I am Scott King-Ellison and I am honored to step into the role of Director of ALM Strategy at United Bankers’ Bank. It is a privilege to serve our community of banks and to build upon the strong foundation laid by my predecessor, Jim Nowak. His leadership and insights have been instrumental in supporting our customers, and I look forward to carrying that legacy with a continued focus on strategic balance sheet management, proactive risk analytics, and tailored ALM guidance. With over two decades of experience designing, implementing, and leading institutional analytics programs, I have had the opportunity to advise a wide range of financial institutions. Throughout my career at Regan Capital, UBS Financial Services, Piper Sandler, and Wells Fargo, I have provided asset and liability management, investment strategy, and enterprise-level balance sheet consulting to clients including owners, chief executive officers, presidents, and chief financial officers of traditional and fintech banks as well as credit unions. No matter the organization, my focus has remained consistent: to deliver strategic insights that enhance bottom-line performance, maximize long-term value, and provide trusted, fiduciary-level guidance.
 
The mission of UBB—to help community financial institutions grow while enhancing shareholder value and supporting a rewarding workplace—aligns perfectly with the values that have shaped my own career. I approach every client engagement through a disciplined three-step process: delivering customized analytics, applying expert interpretation, and crafting strategies that optimize asset and liability structures. As part of a team driven by the principles of putting Customers First, acting with Integrity, and promoting Empowerment, I am excited to offer meaningful, data-backed solutions that support your long-term success. I look forward to working with you and your team as a trusted business partner.

Scott King-Ellison
Director of ALM Strategy
[email protected]
Cell: 612-608-0247


 

I may have been the happiest person alive yesterday.  Why you ask?  Well, The Bureau of Labor Statistics had to finally admit that the employment data they published monthly for all of 2023 (likely through the rest of this of this year as well) was wayyyyyy off!  How off you ask?  Well, just under 70,000 jobs per month were overstated in the 12 months ended March, 2024.  Employment data will be reduced by 818,000 jobs in the January, 2025 benchmark revisions.  This was the second largest downward revision in history.  The only one larger was after the great financial crisis, where business bankruptcies and bank failures were well above historical norms and our recession was much longer than typical.  This was the largest overstatement during a supposed "booming economy."  Remember "Bidenomics?"

Yes, I am going to gloat a little because I have taken some abuse on this subject matter and my opinion on the actual health of the U.S. economy over the last year!  I first started pointing out the labor data discrepancies in in July, 2023.  I wrote a blog post back on July 11, 2023, that is still available for your review on this site, entitled "Getting Harder and Harder to Believe."  It was all about the large discrepancy between government data and private sources of labor data.  I then followed up with a series of posts that pointed out more labor and GDP discrepancy entitled "Bidenomics or BS?".

Why do I mention this today?  Well, because the window is still open.  By that I mean, this revision to the labor data is a revision to a coincident indicator, one that is used by NBER to officially date the beginning and end of recessions.  The chart below is busy I know, but it is starting to bring into question the theory of a Fed engineered "soft landing."  



The light blue line I call the window.  It is the Fed's recession probit model based on the spread between the 10 year treasury and the 3 month treasury yields.  It tends to lead recession by 12 months on average.  This line is pushed out to September of 2025 which incorporates the typical lead time.  That means the economy is still vulnerable to recession until that window closes.  The dark blue line is a model used by the St. Louis Fed that measures smoothed recession probabilities today, based on NBER coincident data.  It shows that as of June, we are still not in recession.  The maroon line is a probit model I built that marries yields and NBER coincident indicators together. As you can see, the maroon line is now above levels reached in both the 1990 and 2001 recessions.  That brings into question the soft landing scenario, especially given the really bad news on job creation data yesterday.

I bring this up because if the Fed thinks they have engineered a soft landing and only cut rates in 25 bps increments for the next few meetings, it likely won't be enough.  Stay tuned and thanks for letting me gloat a little!

The US credit cycle is entering a dangerous phase and it's time for the Fed to act sooner rather than later.  Rising interest rates by themselves are generally not enough to kill an economic expansion nor cause credit pain for community banks.  However, eventually rates rise to a punitive level for a given level of economic potential.  What is punitive? 

When the fed funds rate reaches a level where it provides a risk-free investment alternative to investing in instruments that fund business growth (bank loans, stocks, bonds) it can sideline investment dollars and slow economic growth and crimp earnings.  Once that happens, we generally see a marked deterioration in the employment environment which raises first, demand risk for products and services, but second credit risk for community bankers.  The unemployment rate is now above 4% and likely to continue rising

According to one of my best performing credit models over history (chart below) we have reached that critical punitive level.  The chart looks at the current environment for fostering credit demand and credit safety for banks.  When the environment is too hostile to foster credit demand, a red dot appears on the fed fund rate line.  Two dots in succession have led to rate cuts historically 100% of the time.  



I bring this up now because you have limited time to take advantage of the current levels of short rates before they disappear.  The odds of multiple rate cuts and soon are historically very high now.  Your duration decisions today on assets and liabilities will dictate the future direction of your margin, not the current level of your asset yields.   I will be expanding on this discussion further in next week's ALCOTalk newsletter.