The reason is that the 0% fed funds rate since COVID broke out has made deposits expensive. The chart shows a substantial narrowing of the interest margins of both banks since ’20. Source: Created by author using data from Company financial reports For example, here is a history of the interest margins earned (in basis points) by PNC ( PNC) and Bank of America ( BAC): Interest margins narrow or widen based on changes in market interest rates. That difference is called the interest margin. I argue in this article that Farmer Mac and MGIC differ materially from banks in three important ways:ĭifferences in: Interest rate risk The banksīanks obviously earn a lot of their money from interest income, or the difference between the interest earned on loans and investments, less the interest paid on deposits and bonds. When other investors wake up, you will be very happy you did. So think outside the box and buy some AGM and MTG. And in this environment, the differences work to Farmer Mac and MGIC’s advantage. Its R² is a nearly identical 86%.ĭo Farmer Mac and MGIC have similar growth and risk characteristics and valuations as regional banks, as investors seem to imply? No, they don’t. MGIC trades almost identically to a regional bank! For you statistics geeks, the R² was a remarkably close 89%.Įxcept for a recent bump, Farmer Mac apparently investors also view it as a regional bank if you scrape the mud off its shoes. Source: Created by author using data from Yahoo Finance Yet this is how they’ve traded over the past year. I’ve detailed their niche business models, industry dynamics, earnings, risks, you name it. And I’ve written a whopping 33 articles on MGIC and its private mortgage insurance – PMI – companies, most recently on November 12. I’ve written 14 articles on Farmer Mac, most recently on November 10, explaining their unique strengths. I’ve recommended you buy Farmer Mac ( NYSE: AGM) and MGIC ( NYSE: MTG) for several years now. Even though I worked on Wall Street, I’ve got feelings too.

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