- Finsights
- Posts
- Bankers and Students Getting Smacked 👋
🔮 Welcome back to Finsights, fellow financial wizard. We're here to spill the beans on the juiciest stock market scoop, breaking it down in a language even your pet goldfish would get!
Bankers are no longer the alphas in the house 👎
😕 Bad News: student loan repayment is starting up again
The most important themes of the day.
Banks can't catch a break
📝 Deposit beta explained / A bank borrows money from you (deposits) and then lends this money out to others (loans). Beta indicates how sensitive something is to changes in the market. "Deposit beta" measures how sensitive a bank's deposit rates are to changes in interest rates. Higher deposit beta is bad for business because it means banks have to pay you more (yay!)
🤑 Money market mania / When interest rates rise, money flows out of bank deposits and into higher earning funds that own government treasuries. Overall balances are up from ~$2.6 trillion in 2011 – 2017 to a whopping $5.5 trillion today!
💡 Exhibit 1 / KeyCorp ($KEY), a bank that focuses on serving businesses, says net interest income will come in weaker than expected in Q2 at down 12% Q/Q instead of the prior down 4-5% forecast. The primary driver of the downside is a higher deposit beta (which really started to pick up around May).
💡 Exhibit 2 / Citizens Financial Group ($CFG), a bank that serves businesses and individuals, warns that net interest income could fall short of prior guidance due to higher deposit betas.
📝 tl;dr / Banks are going to have to start paying up if they want to keep your money. They can’t get a win anywhere. First, it was all of their deposits running away a la Silicon Valley Bank and now, deposit betas are rising, and next (you heard it here first), will be credit losses on commercial real estate and consumer credit with credit card balances hitting $1 trillion.
The Finsight 🐻 📉: Move with the crowd. Cash sitting around? Take it out of your 0.01% interest rate Chase checking account and swap it for Vanguard’s low-cost’s VMFXX’s money market fund. You can buy it directly in your brokerage account with a yield of 5.03%!
SoFi is SoBack?
Exploding higher / $SOFI exploded +86% in under a month. The bull market darling crashed by -83% in 2022. Why? 👇
What do they do? / SoFi, short for Social Finance, is an online personal finance company that provides lending and financial technology. SoFi offers student loan refinancing, personal loans, mortgages, investment services, and banking products.
There are tons of posts that go into more detail, so we’ll leave it to the Twitteratis like this guy to tell you more, if you are so inclined.
Reddit Favorite / $SOFI has been an on and off Reddit favorite for years, probably because Reddit users are trying to hit home runs to pay off the student debt that they owe to SoFi. But the real reason the stock has mooned in the last month? 🚀 Student loan payments are no longer frozen. The pandemic is over, and everyone, regardless of their degree (even the Bachelor of Fine Arts crowd), must start repaying their loans.
Tl;dr / SoFi can finally make some money again. Party on. 🥳🥳
The Finsight 🐻 📉: Everyone else’s pain is $SOFI’s gain. Watch out avocado toast and butter boards companies. Once millennials have to start paying back their student loans, discretionary categories may get hit.
Chatter on the Street.
And I think that this is the magic of Tesla is because they were capital constrained, they didn’t have the money, they did things that we are too lazy to do
Honestly, I feel so bad about the advice I gave while I was running YC. I've been thinking about deleting my entire blog. I might do it"
We are monitoring the student lending issue (with payments set to resume soon), but the we have been aware of this issue for a while. We are largely comfortable with the risks, and have already taken provisions to account for it.
🔮 With Finsights, you get Wall Street wisdom delivered straight to your pocket and explained like a normal person. Subscribe today and spread the wealth by forwarding this email to a friend who deserves it.
Fin-specto Revelio!