No idea how so many people here fail to see and understand this. The crisis happen in mid-March. Their results were 10 weeks of “normal” followed by 2-3 weeks of stress. Those 2-3 weeks of stress had the following impact on their NII and NIM:
- Net interest income was $923 million for the quarter, down 21.4% compared to the prior quarter. The decrease in net interest income was primarily due to substantially higher funding costs.
- The net interest margin decreased to 1.77% for the quarter, from 2.45% in the prior quarter. The decrease was primarily due to higher short-term borrowings, which was partially offset by the impact of CD withdrawal penalties that increased the net interest margin by 11 basis points.
So if you extrapolate those couple weeks of stress to an entire quarter (which is what you’ll see in Q2 and each quarter going forward), you’ll realize that their funding costs have absolutely exploded and they are fucked going forward. 2 weeks of stress took out 21% of their net income and dropped their NIM 70 bps. Imagine what the next 13 will be like.
They are borrowing like $100B from the Fed and got charity deposits for $30B from other banks. So $130B of their funds now have rates of 4-5%.
They were paying on average 77 bps to depositors as of December 2022. Now they are paying more than 50% of their “depositors” 4-5%. Q2 is going to be an enormous loss, and so will every quarter after that. They have no way of getting cheap deposits back and their loans that can be sold are heavily under water (which is what the problem was in the first place).
They’re a zombie. They can’t pay back the Fed loans since they need them, but they can’t afford the interest on them either. The likely outcome is terrible for common shareholders no matter what. Best-case is a capital raise that completely destroys common shareholders. Worst-case the Fed just breaks them up over the next month by facilitating asset sales to other parties, forcing losses on FRC until there’s ultimately nothing left (probably backstopping losses for acquirers or just taking the losses itself in what is essentially another bailout.)
No way common shareholders are walking away with anything.