Where finance and media intersect with reality

Spot Markets Live (23/03/03)

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Anjuli Davies10:58

FRANCES COPPOLA10:59

..

Anjuli Davies10:59

Good morning SMLers

The crazy week continues

FRANCES COPPOLA10:59

Morning all

Anjuli Davies11:00

My morning has been a metaphor of the world economy

or as Sonja Laud, chief investment officer at Legal & General, told BBC Radio 4’s Today programme

“If you slam on the brakes, the chances are something will break and it is always the weakest links that are flushed to the surface first.

SO, is it the central banks Frances that are causing these pile ups ?

FRANCES COPPOLA11:01

Lots of people are saying it’s all the Fed’s fault

Hiked interest rates too much and too quickly, banks weren’t prepared,

Anjuli Davies11:02

To recap this week: Fed raised 25 bps but said it was near end of hike cycle

Brazil held rates steady

Switzerland and Norway today raised rates

ECB raised last week

BoE expected to raise 25bps today at noon

FRANCES COPPOLA11:04

Fed signalled there might be more rate rises to come, but with the caveat that credit tightening by banks might make this unnecessary

Anjuli Davies11:04

Norway’s central bank, the first major western to start raising interest rates after the Covid-19 pandemic, continued with its hikes and warned more was to come despite recent financial turmoil.

Norges Bank on Thursday increased rates by 0.25 percentage points to 3 per cent, and suggested they would go higher at its next meeting in May as it tries to bring inflation under control.

“There is considerable uncertainty about future economic developments, but if developments turn out as we now expect, the policy rate will be raised further in May,” said governor Ida Wolden Bache.

I went for dinner last night and a pasta “primi” was £49

FRANCES COPPOLA11:05

wow

Anjuli Davies11:05

SNB increased its policy rate by 50 basis points to 1.5 per cent on Thursday, citing a “renewed increase in inflationary pressure”.

FRANCES COPPOLA11:05

Central banks seem determined not to be blown off the monetary tightening course by wobbly banks

Anjuli Davies11:06

Brazil’s central bank cited rising inflation expectations as it kept interest rates unchanged for the fifth consecutive policy meeting on Wednesday, drawing concern from the government and weakening bets of imminent monetary easing.

The bank’s rate-setting committee, known as Copom, maintained its Selic benchmark interest rate at 13.75%.

The decision, which defied intense pressure from the new government of President Luiz Inacio Lula da Silva to reduce borrowing costs, matched the expectations of all 30 respondents in a Reuters poll.

What’s causing the wobble in markets then Frances? Could it be this ,,,

Fed Chair Powell: “All depositors’ savings in the banking system are safe.” Treasury Secretary Yellen: the government “is not considering insuring all uninsured bank deposits.”

FRANCES COPPOLA11:07

Yeah, mixed messages are always a bad idea!

that was a car crash of a presser frankly

Powell is presumably trying to do a “whatever it takes”, in the sense that the Fed will do whatever is necessary to maintain liquidity in the banking system and ensure banks have sufficient capital to absorb losses

Though it hasn’t exactly been doing that properly for the mid-size banks

Meanwhile, Yellen was under pressure to lift the FDIC limit to stem deposit flight from mid-size banks to big banks

But she’s decided not to do that, so presumably uninsured depositors now have carte blanche to move their deposits to TBTF banks.

Anjuli Davies11:10

FRANCES COPPOLA11:11

I think we are going to see a significant shakeout among the US’s equivalent of the Landesbanks.

Anjuli Davies11:11

Is that necessarily a bad thing? People like to cite Canada as some great banking paradise

FRANCES COPPOLA11:12

Lots of people trying to compare this to 2008 but the vibe is more Savings & Loans. Smaller banks with unhedged interest rate risk caught out by rate hikes.

I think the US system might well be more resilient if it had fewer, larger and better regulated banks – a la Canada

So for me, bring on the consolidation of mid-size banks.

11:14I’m actually pleased that Yellen didn’t give in to the special pleading of the mid-size banks. They didn’t want to be regulated as systemically-important banks, so imho they shouldn’t have the protections afforded to systemically-important banks.

Anjuli Davies11:15

There does seem to be a disregard for moral hazard

FRANCES COPPOLA11:15

But this has created some consternation, not only because of the mixed message, but also because SVB and SBNY depositors have been fully protected, whereas depositors at other mid-size banks now won’t be.

Anjuli Davies11:16

And, the repercussions those seemingly disconnected failures have had in Europe

FRANCES COPPOLA11:16

European regulators were not happy with the US apparently abandoning the bank resolution regime

So normal service has now been restored.

