we discuss ideas like this as they happen in more detail. All active investors are welcome to join on a free trial and ask any question in our chat room full of sophisticated traders and investors.During times of global instability with increased military spending, credit risk may become an issue. Almost every day, there are articles about how overvalued the equity market is, and we are also concerned with market valuations. In this context, we are seeking safety assets from aArbitrage Trader, aka Denislav ...

Financial Data and Key Metrics Changes - The company reported a GAAP net income of $21.71 per share for the fourth quarter, with core net income of $23.579 per share after excluding non-core items [10][11] - The core return on assets (ROA) was 1.16% in the fourth quarter, exceeding the company's stated goal of 1% [7][10] - Earnings per share (EPS) increased by 14% year-over-year, with a 20% improvement in the fourth quarter alone [8][10] - The tangible common equity ratio increased by 90 basis points, and consolidated CET1 capital rose by 50 basis points year-over-year [6] Business Line Data and Key Metrics Changes - Total loans held for investment increased by $168.4 million, or 11.1% annualized on a linked quarter basis, driven by improved demand and reduced paydowns [11] - Total deposits rose by $191.7 million, primarily due to a net increase in interest-bearing deposits [12] - The non-interest income for the fourth quarter was approximately $13.2 million, with significant contributions from swap fee revenue [18] Market Data and Key Metrics Changes - Texas-based loans slightly declined from 39% of total loans, expected to decrease to approximately 36% following the acquisition of Progressive Bank [12] - The company experienced strong loan growth in Southwest and North Louisiana, with both regions growing over $100 million in loans and deposits each during 2025 [66] Company Strategy and Development Direction - The company plans to focus on optimizing existing systems and deepening relationships rather than pursuing new major projects in 2026 [9][42] - The management emphasized the importance of sustainable ROAA, tangible book value accretion, and enhancing EPS as key strategic goals [9][44] - The company aims to leverage its correspondent banking initiative to increase non-interest income and cross-sell products to existing clients [81] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about 2026 being even more fruitful, with a focus on daily execution and maximizing the benefits of recent system implementations [9][42] - The company acknowledged challenges in the credit environment but highlighted lessons learned regarding concentration risk and exposure management [32][34] - Management expects to maintain a neutral position on the balance sheet and achieve modest margin improvement in a slightly down rate environment [16] Other Important Information - The company began share buybacks for the first time in nearly six years and increased its common stock dividend for the seventh consecutive year [7] - The acquisition of Progressive Bank is expected to enhance the company's footprint and contribute positively to its operations [21] Q&A Session Summary Question: Insights on loan growth and outlook - Management noted that improved pipeline demand and reduced payoffs contributed to strong loan growth in the fourth quarter, with expectations of mid-single-digit growth for 2026 [24][25] Question: Details on non-performing loans - A significant commercial real estate loan in Houston was identified as non-performing, with management indicating it is one of the largest exposures on their books [30][32] Question: Focus on daily execution versus M&A - Management clarified that while they are not prioritizing new M&A opportunities, they will focus on maximizing the output from recent investments and deepening existing relationships [43][44] Question: Capital management and buyback strategy - The company plans to continue share buybacks opportunistically, with a focus on attractive pricing below $120 [46][48] Question: Opportunities for hiring in the current environment - Management indicated a willingness to hire selectively, focusing on attracting the right talent to support growth without needing to hire aggressively [52][54]

