The Gamma in Japanese Bank Earnings
For three decades, betting on Japanese banks was an exercise in masochism. Negative rates crushed margins. Balance sheets swelled but profits did not. Then the Bank of Japan started hiking, and the masochists discovered they had been sitting on a convex payoff all along. The three megabanks are on course for record profits. MUFG has guided for 2.1 trillion yen, SMFG for 1.5 trillion, Mizuho for 1.13 trillion. The common explanation is that higher rates mean fatter margins. This is true as far as it goes, which is not very far. ...