Anjuli Davies11:17

Izzy wanted us to inform you that she is hosting this summit today in Paris: https://www.politico.eu/financesummit/

Good timing for such high level guests

FRANCES COPPOLA11:18

I think banks that carry unhedged interest rate risk and actively game accounting standards to enable them to do so deserve to fail.

Anjuli Davies11:18

FRANCES COPPOLA11:19

I noticed that the Greek central bank was very quick to reassure markets that Greek banks were fine. Are they well enough capitalised to withstand a run?

And there hasn’t been a peep out of Cyprus.

Anjuli Davies11:20

Will we starts seeing a balkanisation of banking?

It seems the regulators are not all seeing eye to eye

FRANCES COPPOLA11:20

Swiss bank AT1s are going to trade at a discount to other European bank AT1s now

11:21Also there’s now extreme concentration in the Swiss banking sector. SNB is saying it has no plans to break up the new enlarged UBS, but it is massive compared to the Swiss economy and there’s hardly any competition

Anjuli Davies11:22

Yes, i remember after the last crisis there was lots of fantasy M&A chat about which banks would merge which never materialised due to competition and nationalistic concerns , that seems to be out the window here

FRANCES COPPOLA11:23

Speaking of massive banks, it appears that the deal under which HSBC took over SVB UK involved relaxing the ring fencing rules so that SVB UK could sit within the ring fence.

We should see this in the context of the Edinburgh reforms, which propose some relaxation of ring fencing rules to accommodate international and riskier SMEs. But at the moment, HSBC seems to have an advantage over other banks.

Anjuli Davies11:24

Is there a risk that they have also bought a bunch of very bad loans?

FRANCES COPPOLA11:25

The loans were a relatively small proportion of the assets. And SME loans are often high risk. The question for me is – should tech startups with VC funding be seen as SMEs and therefore sit within the ring fence? Or is this risky investment banking crossing the boundary?

Anjuli Davies11:26

And who can answer that question?

FRANCES COPPOLA11:26

There’s a paper by Bob Lyddon which is very negative about this – let me find it

11:30I don’t think HSBC taking on SVB UK is so much the problem, it’s the watering down of bank regulation to accommodate it that is the issue. Exactly like the bailout of uninsured depositors in the US and the wiping of AT1s in Switzerland. All various forms of “adapting” regulation to realpolitik imho.

Anjuli Davies11:30

Gold has climbed over 7% so far this month, closing in on record highs above $2,000 hit in March 2020, on concerns surrounding the banking and financial industry, mainly triggered by higher rates.

FRANCES COPPOLA11:32

Markets seem to think central banks are not taking seriously enough the risks to the financial sector from rate rises. They have a point imho – Fed rate rises historically have always triggered bank failures and often financial crises.

Anjuli Davies11:33

Yes, going back to what Sonja Laud said: “Over 70 years and every hiking cycle we have seen in that period, we have never seen a hiking cycle that has not led either to a recession – which is 80pc of the cases – or a financial crisis, or both.

“The question always has been why should this time be different?

FRANCES COPPOLA11:33

15 years of low interest rates lulled people into a false sense of security.

Anjuli Davies11:34

And lulled them into all sorts of other investments

11:35

11:36In other news, did you see that Crispin Odey is betting on UBS

Hedge Fund Manager Odey Bets on UBS Following Credit Suisse Deal

  • Crispin Odey says he’s invested 2% of his funds in lender
  • Investors are racing to break down deal’s implications for UBS

Hedge fund manager Boaz Weinstein pinned hopes on Credit Suisse’s survival, but also money on its demise. His derivatives trade which bet both on the success and failure of the bank now looks set to pay off, according to data from IHS Markit.

That’s interesting @Darren

FRANCES COPPOLA11:38

lol, an each-way bet… he can’t lose

Anjuli Davies11:38

I really am interested to see which way UBS goes now

FRANCES COPPOLA11:39

There’s clearly a risk that UBS will find some seriously bad assets on CS’s balance sheet, as Lloyds did with HBOS, but the Swiss government has a lot riding on this deal. UBS has been bailed out before and no doubt would be again.

and the UBS/CS deal holds out hope for shareholders (though not AT1 holders) in the event of a bailout.

I can’t see UBS hanging on to CS’s Swiss bank for long. Not enough competition in the Swiss marketplace.

