At least 20 regional banks were hit by trading halts this morning as the turmoil triggered by the collapse of Silicon Valley Bank gripped Wall Street.
Hedge fund chief Bill Ackman warned the “economy won’t work” unless Joe Biden “guarantees all deposits now” as the contagion spread to the $4 trillion US banks. Wells Fargo fell 7.5 percent, Bank of America 7.4 percent, Citigroup 5.8 percent and JP Morgan 2.7 percent.
Among the hardest-hit regional banks was Western Alliance, whose shares fell 75 percent when the opening bell rang. Trade breakers were also imposed on First Republic, as its price fell two-thirds, and PacWest, which fell 35 percent.
“Our economy will not function effectively without our local and regional banking system. Therefore, the Federal Deposit Insurance Institution must now expressly guarantee all deposits. Hours matter,” Ackman said.
“We need to hear from our government that they are explicitly committed to preserving our system of smaller banks. While not every small bank is “essential” like @jpmorgan or @Citi, together they are just as essential, if not more so.”
Speaking ahead of markets opening this morning, Joe Biden declared: “Our actions should give Americans confidence that the US banking system is secure.” It comes after the White House yesterday guaranteed it would give SVB customers “whole.” ‘ and that ‘no losses will be borne by the taxpayer’.
Hedge fund boss Bill Ackman warned today that the “economy won’t work without regional banks” as dozens of stocks halted trading after shares fell 75 percent (Ackman at a conference in Laguna Beach, Calif., in 2017).
Biden had previously addressed the nation from the Roosevelt Room in the White House as he tried to avert a major disaster that swept through the financial system after the SVB collapse on Friday.
“Americans can have confidence that the banking system is safe,” he said just minutes before the market opened.
The declines came despite US authorities on Sunday guaranteeing SVB customers their money was safe and withdrawable on Monday after a run on the bank sparked the second-biggest meltdown in history, the worst since 2008.
The Fed also announced a new Bank Term Funding Program that will offer banks loans with maturities of up to one year against prime collateral such as government bonds.
The SVB’s rapid demise has fueled fears of contagion amid the Fed’s most severe rate-hiking cycle since the early 1980s.
The fears were sparked by a ticking $620 billion time bomb that US banks are sitting on after buying Treasuries and bonds while interest rates were low.
As interest rates rise, newly issued bonds begin paying higher interest rates to investors, making older, lower-yielding bonds less attractive and less valuable. Most banks and pension funds are affected.
Banks and financial institutions that saw the trade were suspended on Monday
Advisor Shares Trust
Bank of Hawaii Corporation
Karl Schwab
Coastal Financial Corp Cm St
Comerica
Customer Bancorp
East West Bancorp, Inc.
First Horizon Corporation
First Republic
Huntington Bank Stocks
Macatawa Bank Corporation
Magyar Bancorp, Inc.
Metropolitan Bank Holding Corp
OceanFirst Financial Corp
PacWest Bancorp
Regions Financial Corporation
capital of Texas
Washington Federal, Inc.
Western Alliance
Zion Ban Corporation
Martin Gruenberg, chairman of the FDIC, told the Institute of International Bankers last week, “Most banks have some amount of unrealized losses on securities. The aggregate of these unrealized losses, including securities held for sale or held to maturity, was approximately $620 billion at the end of 2022.
‘Unrealized losses on securities have significantly reduced reported equity in the banking industry.’
Investors sought refuge in US Treasuries, sending the two-year Treasury yield down to 4.089 percent. The yield has fallen 100 basis points, a full percentage point, since Wednesday, marking the largest three-day drop since the Black Monday crash of 1987.
Biden defended his response to the financial crisis with comments in less than four minutes, saying SVB bosses should be fired and accusing Donald Trump of relaxing regulations.
“If the bank is acquired by the FDIC, the people who run the bank shouldn’t be working there,” he said.
He called for “full accountability” for what led to the closure of the SVB and “why those responsible can be held accountable”.
“In my government, no one is above the law. And finally, I need to reduce the risk of this happening again,” the President said.
He warned that those who backed the failing bank “knowingly took a risk, and if the risk doesn’t pay off, investors lose their money. That’s how capitalism works.”