Core Viewpoint - A Danish pension fund, AkademikerPension, plans to sell all its U.S. Treasury securities by the end of January due to concerns over credit risk associated with U.S. fiscal and political developments [1][2]. Group 1: Fund's Decision and Rationale - AkademikerPension, managing $25 billion in assets, will dispose of its U.S. government debt holdings, citing unsustainable U.S. government finances as a long-term concern [2]. - The Chief Investment Officer, Anders Schelde, highlighted "rising credit risk" linked to Trump's policies and mentioned that the fund held approximately $100 million in U.S. Treasuries at the end of 2025 [3]. - The fund will shift its strategy to utilize cash in USD, short-dated agency debt, and similar instruments instead of U.S. Treasuries [4]. Group 2: Market Implications - Economist Mohamed El-Erian noted that a significant vulnerability for U.S. government bonds and the dollar is that many investors are already "overweight" on these assets, making headlines like this concerning [5]. - Precious metals, including gold and silver, are experiencing a rally as investors move capital away from U.S. Treasuries and dollar-denominated assets, with the SPDR Gold Trust seeing a 3.78% increase [6]. - The SPDR Gold Trust is performing well in momentum rankings, indicating a favorable price trend across various time frames [7].

Core Viewpoint - SPDR Portfolio Mortgage Backed Bond ETF (SPMB) offers diversified access to U.S. agency residential mortgage-backed securities, focusing on high-quality credit and a distinct prepayment profile [1] Investment Strategy - The strategy emphasizes pass-through pools backed by government-related entities, limiting credit risk while returns are driven by spread and optionality dynamics [1] - Income potential is linked to mortgage spreads over Treasuries, with performance influenced by rate volatility, refinancing incentives, housing turnover, and the shape of the yield curve [1] Market Conditions - SPMB benefits from stable or declining interest rates but may face challenges from abrupt rate changes that increase negative convexity, extension risk, or basis widening [1] Use Cases - The ETF serves as a core bond diversifier focusing on high-quality income, a mortgage-spread sleeve complementing Treasuries, and a ballast within multi-sector fixed income [1] Target Investors - Suitable for core bond allocators seeking agency MBS exposure and institutions looking for a quality-biased income engine with moderate spread duration [1] Key Risks - A significant risk to monitor is optionality, as elevated rate volatility can lead to increased negative convexity and extended duration, impacting relative performance [1]

Group 1 - Goldman Sachs analyst Ryan Nash raised the price target on Enact Holdings (ACT) to $45 from $41 while maintaining a Neutral rating on the shares [1] - Regional banks underperformed the market by 200-300 basis points in 2025 due to macro concerns and credit worries, although stocks rallied 13% late in the year [1] - For 2026, factors such as solid loan growth, net interest income momentum, positive operating leverage, and improving returns are expected to support continued multi-year fundamental improvement, with credit risk identified as the main wildcard [1]

Core Viewpoint - Goldman Sachs has raised the price target for First Horizon (FHN) to $27 from $24 while maintaining a Neutral rating on the shares [1] Group 1: Market Performance - Regional banks underperformed the market by 200-300 basis points in 2025 due to macro concerns and credit worries [1] - Despite the underperformance, stocks rallied 13% late in the year [1] Group 2: Future Outlook - For 2026, solid loan growth, net interest income momentum, positive operating leverage, and improving returns are expected to support continued multi-year fundamental improvement [1] - Credit risk is identified as the main wildcard affecting future performance [1]

Federal Reserve Policy & Economic Outlook - The Federal Reserve cut rates for the third consecutive time this year, despite growing dissent [1] - The Fed is committed to purchasing $40 billion of Treasury bills per month [1] - The base case is a hold on further rate cuts, contingent on weakening labor market or improved inflation [3] - Markets are predicting a different path than the Fed's dot plot, with expectations of rate cuts between 3% and 3.25% [5] - There is a risk of losing Fed independence, which could cause yields to rise [17] Inflation & Labor Market - Tariffs are estimated to contribute approximately 0.5 percentage points to inflation [9] - The Fed is facing a difficult balancing act with inflation above target and a weakening labor market [8] - The Fed has delivered 175 basis points of cuts [43] Credit Market Dynamics - High-grade bond sales cooled in December, with $4.7 billion sold, a quarter below the previous period [26] - December bond sales in high yield exceeded $20 billion, the busiest December since 2020 [26] - Investment grade supply is expected to grow year-over-year, reaching approximately $1.8 trillion to $1.9 trillion in 2026 [30] - Tech supply was up 75% and is expected to double, driven by hyperscalers' CAPEX expansion [32]

