Tuesday that consumer spending rose from a year ago, in line with results from JPMorgan Chase and Wells Fargo. At Citi, spending is still growing “at a moderate pace,” Chief Financial Officer Mark Mason said. 

 

“Consumers are broadly healthy and resilient, but more cautious,” he said. 

 

Mason said higher-income consumers are driving most of the growth, while middle-income households are “being more selective” about spending and lower-income consumers are feeling pressure.

 

Total payments at Bank of America—which includes credit, debit, cash, checks and other transactions—were up year-over-year. 

 

Brian Moynihan, the bank’s chief executive, said those results aren’t at odds with the fact that “consumers are wary of the cost of living, worried about higher rates and other matters.”

 

“But overall, activity is fine,” he said. 

 

Consumers have shifted away from splurges like travel and entertainment lately toward necessities like food and gasoline. But that could reflect a return to normal from the quarters after the pandemic, when consumers spent big on cruises and dinners, JPMorgan Chief Financial Officer Jeremy Barnum said Friday.  

 

Borrowing is up for credit cards, mixed for mortgages

 

Consumers have continued to borrow on credit cards and paid them off at a slower pace, a sign some households are under pressure. 

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There were signs more borrowers at JPMorgan carried balances from month-to-month in the third quarter, with credit-card loans rising more than purchase volumes. At Bank of America and Wells Fargo, loans rose at around the same pace as volumes. 

 

More have also fallen behind. JPMorgan, Bank of America and Wells Fargo all charged off more loans in the third quarter than in the year-earlier period, including in their credit-card businesses. 

 

Lower rates have failed to bring a big revival in the beaten-down real-estate market. But there were signs the market may have started to thaw some. 

 

Mortgage originations were down from a year earlier at Bank of America and Wells Fargo, which announced last year it would pull back in that space. But originations rose nearly 4% at JPMorgan.

 

The chase for yields is slowing

 

Customers continued moving their deposits to products such as Treasurys and money-market funds in search of higher yields during the third quarter. Banks have had to pay more to get deposits and keep them around, dragging on their profits.

But JPMorgan Chase and Wells Fargo said they are already seeing a slowdown in that migration. 

 

NIMs are Stable

 

Net interest margins have stabilized. Wells Fargo’s NIM dropped by 8 basis points from the prior quarter, B of A’s dropped by 1, Cit’s grew by 3, and JP Morgan Chase’s dropped by 3. US Bank saw a 7 basis point expansion. And M&T grew its margins by 4 basis points.

 

It seems going forward that banks will increase their net interest margins since loan yields tend to re-price slower than deposit prices. Moreover, a borrower with an above-market interest rate on a loan will have more difficulty refinancing due to credit conditions being tight.

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Credit Quality Remains Strong

 

While we expect non-performing loans to increase when all of the banks finish reporting their earnings, credit quality has remained strong. Not a single bank reported a major credit surprise. Wells Fargo, for example, reported a slight decline in total non-performing assets. On the CRE side, nonaccrual loan balances dropped.

 

Bank of America showed more of the same.

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Aside from office loans, credit continues to perform well. The short-seller narrative pushed through its allies in the business press (“Real-Estate Doom Loops Threatens America’s Banks: WSJ 9/2023”) appears to be wildly inaccurate at this point. While there are still many banks to report, it’s unlikely credit will be a big story this quarter.

Strong Retail and Job Numbers

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In September, retail sales rose better than expected while jobless claims fell.

 

Consumer spending held up in September, underscoring a resilient economy that is now getting a boost from the Federal Reserve, the Commerce Department reported Thursday.

 

Retail sales increased a seasonally adjusted 0.4% on the month, up from the unrevised 0.1% gain in August and better than the 0.3% Dow Jones forecast, according to the advance report.

 

Excluding autos, sales accelerated 0.5%, better than the forecast for just a 0.1% rise. The numbers are adjusted for seasonal factors but not inflation, which rose 0.2% on the month as measured by the consumer price index.

 

In other economic news Thursday, initial unemployment claim filings totaled a seasonally adjusted 241,000, a decline of 19,000 and lower than the estimate for 260,000, the Labor Department reported.

 

Claims fell even following hurricanes Helene and Milton, which tore through the Southeast in recent weeks exacting tens of billions of dollars in damage. Filings in both Florida and North Carolina declined after jumping the previous week, according to unadjusted data.