Anjuli Davies11:41

Colm Kelleher is Ex-MS and Ralph Hamers ex-ING – both came through the crisis stronger, they could pull it off

FRANCES COPPOLA11:41

yeah they’re a good team

Anjuli Davies11:41

I have actually met both of them in my past journalistic life

The problem is that there was clearly a problem with CS, that couldn’t be stemmed

FRANCES COPPOLA11:42

Too many dodgy deals, too little competence

Anjuli Davies11:43

@MissMarketslive i think you have a point, It does come across as sheer stupidity and like you said, failing to prepare which is their job

FRANCES COPPOLA11:43

@Darren yes the acquisition of HBOS brought down Lloyds

If I may divert attention back across the Pond….

SVB’s failure caught all the headlines, but two other banks also failed at the same time – Silverlake and Signature Bank NY. Both were crypto-related.

Anjuli Davies11:45

Image

For context, on historic bank failures

FRANCES COPPOLA11:47

The SEC is now clamping down hard on crypto. Coinbase was issued with a Wells notice yesterday, and Justin Sun (of BitTorrent and Tron) is being sued for market manipulation and fraud, along with eight celebrities who touted his tokens.

Anjuli Davies11:48

I’m not a crypto expert but I do keep telling Izzy we need to do a special crypto SML

FRANCES COPPOLA11:49

There was some market chatter that Bitcoin was being seen as a safe haven akin to gold, but it sank on Fed news yesterday. And if the SEC is hell-bent on stopping anyone in the US trading crypto, it’s hard to see that it will be much of a safe haven, at least in the US.

Anjuli Davies11:49

Gary Gensler is trying his hardest

FRANCES COPPOLA11:51

Fed/FDIC/OCC have been saying since January that crypto-related activities are not consistent with safe and sound banking practices

The Fed refused Kraken and Custodia master accounts because of their crypto focus

And there’s lots of talk in crypto circles that SBNY was closed down because of its crypto focus.

NY Community Bank has bought much of SBNY – but not the crypto-related bits.

Ziglu, a British cryptocurrency business, is exploring a cut-price sale nearly a year after agreeing an ultimately aborted takeover by Robinhood, the American fintech giant.

One insider said Ziglu was seeking £2m at a valuation of roughly £10m, underlining the tough trading environment in which the company now operates

Last year, Ziglu was on the brink of a $170m takeover by Robinhood, the US-based share trading platform.

FRANCES COPPOLA11:54

Are we seeing the bursting of a tech bubble?

Anjuli Davies11:54

From $170m to $10 m in a year…

FRANCES COPPOLA11:54

that’s a huge fall, and not really crypto-related. Value destruction in the wider fintech industry

Anjuli Davies11:55

I do think you’re onto something Frances. There is definite a crypto backstory that has not been explored enough yet

11:56We are 4 minutes away from the BoE decision

FRANCES COPPOLA11:56

Those who have invested in tech will call it value destruction, those who have been laughing on the sidelines will call it sensible valuation.

Buckle up, everyone….BoE hard landing coming…

I might pick up the crypto backstory with Izzy tomorrow.

Anjuli Davies11:58

On that note… shall we wait for the announcement before we sign off?

FRANCES COPPOLA11:59

Happy to do so

Anjuli Davies
Headline RedBox Global
12:00
U.K BOE INTEREST RATE DECISION (MAR) ACTUAL: 4.25% VS 4.00% PREVIOUS; EST 4.25%
Headline RedBox Fixed Income
12:00
BOE SAYS FPC ASSESSMENT IS THAT UK BANKING SYSTEM `RESILIENT’
Headline RedBox Fixed Income
12:00
BOE: SIGNS OF INFLATION PERSISTENCE WOULD REQUIRE MORE HIKES
FRANCES COPPOLA12:00

25bps rise exactly as expected. Will pass without a ripple.

Anjuli Davies
Headline RedBox Fixed Income
12:01
BANK OF ENGLAND POLICYMAKERS VOTE 7-2 TO RAISE RATES TO 4.25% FROM 4.0% (REUTERS POLL: 4.25%)
FRANCES COPPOLA12:01

ooh split vote, wonder who the dissenters are?

Anjuli Davies
Headline RedBox Fixed Income
12:02
BOE: CPI REMAINS LIKELY TO FALL SHARPLY OVER REMAINDER OF 2023, DESPITE UPWARD SURPRISE IN FEB
Anjuli Davies12:03

Thanks everyone for joining us today !

Looks like you’re in for a crypto treat tomorrow

FRANCES COPPOLA12:04

Thanks everyone. Great comments as always. See you tomorrow at 11 am, when I’ll be joined by Izzy. .


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