In a later tweet, he added: “During the Obama-Biden administration, we imposed strict requirements on banks to ensure that the crisis we experienced in 2008 is not repeated. Unfortunately, my predecessor took some of them back.”
The SVB failure erupted in global markets overnight as Biden slept, with European bank stocks suffering their biggest drop in more than a year and bond markets witnessing a gargantuan repricing of rate hike bets.
The dollar also slipped as Wall Street heavyweights like Goldman Sachs predicted the Fed would stop raising interest rates next week, capping the biggest three-day rally for short-dated Treasuries since 1987.
The yield on the 10-year US Treasury bond fell to 3.507 percent from 3.694 percent on Friday as Wall Street’s so-called “fear gauge” rose, with the Cboe Volatility Index (VIX) rising to a five-month high of 27.84.
Europe’s banking index fell 6 percent after losing 3.8 percent on Friday.
In the UK, bank shares on the FTSE 100 and FTSE 250 have fallen nearly 4 per cent despite HSBC’s £1 ($1.21) takeover of the UK arm of SVB.
“We’re seeing a classic flight to safety,” said Tom Caddick, Managing Director at Nedgroup Investments. “Higher interest rates and a slowing economy would always bite.”
Michael Burry, the investor immortalized in The Big Short, was in complete doom yesterday when he tweeted: “2000, 2008, 2023, it’s always the same. People full of hubris and greed take stupid risks and fail. money is printed. Because it works so well.”
Billionaire hedge fund manager Bill Ackman called on the US government to reassure customers their money was safe and warned that “hours are counting” as fears of contagion spread to the Big Four banks
FDIC representatives Luis Mayorga (L) and Igor Fayermark assure Silicon Valley Bank customers their money is available ahead of the opening of a branch at SVB’s headquarters in Santa Clara, California
FDIC Representatives Luis Mayorga and Igor Fayermark speak to customers outside of Silicon Valley Bank’s headquarters in Santa Clara, California
A law enforcement officer stands behind an entrance to a Silicon Valley Bank branch in Wellesley, MA
Blood on the Street: Traders frantically worked the floor of the New York Stock Exchange on Monday as Wall Street moved swiftly to halt the rot in the financial sector
Employees arrive at SVB headquarters Monday morning as customers queue to withdraw their money in Santa Clara, California
People stand outside a First Republic Bank branch in Los Angeles, California, in the rain
Many of the banks suffering the biggest declines today are based in California and serve the start-up market.
First Republic’s customers are businesses and high net worth individuals who are tired of investing in low-interest accounts.
Over the past three decades, it has grown from a small business to the lender of choice for wealthy clients, including Facebook founder Zuckerberg, who paid 1.05 percent mortgage interest on a $5.95 million loan in March 2011. dollars for his five-bedroom home in Palo Alto.
Customers are lured by lavish perks including cocktail parties at chic locations from Manhattan to Palm Beach. Many customers are on first name terms with their branch manager and cite personal support as the reason for banking with the lender.
The San Francisco-based bank announced yesterday that it has secured additional funding from JPMorgan, giving it access to a total of $70 billion in funds from multiple sources.
The bank’s chairman and CEO said in a joint statement that its “capital and liquidity position is very strong” and that “its capital remains well above the regulatory threshold for well-capitalized banks.”
Despite the cash injection, investment bank Raymond James twice downgraded its stock from “strong buy” to “market perform,” emphasizing the risk of deposit outflows First Republic faces from panicked large depositors following the bank run on SVB.
The SVB’s failure is the largest since Washington Mutual’s 2008 bankruptcy, a landmark event that sparked a financial crisis that crippled the economy for years. The 2008 crash led to stricter rules in the US and beyond.
Since then, regulators have imposed stricter capital requirements for US banks to ensure that individual bank failures do not hurt the financial system and the economy at large.
Over the weekend, the Fed and US Treasury announced a series of measures to stabilize the banking system and said SVB customers would be able to access their deposits on Monday.
A police officer speaks with the doorman at the Park Avenue location of Silicon Valley Bank (SVB) in New York City Monday
A customer trying to find out information about his accounts leaves after being turned away by security at Silicon Valley Bank’s Park Avenue location
Traders work on the floor of the New York Stock Exchange (NYSE) during morning trading Monday.
