This past week, I had a conversation with a couple of co-workers about which languages we took in high school. One had taken French, the other took German and I made it through five years of Spanish. While I was never completely fluent, I could converse easily enough with others who had learned Spanish from teachers who spoke English at home.
But put me on a lonely road in the Honduran mountains and tell me to get back to Tegucigalpa? I probably could have done it, but it wouldn’t have been easy.
Regardless, I mentioned that I had recently read somewhere that Norwegian was one of the easier languages for English speakers to learn. However, one does not come across many Norwegians here in central Alabama. Further, it appears American English is one of the harder languages for non-natives to learn.
This is primarily due to our copious use of idioms.
You can’t have your cake and eat it too? While we all know what that means, it makes zero sense in literal terms. After all, what else are you supposed to do with cake? Also, in the Deep South, we are prone to use sayings which even other Americans have a hard time deciphering let alone, say, Chinese speakers. He found religion? The good Lord willing and the creek don’t rise? You’re the bees knees? More than you can shake a stick at?
Then, there is the quintessential Southern adage “I declare.” What is it you declare, exactly? Trust me, a non-Southern English speaker would be waiting for your declaration after you said that.
What’s more, Americans add idioms and other oddities to the mix all the time. A relatively recent one, at least to me, is Captain Obvious. If you are unaware of who this is, Captain Obvious is someone who makes a statement which is so readily apparent as to be redundant or otherwise unnecessary.
- An example might be “higher interest rates put pressure on bond prices and bank balance sheets.”
- Another might be “an inverted yield curve can reduce net interest margins, which is bad for bank earnings.”
- Finally, “Elevated CRE (commercial real estate) exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit.”
Thank you for that, Captain Obvious. Or should I say Moody’s Investors Service (Moody’s)?
This past Tuesday, Moody’s downgraded 10 regional banks in a report entitled ‘US banks’ funding risks, weakening profitability and increasing asset risk will test credit strength.’ Oakworth was not one of them.
I was able to read a good chunk of the report through various sources without having to pay a nickel for it. You know what, there were very few, if any, true revelations.
Admittedly, I have worked in this industry for a long time, and most people haven’t. So, perhaps I am being a little unfair in my assessment.
However, one of our summer interns made a wonderful observation when she asked “wouldn’t this [Moody’s] report have been more helpful for investors before the yield curve inverted?”
Yes, it certainly would have been. However, that is not the way of the world.
The truth of the matter is that individual investors want Wall Street analysts to be omniscient. They expect them to be clairvoyants or sorcerers. If not that, perhaps a little more in the know than the average bear. Unfortunately, Captain Obvious is often the result.
To be sure, any number of people reading this are now screaming how I often resemble that last remark. To this, I would reply anyone who calls me Captain Obvious is showing the rest of the world they hold the same title as I.
But if this is indeed the case, why did investors seem to freak out over the Moody’s report? After all, some stocks got rocked with news of their downgrade. Didn’t they? Well, not really.
To be sure, the 10 stocks Moody’s downgraded on Tuesday have had better weeks than this one. There is no argument, there. However, they have also had far worse ones. After all, the news is already ‘out there.’
Anyone following regional bank stocks knows what happens to bank bond portfolios when interest rates go up. They know what happens to net interest margins and loan growth when the yield curve inverts. They also know middle-tier banks make a lot of CRE loans.
This isn’t, or shouldn’t be, news.
Let me pick on one of the 10 stocks Moody’s downgraded, Fulton Financial Corp (FULT). I confess, I was not familiar with this company until this week. It is a $27 billion bank headquartered in Lancaster, Pennsylvania, which does business in the Mid-Atlantic. Suffice to say we don’t really run into them.
What’s more, Oakworth doesn’t directly own or hold a single share of FULT on any of its systems. We have no opinion on it, and I certainly don’t hold it personally.
With that out of the way:
- The share price for FULT common stock was $16.83 at the end of 2022.
- During the worst of the panic surrounding the collapse of Silicon Valley Bank, et al., it fell to a low of $9.65.
- This past Monday, it was going for $14.63.
After Moody’s report on Tuesday (technically after close of trading on Monday), the stock dipped to $14.31, and is priced at $13.97 at 11:25 CDT here on 8/11/2023. Obviously, that isn’t a good week. However, consider this, none of the analysts following FULT, as in zero, changed their buy/sell recommendations or 12-month target price after the Moody’s report.
Further, corporate credit spreads on these banks barely budged, in aggregate.
But that is getting way down into the weeds.
This wouldn’t be the case IF Moody’s had shed any new light or information on the company’s financial situation. Catch my drift? Therefore, you could argue Wall Street’s response to Moody’s supposedly damning report about the health of the banking industry as a memo from Captain Obvious.
Maybe this is a little unfair. Perhaps I am still a little jaundice about the ratings organizations’ role in the 2008-2009 Financial, and how they ‘got off’ much more lightly than they should have. I suppose you can call me cynical or something along those. Perhaps.
Or it could simply mean I am fluent in another language than English and my mostly forgotten Spanish. You might call investment-ese, and I have learned it over the last three decades. While knowing it has helped me in my career, it would be of absolutely no use on the side of the road in Honduras.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist