Falling NIMs, Rising Mortgage Banking and two new bank stocks: Monarch Financial and PVF Capital Corp
One consequence of the quantitative easing campaign that was initiated by the Federal Reserve is that is caused a rise in mortgage backed securities, and a corresponding drop in interest rates for those securities. To illustrate, below is the 30 year Fannie Mae.
This drop in rates is bad for holders of MBS debt who depend on the yield that it returns. As a consequence many mREITs have been under pressure.
To varying degrees banks are in same boat. You saw this with the release of results on Friday from JP Morgan and Wells Fargo. The subject was discussed here in the Financial Times.
But I think you have to be careful before painting all banks with a broad brush. The extent of the damage depends on the percentage of assets that each bank has in securities in general and in mortgage backed securities in particular. This can vary quite a bit, especially among the smaller community banks.
I have looked at each of the banks I own. Most are not overly exposed to mortgage backed securities or to securities in general. The table below shows the total investment security exposure vs. loan exposure for each bank, and then breaks down the investment securities by type. Read more