A woman exits a branch of Signature Bank in New York on Monday. Authorities also took over the bank after it became the second institution to fail in a matter of days
The New York Stock Exchange was frantic this morning as traders reacted to fears in the banking sector
Customers outside an SVB branch in Wellesley, Massachusetts after the White House guaranteed people could access their funds Monday morning
Concerned customers outside and at the SVB Massachusetts branch on Monday
The Fed also said it would provide additional funding through a new “bank term funding program” that would offer custodians loans with terms of up to one year backed by government bonds and other assets held by those institutions.
Authorities also took over New York-based Signature Bank, its second bankruptcy in days.
New York Gov. Kathy Hochul said the acquisition was “not a bailout” that put taxpayers at risk. “This is simply using fees that are charged by all banks,” Hochul said on Monday. “This is an unusual circumstance, but the main message I want to convey to New Yorkers is that their money is safe.”
Analysts noted that the Fed would primarily accept collateral at par rather than mark-to-market, allowing banks to borrow money without having to sell assets at a loss.
Overnight in Asia, the ongoing concerns were visible in the Japanese banking index Topix, which fell 4 percent, while Singapore’s largest banks also fell around 1 percent.
Monday’s defeat resulted in more than 99 percent of companies listed on Europe’s benchmark STOXX 600 trading in the red. Only three stocks escaped the crash, Qinetiq, Reckitt and Vantage Towers, up 0.4 percent, 0.2 percent and 0.1 percent, respectively.
A glimmer of hope was that futures markets later opened the S&P 500, Wall Street’s benchmark index, slightly higher.
Concerns over financial stability were so great that investors speculated the Fed would now hesitate to raise interest rates by an outrageous 50 basis points next week — and perhaps not at all.
A Brinks security truck is parked in front of Silicon Valley Bank in Santa Clara as investors queue outside after the bank closed its doors on Friday. The Federal Deposit Insurance Corporation (FDIC) today seized SVB assets as depositors – mostly tech workers and start-up companies – began withdrawing their money after the shock announcement of a $1.8 billion loss
Shares in First Republic Bank fell from a high of $81.76 to as low as $21.50 amid fears banks could open trading on Wall Street at 9.30am
Authorities also took over New York-based Signature Bank, its second bankruptcy in days. New York Gov. Kathy Hochul said the acquisition was “not a bailout” that put taxpayers at risk. “This is simply using fees that are charged by all banks,” Hochul said on Monday. “This is an unusual circumstance, but the main message I want to convey to New Yorkers is that their money is safe.”
Fed fund futures rose to discount any chance of a half-point hike, down from around 70 percent before SVB news broke last week. Instead, the futures implied a roughly 14 percent chance that the Fed would stay on.
The implied peak rate for interest rates slipped to 5.08 percent from 5.69 percent last Wednesday, and markets were back to pricing in rate cuts through the end of the year.
“Given the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman Sachs analysts wrote.
‘We kept our expectation for FOMC to hike 25 basis points in May, June and July and now expect a final rate of 5.25 to 5.5 percent, although we see significant uncertainty over the path.’
Such talks, combined with the move to safety, pushed two-year government bond yields up 7 basis points to 4.63 percent by 0958 GMT, a world away from last week’s high of 5.08 percent.
Yields are now down 66 basis points in just three sessions, a decline not seen since the Black Monday market crash in 1987.
Much will depend on what US CPI numbers reveal on Tuesday, with an obvious risk that a high reading will put pressure on the Fed to hike aggressively even in a tight financial system.
The European Central Bank meets on Thursday and is still widely expected to hike interest rates by 50 basis points and announce further tightening, although it now needs to take financial stability into account.
In the currency markets, the dollar index, which measures the value of the greenback against a basket of currencies, fell 0.3 percent. The pound and euro both rose about 0.2 percent, while the safe-haven Japanese yen gained more than 1 percent.
Gold was also up almost 1 percent to $1,885 an ounce after rising 2 percent on Friday. However, oil prices slipped over 1.5 percent, with Brent back at $81.48 a barrel and US crude at $75.28 a barrel.