Hello Anjuli, Helen here logging in
Good morning all
Welcome to Spot Markets Live #siliconvalleyspecial
You were also with George Osborne in 2008 when Lehman was imploding?
Yes that’s right!!
I remember sitting at my desk the morning Lehman went under
I was reading the newspaper (how old school!) and George looked over and simply said “I bet you’re glad you don’t work in banking any more!”
Rishi has done one better this morning and has flown over to the epicentre
haah indeed! How lucky he was already in California of all places for the AUKUS discussion on defence spending
So, we’ve had the much anticipated bailout but we’ve not had the bounce…
Look at bank stocks this morning…
Not to mention Credit Suisse which has hit another all time low but that’s another story…
Ah good old Credit Suisse
Hard to believe it’s still alive
it’s like a cat
or 9 lows…
So I think that it’s fair that banking stocks are still taking the brunt, people are figuring out exactly what this means
because interest rates will stay higher for longer and higher rates seem to be hurting banks – even though ironically they’re supposed to help them”
Interesting to see the RNS this morning light up with statements from companies declaring their non impact from SVB
what a list!!
There are a few analysts out there saying rates have peaked and FED will pause on March 22
yes I hear that people now think there will be a pause BUT this is where the Fed gets tied up in knots. Because they both have to preserve financial stability AND meet their inflation target mandate
Goldman Sachs’ analysts on Sunday said they no longer expect the U.S. Federal Reserve to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March, in light of the recent stress in the banking sector.
I disagree for what it’s worth
Is this a bit like the LDI affair where the BoE was doing QE and QT at the same time
The Fed are effectively trying to limit contagion as a bank fails
that’s very different to “cut rates to zero to prop everything up”
they can’t afford to do that this time with inflation where it is
Remember the BOE have already gotten out of their intervention over the LDI debacle – and for a profit too1
@Bruce I note above its -9.41% – any insight?
It all feels really confusing right now
As many below are mentioning, this doesn’t feel like it should be systemic risk to the system and yet the system is screeching
I see that someone is asking about whether all banking stocks should be affected or only the badly run ones
So I think we have to unpick two things here
one, can the bank (or any other company) deal with 400bps of rate hikes in 12 months
what are their hedges, what is their business model
That’s one part
then the second part relates to systemic risk and that is about liquidity
We have had a series of these now, where over leveraged institutions have been caught up in sudden fire sales
the LDI managers
that is a crazy chart but it’s a sign of flight to quality – presumably people want to snap up and lock in yields as much as possible
but this isn’t a Fed Put like the one we knew for last 40 years
But was SVB actually that bad ? It seems the doom loop was what killed it ….
the Fed CANNOT backstop an entire system at 5% inflation the way they did at 1% inflation
they have got to keep a lid on inflation expectations and ensure they don’t get embedded into the system
So with regard to SVB specifically
1) on the asset side they had deliberately gone into higher yielding assets and not hedged the interest rate risk
2) on the liability side, they had clients all concentrated into one sector (tech) that are uniquely prone to cash burn and high leverage
and 2b) an industry that benefitted from what has happened during the pandemic. What I call the impaired velocity of people where people now live their lives more online (much as we are doing in this discussion now). So that was great for tech in the “recovery” but then not so good when people returned to work. Even though we do still have an impairment in our velocity it is not the same as under lockdowns in 2020 and 2021
you could say that SVB was uniquely highly correlated to interest rates, monetary and fiscal stimulus, and pandemic habits
I think GK has just made a very good point on the chat
They point out that social media and online banking have conspired to make bank runs happen faster
that is a key difference
But then the irony is that people couldn’t actually get money out fast enough
ha yes !!
well that’s a whole can of worms
I was hearing that the CEO of major rival was calling big funds to offer their services but couldn’t
about how our society now expects everything on demand due to social media / apps / etc
Couldn’t act fast enough because of KYC and admin effectively
Helmholtz has just made a very interesting point on the chat. Asking about other candidates for this issue
Before I get to that, let me address Anjuli’s point
Yes, that’s a very good point about KYC and the increasing bureaucratic burden of banking
You’ve got all the big banks literally rubbing their hands now
I mean I did wonder this morning why it took so long to get a buyer for SVB UK when it’s only £1 and they do actually have some assets left in their portfolio
Apparently also lots of platforms have been set up to get around payroll issues and receivables
This is where blockchain technology could potentially help in the future. We should all have some kind of record on the blockchain of our identities and KYC for our accounts and AML checks etc and then it is only done once and everyone can see it
but apparently we are a long way from that
maybe because tech bros prefer to go on a mission to Mars rather than reinvent banking
It seems like the quickest bank will win in these situations
My brother runs an accountancy practice and payroll is unbelievably admin intensive and complex
Didn’t the UK govt say they’d guarantee UK deposits
So there’s been some quite astonishing statements made by the authorities here and in the US
Well he will definitely know Helen
“No taxpayer funds”
“all deposits safe”
It’s kind of the Draghi “Whatever it Takes” playbook!
haha yes you’re right Anjuli he does know!