 

Stock market futures were higher after the reports while Treasury yields also rose.

 

Together, the reports show that consumers, who power about two-thirds of all economic activity in the U.S., are still spending and the labor market is holding up after signs of weakening through the summer.

 

On the retail side, spending grew at miscellaneous store retailers, which showed an increase of 4%, as well as at clothing stores (1.5%) and bars and restaurants (1%). Those increases offset a 1.6% drop at gas stations as fuel prices fell, along with declines at electronics and appliances stores (-3.3%) and furniture and home furnishing businesses (-1.4%).

 

Sales increased 1.7% from a year ago, compared with the CPI rate of 2.4% for the same period.

 

With rates falling, the consumer has a little more money in its pocket to spend. Hurricanes tend to be positive for economic growth at least in the short run, as communities rebuild.

 

Walgreens Closes Stores

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One retailer that is really struggling is Walgreens. This week, they announced they are closing 1,200 stores.

 

Walgreens announced that it will shutter 1,200 stores over the next three years — and 500 locations in 2025 alone — as the drugstore giant seeks to slash $1 billion in costs.

 

The Chicago-based pharmacy chain, which has around 8,700 locations nationwide, told analysts on Tuesday that one in four of its stores are unprofitable.

 

The closures were announced in June but the company had not disclosed the number of affected stores at that time. It had said it could shutter up to a quarter of stores, which is more than 2,000 locations.

 

Walgreens did not disclose which locations will be shuttered or how many jobs would be eliminated.

 

The company has been hit by sluggish consumer spending amid stubbornly high inflation, as well as low drug reimbursement rates, which is the amount of money that healthcare providers or pharmacies are paid for dispensing prescription medications to patients.

 

“Consumers are being more wary about where their dollars are being spent and Walgreens’ retail side of the biz is struggling more compared to last year,” Morningstar analyst Keonhee Kim told The Post.

 

The chain has also been the target of retail theft that exploded during the pandemic and continues to plague retailers.

 

“It’s not a convenient shopping experience with everything locked up,” Kim said.

Walgreens’ stock is trading near 30-year lows and down 65% this year, making it the worst performing stock on the S&P 500 index.

 

Shares of Walgreens jumped nearly 16% Tuesday, closing at $10.42, as investors reacted positively to the company’s latest earnings report.

 

Michael Cherny, an analyst for Leerink, said: “Part of the push to reboot the business is to double down on private label and lower end products and to offer basic over the counter consumer goods and drugs.”

 

Walgreens narrowly beat Wall Street’s lowered estimates for fourth-quarter adjusted profit, and forecast fiscal-year earnings that were mostly in-line with expectations.

 

Tim Wentworth, the company CEO, has unveiled a series of changes since taking on the top job last year, including the removal of multiple mid-level executives and a $1 billion cost-cutting program.

 

It will be interesting to see how former Walgreen’s stores repurpose themselves. Tyler Dechter of Baum Realty said: “Walgreens locations are typically on prime, high-traffic corners, making them attractive for redevelopment. Given the rising costs of new construction, these existing sites hold significant value for potential investors or developers who want to repurpose them into various uses, such as medical or veterinary clinics or food-related businesses like grocery stores or quick-service restaurants. However, one potential hurdle could be any deed restrictions limiting the types of businesses or uses occupying these properties post-Walgreens.” 

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Tulsa Exploits Remote

 

Tulsa, OK, which had lost many young workers to big coastal cities, figured out an innovative way to bring them back: making Tulsa a haven for remote workers leaving more expensive cities.

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Business leaders and local officials in Tulsa, Okla., puzzled for years over how to fill the hole created when young people left for big coastal cities. What, they wondered, could keep professionals rooted in the heartland?

 

They ended up turning that premise on its head: Rather than fighting to hold on to native Tulsans, they decided to recruit outsiders. In recent years, the rise of virtual work opened up a new way of responding to the city’s brain drain.

 

Five years after the George Kaiser Family Foundation began offering $10,000 to remote workers willing to move to Tulsa for at least a year, some 3,300 people have taken up the offer.

