A quick recap
A quick catch-up of the key points so far today.
I always wonder with these deals whether the last thing at the signing involves some lawyer saying “and now we will just need that pound” and all the bankers have to go through their pockets saying “I’m mainly contactless these days”
— Dan Davies (@dsquareddigest) March 13, 2023
Announcing the deal, Noel Quinn, HSBC Group CEO said his bank would help SVB UK customers “grow in the UK and around the world.”
The Bank of England and HM Treasury confirmed that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
Chancellor Jeremy Hunt said it was important to find a rescue deal for SVB UK that didn’t involve taxayer funds.
We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
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Speaking before the announcement, prime minister Rishi Sunak insisted “our overall financial system is sound and there’s nothing to worry about there”.
Sunak was in close contact with Hunt during his 14-hour flight to the US yesterday where the PM will hold talks with Joe Biden and Australia’s prime minister Anthony Albanese.
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Dozens of companies listed in London updated shareholders on their exposure to the collapse of Silicon Valley Bank and its UK branch.
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But there has been more losses in the financial markets, with Europe’s main indices falling around 2%.
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Investor have dumped bank stocks around the world. In London, Standard Chartered is down 6% with Barclays losing 5%.
Key events
The market is sending a consistent message today: it fears that a US recession is about to start.
So says George Saravelos, a strategist at Deutsche Bank, who writes:
We are now pricing in Fed cuts rather than hikes, the yield curve is bull steepening sharply, commodities and equities are down with cyclicals under-performing. This is all consistent with an imminent US recession
Deutsche Bank among those forecasting Fed rate cuts and a recession after #SVB as US banks will yank up rates on retail deposits and tighten financial conditions. “Competition for deposits is likely to become irreversibly more intense in the US banking system going forward”
— Mehreen Khan (@MehreenKhn) March 13, 2023
⚠️ FIRST REPUBLIC HAS BEEN ABLE TO MEET WITHDRAWAL DEMANDS ON MONDAY WITH HELP OF ADDITIONAL FUNDING; NOT SEEING MASSIVE OUTFLOWS OF DEPOSITS- CNBC
— PiQ (@PriapusIQ) March 13, 2023
Back in the markets, bitcoin has jumped to its highest level since 21 February, touching $24,618.
Other crypto assets have also stabilised today, having been hit by the collapse of SVB late last week.
The issuer of the USD Coin stablecoin said it remained redeemable with the dollar, after it hit a record low on Saturday after it emerged that $3.3bn of the reserves backing it were held at Silicon Valley Bank.
Jeremy Allaire, CEO of USDC issuer Circle, said in a tweet on Sunday that the company’s $3.3 billion USDC reserves deposit – about 8% of its total – held at SVB would be fully available when U.S. banks open on Monday.
Allaire said:
“Circle’s USDC operations will open for business, including with new automated settlement via our new partnership with Cross River Bank.”
Circle’s USDC operations will open for business on Monday morning, including with new automated settlement via our new partnership with Cross River Bank. https://t.co/ybkSEedzrC
— Jeremy Allaire (@jerallaire) March 13, 2023
Another clip from President Biden speaking earlier, explaining why investors in failed US banks won’t be bailed out:
Pres. Biden says those who invested in failed Silicon Valley Bank and Signature Bank will not be protected: “They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.” https://t.co/HWi82gAbJP pic.twitter.com/3hVKFJqmZt
— ABC News (@ABC) March 13, 2023
Simon Harvey, head of foreign exchange analysis at Monex Europe shows here how the markets have clashed their expectations for interest rate increases:
The irony of a bank going under due to higher market rates leading to lower rates
— Simon Harvey (@_SimonHarvey) March 13, 2023
HSBC was given ring-fencing waiver to help smooth SVB deal
The UK government cleared the way for HSBC to buy the British arm of Silicon Valley Bank by waiving certain restrictions on what types of customers could be taken on by its UK retail bank.
HSBC was given an exemption over rules that do not allow complicated corporate customers to be housed within ring-fenced banks, Andrew Griffith, the City Minister, said in a letter Monday to the Treasury Select Committee.
Best possible outcome in these challenging circumstances. Thanks to everyone who worked round the clock to achieve it. Hope to have the chance to ask questions in @UKParliament later. pic.twitter.com/TsI4zlUBpG
— Harriett Baldwin MP (@hbaldwin) March 13, 2023
He later told Bloomberg TV that neither the government nor the Bank of England gave HSBC any guarantees. More here.
First Republic Bank’s shares are continung to plunge today as news it had obtained fresh financing failed to assuage investor fears of contagion in the banking sector after SVB Financial Group’s downfall last week.
The U.S. regional lender’s stock is down around 70%, as it continued to face concerns of deposit outflows.
Reuters reports trading was halted for volatility at one point.
First Republic on Sunday secured additional financing through JPMorgan Chase & Co and the U.S. Federal Reserve, giving it access to a total of $70bnin funds through various sources.
Lloyd Blankfein, the former CEO of Goldman Sachs, reckons only a few more banks will have similar issues to SVB (he doesn’t name them, though).
He tweets that government actions have removed the reasons for bank runs, and that the biggest banks have much tougher regulation and stress testing.
A few banks may have issues like SVB, but only a few. Govt actions removed reasons for bank runs. Biggest banks have much tougher regulation and stress testing. Anxiety and volatility high, but sharply lower interest rates, fed likely on hold, are strong positives for markets.
— Lloyd Blankfein (@lloydblankfein) March 13, 2023
The collapse of Silicon Valley Bank is a timely reminder that “a tough money squeeze” by central bankers can do more damage than just slow things down, points out Garry White, chief investment commentator at Charles Stanley
The technology sector is already reducing its workforce and experiencing more constrained profits and cashflows from the reduction of growth. Technology companies that used Silicon Valley Bank as an industry friendly service provider could not afford to lose their deposits which was often money held there to pay the wages and their suppliers.
“The action to protect the deposits was necessary to prevent bankruptcies by companies that had money but could not access it, and to stop that spilling over into losses for their suppliers. These events provide a further limit to how high the Fed needs to take rates to slow the economy.”
Biden fails to stop market selloff
Joe Biden’s words of reassurance today have done little to calm markets as “worries raced around that other smaller US banks could become the latest dominos to fall”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
Streete explains:
His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules. So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading. The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.
The wider banking system will bear the brunt of the bail out of banking customers, as the money will come from fees institutions pay into the deposit insurance fund.
The realisation that regulatory action isn’t stopping the rot has led to sharp falls in some of Wall Street’s biggest banking names in early trade such as Wells Fargo down 7.5%, Citigroup down 6%, and Bank of America down 7%. Despite the pretty bold regulatory action investors have still been shaken by the events of the past few days and are highly nervous about spilling over and creating pools of fresh problems.
The freefall of shares in a raft of smaller lenders including First Republic bank, Western Alliance Bancorp and PacWest Bancorp shows the extent of the contagion concerns with shareholder confidence evaporating.
The Swiss financial regulator said today it was seeking to identify any potential contagion risks for the country’s banks and insurers following the collapses of Silicon Valley Bank on Friday, and Signature Bank on Sunday.
FINMA said in a statement:
“FINMA takes note of the media reports on Silicon Valley Bank and Signature Bank in the USA and is closely monitoring the situation,”
Shares in Swiss banks continue to fall today, amid the wider losses in the banking sector, with Credit Suisse currently down 11.7% and UBS down 7.6%.
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