New banking panic: don’t think the SVB and Credit Suisse rescues mean the worst is over, warns ALEX BRUMMER
Governments and regulators work hard to resolve banking crises as they happen, with dramatic weekend rescues and by opening special credit windows that allow real estate assets to be converted into cash.
This is combined with reassuring comments about the turbulence calming down – in the hope that savers will no longer flee from weak institutions.
The current turmoil may not be 2007-2008 again, but it’s easy to be complacent and think that the solutions for Silicon Valley Bank (SVB) in the US and Credit Suisse in Europe mean the worst is over.
Details from San Francisco’s First Republic are hardly encouraging. The run on the bank was more or less halted in March, when a posse corralled by JP Morgan Chase injected $30bn (£24bn) in deposits.
It may not be 2007-2008 all over again, but it’s easy to be complacent and think that the solutions for Silicon Valley Bank in the US and Credit Suisse in Europe mean the worst is over
Beneath the surface, the bank was drowning, holding back only previously undisclosed heavy short-term borrowing – from the Federal Reserve, the Federal Home Loan Bank and JP Morgan, which peaked at $138.1bn (£119bn) on March 15. her from falling into the abyss. Pacific.
It is still backed by $104bn (£83bn) in emergency loans, effectively classing it among the ‘walking dead’ as The Wall Street Journal describes it.
No wonder shares are down a further 49 per cent, valuing the bank at $1.5bn (£1.2bn).
First Republic claims it has enough cash to pay off those uninsured depositors who haven’t cut back.
But it is propped up by expensive short-term financing and will have to sell securities and loan packages at a steep discount to survive by generating large and potentially unsustainable losses. Equally disturbing are the latest updates from Zurich.
In addition to having to liquidate Credit Suisse’s loan portfolio, UBS still has its own legacy problems dating back to the great financial crisis.
Revenues fell 52 percent in the first quarter and the bank is provisioning $655 million (£532 million) related to litigation costs for slashed and diced subprime mortgages.
When the can is opened at Credit Suisse, with its Greensill, Archegos and past exposures dating back to the financial crisis, who knows what it will reveal.
After Stephen Hester moved to NatWest in 2008, during the tsunami of the financial crisis, he discovered a deluge of worthless assets.
The full extent of the disaster hitting US regional banks and weaker European lenders is not fully known.
What we do understand, from comments made by Bank of England Governor Andrew Bailey, is that social media and one-touch technology are making deposits move to ‘safer’ homes in the blink of an eye. Results from First Republic and UBS are not very reassuring.
Arm wrestling
The London Stock Exchange (LSE) and the city’s regulator, the Financial Conduct Authority (FCA), seized the loss of Arm Holdings’ listing to New York. It led to fears of further exits across the Atlantic.
That’s not how it’s seen in the Square Mile. The LSE blames the government. Amid frequent leadership changes in Downing Street (including a non-stop revolving door at the Treasury, with four Chancellors over the past eight months), the LSE and FCA say the ball has dropped.
It was easy for Softbank boss Masayoshi Son to waltz past British politicians, demanding a listing in London, due to confused and mixed reporting.
The LSE was willing to make the existing rules work and impressive FCA boss Nikhil Rathi is the author of a sweeping reform agenda, aiming to restore London’s status as a great place to list stocks.
The real tragedy was the speed with which Theresa May and Philip Hammond allowed Arm to be sold in the first place.
At the very least, they should have included a stipulation that if the Cambridge-based company were to re-enter the public market, London would be the first choice.
Hooray, everyone!
Fascinating to see ABF-owned Primark dare to tread where British Isles retailers have been serial failures.
It’s recognizing that Texas, where I just came from, is one of the fastest growing states in the union. Oracle and Tesla are among the big tech outfits making the trip to the capital Austin.
Primark has its sights set on at least five stores in Texas and, as in Florida, believes the demographic works for its customers.
Bienvenida.