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The Banks Most Likely To Go Bust

Portfolio Armor's Photo
by Portfolio Armor
Monday, May 08, 2023 - 23:03
Still from Heat
Still from the bank robbery scene in Heat (1995).

Getting Professional Help

You can see some of the metrics I used to scan for vulnerable banks in the past in the post below.

Screen capture from our post about betting against banks.

So, far, we’ve exited two of those three trades (against Bank of Hawaii (BOH) and First Foundation, Inc. (FFWM)) for gains of 80% and 200%, respectively. To get the tier one capital data for those trades, I used a specialized bank data site.

I just spent close to an hour on the phone with the founder of that site, who is a fountain of knowledge when it comes to banks. He had some fascinating comments about why Silicon Valley Bank went bust, how he knew it was underwater beforehand, and how the current banking crisis is transitioning to a credit crisis.

I’m going to try to get him to put that big picture stuff in writing, so I can share it here, but my immediate concern is identifying new banks to bet against. He suggested a metric to use to identify banks likely to face a “terminal event”:

  • Start with banks that have tapped out their federal assistance programs.

  • Rank them by their underwater AFS (available for sale) and HTM (held to maturity) securities as a percentage of tier one capital.

The good news is he is going to provide me with a spreadsheet that does just that later this week. The bad news is that I’m going to have to pay for it, as his time is expensive, but I think it will be worth it for us.

If you want a heads up when we bet on another bank based on this data, feel free to subscribe to our trading Substack/occasional email list below. 

 

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