Just going back to @Helmholtz
Another point that Izzy raised to me is if HSBC will still be able to walk away if they do their DD and decide it isn’t such a good deal after all
I want to pick up that this yet again is an issue of liquidity mismatch
eg ETFs on real estate funds
there could be plenty of examples these days where people expect to liquidate with a swipe of the phone in the palm of their hand and then confusion when they cannot
the potential for panic is higher in an age where we expect instantaneous action
ooh thanks for that headline Anjuli
Back to your point from Izzy
I did wonder that
it only cost them £1
by all accounts there are still some decent assets on their balance sheet
They screwed up their hedging, whether by greed or incompetence, or both
but the real problem came when the bank run started
if you can stop the run dynamic, as regulators seem to have done for now, then getting that balance sheet for £1 doesn’t seem a bad bet to me
Have they stopped the run dynamic do we think?
First Republic Bank doesn’t look good still
Shares in First Republic Bank have fallen 60pc in pre-market trading as the US lender tried to calm any concerns about its liquidity following the failure of Silicon Valley Bank.
Roger Francis just made a good point about how this is two bank failures rather than one because of Signature Bank too
regarding First Republic
I think we need to see whether actual withdrawals take place today
But we have seen the authorities draw a line in the sane
if they have to do more, they’ll do more
but it will be to prevent market dysfunction, not to prop up insolvent entities
that’s the message they’re trying to get across
How important now also is the Fed discount window
accepting collateral without haircuts etc
I thought that this new term program mechanism was basically the same thing
Bruce Packard just asked the key Q
“isn’t accepting collateral without haircuts a form of QE”?
Here is where it gets technical
That was the lifeline during the last few crises
It has the same effect as QE
but the way it is structured would allow the central bank to argue it’s not QE
It’s not asset purchases, it’s a loan
yet another example of “QE that is not QE”
we have seen a lot of this since 2020 and will see more
G K is ON FIRE in the comments!!!
nice link to the terms of the program
Fascinating @Mark Snow and a big call
could we see something coordinated again
@bruce packard – yes you’re correct!
and yes youre also correct, QE isn’t exactly money printing
G K asks a good Q
about the length of time for these loans
1 year maturity
so does that mean 1 year to sort yourself out
1 year is also a “short term” security as far as a bank is concerned
And also, if we are now seeing people lean toward rate cuts – we are getting massive moves in treasuries
This call for huge rate cuts today is reminiscent of what happened to the BOE in Sept/Oct gilt crisis last year
on the one hand people screamed for rate hikes to prop up Sterling
on the other they screamed for cuts to prop up the system
But the truth is that the Fed is constrained with inflation where it is
what they have come up with is a clever little package to operate within their constraints
They actually want the markets to get away from “when anything goes wrong, rates go to zero and we solve everything”
Whatever It Takes is dead
‘@Roger Francis, it’s a loan so the Fed don’t keep the collateral until maturity
We have US inflation figures out this week Helen i think
Yes that’s right Bruce, in the long term you still own the underwater assets, presumably there is hope that in a year it won’t be under water any more or you will have hedged your portfolio to ensure you are not#
To reverse thinking a bit, but who if any are the winners here?
The systemically important banks
I was hearing that there are already some platforms emerging to buy the deposit IOUs off SVB
but i guess now with the backstop this trade could be dead
Also money market funds
there’s going to be an interesting and rational debate now
where do you put your money
throw it all into JPM at some low deposit rate
or put it into a money market fund but not have the safety of back stop for systemically important institution
I saw an interesting stat, that deposits are actually down 8% and 4% of that decline occurred in the last month – so where do you put your money? US treasuries !
