"Ask the CFO how much NIM boost they are going to get from the Kingster's trickery of reclassifying the in loss AFS MBS securities to HTM under the guise of capital protection for BASEL-III. Did citi do it - no, did bac do it no, did wfc do it no, did rf do it no, did hban do it no, did key do it no, did usb do it no ( usb did slightley increase HTM likely from new buys vs transfers -need 10q to confirm) ,did jpm do it no.....Geee BBT did it to 32% of the AFS portfolio. Just so happens NIM is +ve impacted from that move and the equity erosion is stopped. Thats the sign of a weak capital generator to me."
Spin - You posted this comment on the bak board. Yes, I understand that there are unrealized losses in their investment securities and the $8 billion reclassified as held to maturity I think reduces any potential hit to earnings resulting from the new basel rules.
But I think it's also important to consider that most of the investment securities are in gse floaters paying 100 bsp above libor. It appears to me that bbt got even more defensive in their investment securities by taking on more floaters and giving up $35 million ($.04 eps) in 1st quarter 2011 income vs. 4th qtr. of 2010. I did not see any of the other banks in the 1st qtr. of 2011 give up some of their investment income by getting more defensive. Any comment?
Norm: Help me understand the HTM move. I understand the equity erosion piece of the strategy - HTM securities aren't marked to market through equity every quarter - simple enough. Why does the movement from AFS to HTM effect NIM - I don't understand that - but I'm old.
As to the floater issue - Fankly I was surprised that there was GSE debt that paid 100 to 130 bps over LIBOR with 6% to 7% caps. Be that as it may, I really can't see what BB&T could have purchased that would have given a better yield without extending maturities and increasing interest rate risk rather significantly. With the yield on 5-year treasuries at 2.06% and 10-year treasuries at 3.36%, I think they made a good decision in this case.
I'd need the 10-Q to comment further to confirm/deconfirm my suspicions that they moved the MBS in a loss position to HTM vs selling them and eating the loss.
The NIM question is around accretion of any loss on the bonds at FV when transferred to HTM. Under HTM any loss will acreet to interest income over the MBS's life boosting NIM. That doesn't happen under AFS -though the balance sheet impacts are the same.
Without the 10-Q disclosing what was moved and if/any losses of the moved securities then I'm guessing.
What I'm puzzled about though is why they would move floaters to HTM - floaters reset the coupon regularly so automatically adjust to PAR so rising rates have limited impact and hence they are Basel-III capital friendly in AFS already (leaving aside the embedded cap option). Its the fixed notes that are capital unfriendly under Basel-III and I would expect those would be the securities BBT would be tempted to move to HTM.
So the 10-Q is need with further disclosures. Or you can ask management when you meet them which is why I asked about the NIM impact.