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the global credit market outlook for 2026, focusing on the US and EU credit markets, private credit, and the impact of AI on debt financing [2][3][4][6][39]. Core Insights and Arguments 1. **Credit Spread Projections**: - US investment grade (IG) and high yield (HY) spreads are expected to widen to 100 basis points (bp) and 350bp respectively by Q1 2026, before narrowing to 85bp and 300bp by year-end 2026 [5][42]. - EU IG and HY spreads are projected at 80bp and 275bp by the end of 2026, with expectations of outperformance during widening phases [5][8]. 2. **Default Rate Expectations**: - Default rates are anticipated to rise, particularly in private credit, which is in a more advanced stage of the credit cycle. A rise of 200-300bp in private credit defaults is forecasted, while US leveraged loans and high yield are expected to increase by 50-100bp through mid-2026 [5][22][68]. 3. **Economic Conditions**: - The US faces late-cycle stress with a 36% probability of recession by late 2026, driven by weakening corporate profits, higher interest costs, and rising non-performing loans [5][39][60]. - Labor market softness is expected to persist into 2026, with declining consumer sentiment and durable goods sales [5][39]. 4. **Sector Concentration Risks**: - Private credit markets show high sector concentration, particularly in services, technology, and healthcare, increasing vulnerability to sector-specific shocks [5][40][87]. 5. **Global Credit Issuance**: - An increase in global credit issuance is expected in 2026, led by US IG and HY markets, driven by hyperscaler capital expenditures and increased M&A activity [5][26][41]. 6. **AI Impact on Credit Markets**: - The emergence of AI is seen as a double-edged sword, with potential for both disruption and growth. A bust in AI could negatively impact 20-30% of newer firms in private credit, while a boom could drive productivity gains [5][40][43]. 7. **Investment Strategies**: - Recommended trades include long positions in EU IG vs. US IG, long US equities vs. credit, and long put spreads on dividend futures [5][16][42]. Additional Important Insights 1. **Credit Fundamentals**: - US corporate balance sheet health is deteriorating, with IG scores below median levels, while European metrics appear healthier [5][28][65]. - The private credit sector's exposure to AI presents systemic risks, particularly among US mega-cap banks and private equity-owned firms [5][40]. 2. **Market Sentiment and Technicals**: - Weaker US credit technicals are anticipated in H1 2026 due to increased issuance and reduced overseas demand, although demand may improve later in the year [5][41]. 3. **Consumer Credit Cycle**: - The consumer credit cycle is showing signs of deterioration, with weaker sentiment reflected in housing and auto sales data [5][70]. 4. **Historical Context**: - Current exposure to public and private credit markets is significantly higher than during previous crises, indicating increased systemic importance [5][75]. 5. **Risks and Scenarios**: - Downside risks include an AI bust and a bond market shock, while upside risks are associated with an AI boom driving productivity gains [5][43]. This summary encapsulates the critical insights and projections discussed in the conference call, providing a comprehensive overview of the current state and future outlook of the credit markets.

Core Viewpoint - Truist analyst Matthew Coad has lowered the price target for Block (XYZ) to $67 from $74 and maintains a Sell rating on the shares due to increased credit risk taken on by Block [1] Summary by Category Price Target Adjustment - The price target for Block has been reduced from $74 to $67 [1] Earnings Multiple - The earnings multiple is being cut to a range of 21-times to 24-times as a result of Block's increased credit risk [1] Analyst Rating - Truist maintains a Sell rating on Block shares following the adjustments made in the research note [1]

Credit Risk Assessment - Eskom's credit risk measure has narrowed to a one-year low [1] Investor Sentiment - Investors are increasingly betting that Eskom has turned a corner [1] Company Performance - South Africa's state-owned power utility, Eskom, is showing signs of improvement [1]