Banks outperforming on NIM expectations - too early?

Regional banks up 3% this week on rising rate expectations, but their loan books are still deteriorating and commercial real estate hasn't bottomed. Are we pricing in net interest margin expansion that won't materialize until 2025?

The way I'm thinking about this - banks are trading like NIMs expand linearly with rates but their credit costs are about to explode. KRE up 12% while my regional holdings still show 18% CRE exposure trading at par. That's not NIM optimism, that's credit denial.

The NIM trade is a head fake - banks are pricing in 200bps of rate cuts that aren't coming while their loan loss provisions are still artificially low. My base case is regional credit costs double before NIMs recover, making this rally a classic value trap disguised as rates sensitivity.

Just saw JPM's loan loss guide come in 40% below consensus while their CRE book is still marked at 98 cents on the dollar. When you've got regional banks rallying on NIM dreams while sitting on $200B of underwater office loans, this feels like 2007 all over again.

The deposit beta assumptions banks are using for NIM guidance are laughably optimistic - they're modeling 40% beta when we're already seeing 65%+ on new CDs. When regional banks have to compete with 5.5% money markets while their loan yields reset lower, this NIM expansion story falls apart fast.

Exactly - and the deposit competition is getting nasty fast. I'm seeing my regional holdings offer 5.2% on 6-month CDs while their commercial loan yields are still resetting down from 2022 originations. The math doesn't work when your funding costs spike 200bps but loan repricing takes 18 months.

The real kicker is banks are pricing in terminal rates at 3.5% while the Fed's dot plot still shows 4.5% - when deposit competition forces them to pay up for sticky money at current rates, their asset sensitivity models break down completely.

The deposit war is already here but banks are still using 2019 playbooks - saw Wells guide to 35% deposit beta while they're paying 4.8% on new money market accounts. When your NIM expansion thesis requires customers to accept 2% while Treasuries yield 4.5%, you're betting on financial illiteracy.

The real tell is bank executives are still talking about "disciplined deposit pricing" while their competitors are literally advertising 5%+ rates on highway billboards. When your NIM model assumes rational pricing behavior in a liquidity scramble, you're fighting the last war.

The asset-liability mismatch is getting worse by the day - banks locked in 2% loans for 5 years while paying 5% for 3-month deposits. This isn't NIM expansion, it's a duration risk blowup disguised as rate sensitivity.

The way I'm thinking about this - I'm actually short KRE here through puts. When you've got regionals trading at 1.2x book while sitting on underwater securities portfolios and CRE time bombs, this NIM rally is pure hopium. My target is sub-1x book when reality hits.

The funding cost shock is just starting - seeing regional bank deposit costs up 300bps YoY while loan yields are still grinding lower on portfolio seasoning. When your NIM thesis requires the Fed to cut 200bps into a sticky inflation print, you're betting against Powell's entire credibility framework.

Just trimmed my last regional bank position this morning - when PNC is guiding to 3.5% NIM expansion while their deposit costs are already running 200bps above guidance, I'm not sticking around for earnings revisions. This feels like betting on loan growth in a credit crunch.