 

Steven Briggs, 55, was working remotely as a data scientist in Dallas when he applied for the program, Tulsa Remote. He and his wife moved to Tulsa in 2021, and he jokes that his new hometown embodies the flip side of the famous line about New York City:

“What you can say about Tulsa is ‘If you can’t make it anywhere, you can make it here.’”

 

The sudden onset of remote work during the pandemic prompted plenty of cities and states — Topeka, Kan., and Savannah, Ga.;

West Virginia and northwest Arkansas — to vie for new residents with programs offering cash incentives. Tulsa’s program is one of the largest. Researchers at Harvard and other universities examined the effects of Tulsa Remote, wondering whether it was proving a good deal for the remote workers and the city itself.

 

Their research, released this month, surveyed 1,248 people — including 411 who had participated in Tulsa Remote and others who were accepted but didn’t move or weren’t accepted but had applied to the program — and found that remote workers who moved to Tulsa saved an average of $25,000 more on annual housing costs than the group that was chosen but didn’t move. The relocations were also a boon for the State of Oklahoma and the City of Tulsa, bringing in some $14.9 million in annual income tax revenue and $5.8 million in sales taxes from the remote workers, the researchers estimated.

 

“Every heartland mayor should pay attention to this,” said Prithwiraj Choudhury, an associate professor at Harvard Business School and the lead author of the study. “Because of remote work, a large part of the work force is able to relocate, and there is the possibility of reversing brain drain.”

 

This is an interesting development as saving 25K a year on housing costs is certainly impactful. Average home prices are 15% cheaper than Atlanta, 19% than Dallas, and 86% from Manhattan. The population of the Tulsa MSA has grown by 2.9% since 2020 after growing 8.3% in the prior decade.

 

Appreciating Roger Goodell

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Despite being wildly unpopular with much of the NFL fan bases, especially in New England, Roger Goodell has presided over an enormous increase in revenue for the NFL.

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In 2010, at the league’s annual meeting at the Ritz-Carlton Orlando, Grande Lakes, in Florida, Mr. Goodell and his chief financial officer, Anthony Noto, unveiled an audacious target: The N.F.L. would hit $25 billion in revenue by 2027. The league generated about $8 billion at the time, double the amount it had 17 years earlier. Now, Mr. Goodell wanted to more than triple its revenue in the next 17 years. Owners and executives in the room shared sideways glances.

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The N.F.L. was the country’s most lucrative league, but it was facing headwinds from a deep recession and a labor deal that the owners felt had given the players too big a share of the revenue. The owners were optimistic by nature, but not that optimistic.

 

“You know, Roger always speaks confidently, and him saying it not all that far into his reign as commissioner, I have to admit, it was quite a statement,” said Steve Underwood, a former Tennessee Titans general counsel, who attended the meeting. “I didn’t see how he could achieve that, to be deadly blunt.”

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With the league now in its 105th season, Mr. Goodell’s goal is no longer an ambitious dream; it’s becoming a reality. The league has grown by about $1 billion a year since 2010 and now generates more than $20 billion in annual revenue.

 

In 2021, the league signed media rights contracts — its largest source of revenue — worth more than $110 billion, about twice the amount of prior deals. CBS, Fox, and NBC agreed to pay more than $2 billion annually to hold on to their slots to broadcast games. And ESPN is shelling out about $2.7 billion a year to continue airing “Monday Night Football,” and to be added into the rotation to broadcast the Super Bowl beginning in 2026.

 

In 2020, the owners persuaded the players to accept an additional 17th regular-season game, and in 2021, they added extra playoff games, changes that increased revenue even more. In April, at the N.F.L. draft in Detroit, Mr. Goodell floated the idea of an 18th regular-season game, a contentious proposal that would extend the season to Presidents’ Day weekend in late February. Revenue has also poured in from new stadiums in Las Vegas, Los Angeles and beyond.

 

“I thought the target was aggressive but, to be honest, achievable,” Mr. Kraft said, referring to the commissioner’s goal of achieving $25 billion in revenue by 2027. “I’m proud of Roger for putting it on the table to motivate everyone in the league office and the business management of teams that we all had to pull it together and try and make that happen.”

 

The fact that Roger is unliked is to the benefit of the league and its owners. He takes the heat off his fellow owners while he keeps making them a pile of cash. In 2023, the NFL accounted for 93 of the top 100 broadcasts on US television.