TFC - Truist Financial: The New All-Time High In Emergency Lending Explained

2024-02-19 08:30:00 ET

Summary

• Utilization of the Bank Term Funding Program has risen sharply since mid-November - an indication of a possible resurgence of the banking crisis.
• This could be an early sign that things could be taking a turn for the worse for Truist, with its disproportionately high unrealized HTM portfolio losses (>30% of tangible equity).
• In this article, I take a close look at how the situation has evolved, particularly since November 2023.
• I explain why the surge in BTFP utilization is not a sign of increased market stress, but the result of what is best termed an "unintended consequence".

Introduction

Truist Financial Corp. (TFC) was one of the stocks that sold off quite sharply in reaction to the collapse of SVB Financial Group ( OTC:SIVBQ ) in March 2023. In my first article on the bank, I explained why I think the sell-off was an overreaction and am not really concerned about the - very significant - unrealized losses in Truist's held-to-maturity ((HTM)) portfolio. I have built a position in TFC stock over the course of most of 2023. However, despite the strong rebound and good performance in Q4, I decided not to lock-in profits, as I explained in my December follow-up .

Those who follow my coverage of U.S. banks (e.g. here and here ) know that I keep a close eye on the Federal Reserve's Bank Term Funding Program (BTFP, explanation here ), which was announced in reaction to the March 2023 banking crisis. I am watching the utilization of the BTFP for two main reasons....

For further details see: