"Did you crunch out the NIM impact from selling the MBS and buying back debt?"
No I haven't. Bbt historically has sold off their mbs portfolio when yields drop a lot. Other banks like usb have not. Trade off of course - taking profits on the front end vs. spreading them over many qtrs.
Suppose you would say this is a great example of King managing earnings. Perhaps but I like what King has done here. I'm sure you agree with the Davis approach. But that's not what is important right now. Any bank ceo who does not sell off treasuries in a big way in the 3rd qtr is an idiot. That includes Davis who I think has done a great job.
Since 6/30/11 treasury prices have skyrocketed. The Chicago Board of Trade Treasury Index has increased 7.7% since 6/30/11. Yields on 5, 10 and 30 year treasuries have dropped 90 bsp, 133 bsp, and 148 bsp respectively since 6/30/11. The yield on a 5 year treasury at 9/23/11 is 86 bsp while the yield on a 10 year treasury is 183 bsp.
There is evidence that commercial banks are taking major profits on their investment securities in the 3rd qtr. Per the Fed commercial banks have an investment security portfolio of $2.5 Trillion at 9/11. Their unrealized gain on this portfolio is about $30 billion. Most of this stuff, I believe, is 5 and 10 year maturities with respective durations of about 4.25 and 7.25 years respectively. Do the math. You know the reduction in bsp and the length of durations. The average price increase on 5/10 year stuff is around 6.7%, very close to the cbot increase of 7.7% but the later is biased upward with 30 year treasuries.
Let's see. A 5% increase of $2.5 Trillion. $100 million plus. Unrealized gains per the Fed report up only $13 billion for the 3rd qtr so far. Sounds like some serious selling. Should be noted though that treasury balances continue to increase modestly driven by the continuation of booming deposits even though cd are dropping like a rock and treasury super big price appreciation.
Banks need to find a new place to earn money on their investment securities. 86 bsp on a 5 year treasury is unacceptable. Plenty of alternatives - munis, walmart, ibm, trups, 9/23 data suggest that type of movement is underway.
That would be interesting. Bail on treasuries and mbs while Fed starts their twist operation.
"Suppose you would say this is a great example of King managing earnings. "
Not in this case, selling the MBS to retire highcost debt is rational and one I agree with. I didn't look to see what debt was available for takeout so was curious if you did the NIM calc for this strategy.
"Banks need to find a new place to earn money on their investment securities. 86 bsp on a 5 year treasury is unacceptable. Plenty of alternatives - munis, walmart, ibm, trups, 9/23 data suggest that type of movement is underway. "
I'm not sure I wan't mybanks taking on risk reaching for yield to offset. Which is why I like the sell MBS buyback debt approach.