Two big Silicon Valley banks failed when the easy money ran out - and that could be just the start.
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Hallam Bullock
Mar 13, 2023, 19:33 IST
AP Images
Phew. Hey there. Senior reporter Phil Rosen here. Before we jump into the newsletter, the Silicon Valley Bank saga is continuing to unfold, so let's quickly break down the latest.
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The big story this morning: HSBC has bought the UK arm of collapsed SVB in a last-minute deal for 1 British pound, or $1.21. The UK government and the Bank of England facilitated the private sale, British Chancellor Jeremy Hunt said on Twitter: "Deposits will be protected, with no taxpayer support".
More than a decade of near-zero interest rates allowed companies to borrow money freely, and as far as repercussions go, what we've seen so far could mark only the tip of the iceberg.
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1. The fall of SVB and Signature bank means the Fed's aggressive interest-rate hiking regime has now taken sizable casualties.
The tumult is a byproduct of the central bank's 1,700% increase in rates that took place in less than a year, and it could mean more once-stable institutions could be turned inside out in the coming months.
"When you raise interest rates quickly, after 15 years of overstimulating the economy with near-zero rates, to not imagine that there's not leverage in every pocket of society that will be stressed is a naive imagining," Lundy Wright of Weiss Multi-Strategy Advisors told me.
This new rate cycle delivers a "perfect storm," according to Deutsche Bank analysts, who told clients last week that SVB epitomizes all the risks worth fretting over in the shifting policy era.
In a Sunday note to clients, Goldman Sachs' research team pulled back their Fed policy forecast in response to this weekend's bank failures.
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"In light of recent stress in the banking system," the analysts wrote, "we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March."
And according to Tut Fuller, chief executive and founder of Capra Bank, if policymakers stick to their word and protect depositors like they said they would, people will have their faith restored.
"I'm hopeful that the government's approach of stepping in and protecting depositors, but not bailing out failed executives and boards of directors, actually builds confidence," Fuller told me close to midnight last night. "We need to protect the consumers and businesses who thought their money was safe and hold poor leadership accountable."
What's been the most surprising thing to you about the collapse of two banks in three days? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
In other news:
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2. Stocks on Wall Street battle for direction as SVB's failure ignites fears for banks. Shares in First Republic Bank fell as much as 60% premarket after the US lender tapped the backstop for a $70 billion to shore up liquidity. Here are the latest market moves.
3. Earnings on deck: Carlsberg, Getty Images Holdings, and more, all reporting.
4. Morgan Stanley recommended this batch of stocks to profit on an investing strategy that produces positive returns 100% of the time. Here's the approach the strategists laid out — including the 19 names they like now.
5. A $15 billion venture capital firm had warned its startups of Silicon Valley Bank's red flags months ago. Greenoaks Capital Partners told clients in an email back in November that SVB, as well as other firms, could see problems in a high-interest-rate environment, Bloomberg reported. Those clients pulled over $1 billion in funds out of the bank ahead of the turmoil.
6. Investing veteran Jeremy Grantham said the stock market bubble is still deflating. The market won't bottom until 2024, and investors shouldn't be fooled by any rallies that materialize, the GMO co-founder said. He blasted the Fed's monetary policy as a 36-year-long "horror show."
10. Bitcoin and other risk-assets stumbled amid bank fears. The crypto industry is navigating fresh pain as Silvergate prepares to wind down and other financial firms face snags. Bitcoin dropped below $20,000 last week, but is now back above $22,000. Here's what caused Friday's drop.
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