Econintersect: Christopher Whelan (pictured) of Institutional Risk Analytics and Tangent Capital Partners presented a paper yesterday (11 September 2012) at the New York Conference of The Bank Credit Analyst. Whalen says the mortgage business in the future will be far different that it has been in the past. Money center banks such as Citigroup (NYSE:C), JP Morgan Chase (NYSE:JPM), Bank of America (NYSE:BCA) and Wells Fargo (NYSE:WFC) will gradually exit the origination, wholesale and correspondent mortgage and commercial lending business; non-banks will expand in this market, according to Whalen.
This will occur by necessary adjustment as these institutions continue to grapple with the difficult recovery from the Great Financial Crisis.
Whalen reviewed a wide range of bank performance data and one thing stood out: Citigroup still has major problems. Here is a graph from the Whelan presentation:
Click on graph for larger image.
Whalen says that:
[Banking] Industry faces flat revenue and shrinking net interest margins in coming quarters under pressure from Fed, balance sheet re-pricing.
He also sees continued deflation in real estate:
“Rebound” in housing sector is selective and often apocryphal. Refinancings via FHA dominate lending flow. Lack of credit growth, low net job creation, foreclosure backlog, suggests continued deflation in real estate.
- Value and Risk in the U.S. Financial Sector (Christopher Whalen, The Bank Credit Analyst, New York Conference, 11 September 2012)