Systematic Credit G-255 Trading Indicators post Bank Earnings (short version)
Systematic Credit Indicators post Bank Earnings (short version)
15 July 2025
JP Morgan (JPM A1/A- attractive short) 78 of 83 bonds ($195 bil of market cap)
seen as overvalued and 22 "attractive short" model indicators this AM. JPM equity (attractive long) @ $257/share.
Short notes: deposit inflows and increased balance sheet allocation to non-loan interest-earning assets. That said, the loan book is growing, and non-performing assets (NPAs) are increasing at a faster rate. JPM's capital structure is overvalued, though not significantly. The model trades the bonds from the short side (except for new supply). JPM bonds are likely to tighten before widening.
Bank of New York (BK Aa2/AA- attractive long)
2Q was an exceptional quarter. Deposit growth was remarkable (+$40 bil), with every aspect of the income and cash flow statements standing out. The issuer holds more cash than debt. Of the 40 liquid bonds in the credit trading model universe, three of the six floating-rate notes (FRNs) and one senior bank holding company bond are undervalued or attractive longs per our trading model indicators. Equity is attractive @ $85.75/share.
Wells Fargo (WFC A1/BBB+ attractive short)
2Q operating results increased by 12%, as the company is now free from U.S. Federal Reserve balance sheet constraints that persisted for five years. WFC experienced over $20 bil in deposit outflows, prompting a balance sheet reconfiguration. Simply put, the long-term debt structure remained unchanged quarter-over-quarter and slightly improved year-over-year. Short-term debt stands at $187 billion, up $50 bil quarter-over-quarter and YoY.
Simple take away – Similar to JPM, our trading model indicators view the WFC trading curve (across all sectors) from a short perspective (except for new issues). Of the 52 WFC bonds ($128 bil) in our trading universe, 32 are overvalued, but only nine are considered "attractive short" at current trading levels. Stochastically speaking, these bonds are more likely to tighten before widening. Equity is attractive @$76.4/Share
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