I think we will see the big banks start to offer better rates on deposits
theyr’e now all on standby to ensure their capital ratios are watertight
plus I still think mom and pop businesses will prefer to put cash into JPM than Tsys or money mkt funds
What is so weird about all of this
is that for some reason nobody – not the banks, the customers, the businesses – seem to have realised that short term rates are so much higher
it’s like everyone is only just appreciating that we are almost at 5% rather than at 0
not sure why it’s taken 6 months but this is a tipping point that is overdue
meanwhile the gamma position in the S&P is now negative. Short gamma means more volatility – both up and down
so it will be a wild ride this week#
Even so, why park your money in even a 5% yielding place when inflation is at 10%
and let’s face it, the run up from 3500 to 4100 doesn’t make sense at higher rates
that is a fair point Anjuli but it’s better than 1% in the bank account
actually I don’t know what you get on US bank account
I am only thinking of my own deposit account!
good point on the chat about cost of actually making the investment into Tsys, it’s expensive
Some crypto stats just hit the wire
(those two statements are not necessarily related!!_
so crypto is in a funny position. It’s bad that risky assets are getting repriced. But good because decentralised and away from authorities getting involved
I know some “mom and pop” investors who have switched their ISAs and children’s ISAs all into US treasuries
ha! they’re smart
So if people are going to rush into Tsys that’s nice and helpful for SVB and similar because they are going to be selling them to raise liquidity !
Wouldn’t inflation linked bonds be smarter – i saw that the UK government is trying to drum up deposits this way
I can see a situation where we have big moves in Tsys this week but end up where we started
Izabella makes an interesting point about HSBC
if true then surely that would have to come out !?
why aren’t the assets as good as made out
Apparently UK government will make a statement to parliament today
Talking of the UK, Helen any thoughts ahead of the budget or has this all completely eclipsed it
on the Budget, it was already going to be a “steady as you go, don’t frighten the horses” budget
Tinkering with small measures
a small hamster rather than multiple rabbits out of hats
and it really can’t be now given volatility in the market
Sunak and Hunt want to burnish their credentials for credibility
We have had a lot of bits and bobs leaked already such as more help with childcare, extension to energy price cap and possible freeze on fuel duty
also possible acceleration of deadline for raising retirement age
but I think the area to watch will be on more generous capital allowances to make up for the rise in corporation tax
in other words it’s going to be a techy budget where the implications might take time to sink in
@izabella – very interesting you sniff something in the air over HSBC
but any Prime Minister and Chancellor, let alone a new pair, would simply be delighted to ensure a banking failure passed off without incident. Not just to the UK markets but also to UK jobs
I thought this was quite interesting: https://www.thetimes.co.uk/article/ns-amp-i-customers-targeted-to-fund-uks-borrowing-2f275k8h7
but it will just subsume SVB into nothing
Jeremy Hunt is expected to marshal the country’s army of savers to help fund Britain’s borrowing requirements by asking National Savings & Investments to pump out billions of pounds’ worth of products to the public.
In this week’s budget, the chancellor could give the government’s savings bank the remit to sell more investment products — a move that would mean fewer bonds (gilts) would be needed to fund the country’s borrowing needs.
He is expected to announce about £10 billion of bonds to be issued this year.
Izzy mentioned a similar idea a few months back
oh that’s very interesting on National Savings
Mark Capleton, an analyst at Bank of America, said: “NS&I has not brought in vast amounts in recent years and so the share of NS&I as a proportion of the national debt is half of what it was in 2000. Then it was 16 per cent of the national debt, now it is 8 per cent. So there is material scope for them to make use of NS&I.”
it’s a good idea
I love NS&I
If they offer a good rate, would be win win
My Mum worked for them back in the day when premium bonds were managed in Blackpool (where I’m from originally) so we were brought up on investing in premium bonds to be in with the chance to be a millionaire thanks to ERNIE!
(that’s a very retro comment)
but in any case that does makes sense to utilise NS&I better given the scale of govt debt
lots of good comments being made about the advantages of NS&I
I imagine we will get lots of statements from our leaders today
and until things have calmed down a bit
Like you said, it’s going to be a wild ride this week
but overall I think everyone should take away this message
can your investments both withstand and benefit from Higher For Longer interest rates
Interesting G K , i hadn’t even thought of these implications
the financial system is going to creak a lot more in the months ahead
so make sure if you need to get hold of cash, you have a way of doing so
this is merely payback for what happened in 2020
we didn’t cancel the recession. It was merely delayed.
and central banks had to oversteer into the hairpin bend – and oversteer on the way out
so too much stimulus for too long and now raising rates (possibly) too quickly
if you step back and think of how we have had a global shutdown, war, health emergency, massive ballooning government balance sheets… it’s kind of amazing nothing worse has happened
It’s a good point
so – keep being optimistic people! But be careful too
On that note…
It’s been fascinating for us this morning !
Does make things more interesting ….
yes very good to hear everyone’s thoughts
Thanks so much for joining us Helen , see you back again soon
thank you Anjuli!
good luck everyone