Fresh panic for the banks: Don’t think the rescues of SVB and Credit Suisse mean the worst is over, warns ALEX BRUMMER
Governments and regulators work hard to close down banking crises as they happen, with dramatic weekend rescues and by opening special lending windows allowing immovable assets to be turned into cash.
This is combined with reassuring comments about the turbulence being calmed – in the hope that depositors will stop fleeing weak institutions.
Current tumult may not be 2007-08 all over again, but it is easy to be complacent and think the fixes for Silicon Valley Bank (SVB) in the US and Credit Suisse in Europe means that the worst is over.
Detail from San Francisco’s First Republic is hardly encouraging. The run on the bank was sort of halted in March, when a posse corralled by JP Morgan Chase injected $30billion (£24billion) of deposits.
It may not be 2007-08 all over again but it is easy to be complacent and think the fixes for Silicon Valley Bank in the US and Credit Suisse in Europe means the worst is over
Beneath the surface, the bank was drowning and only previously undisclosed heavy short-term borrowings – from the Federal Reserve, the Federal Home Loan Bank and JP Morgan, peaking at $138.1billion (£119billion) on March 15 – stopped it from tipping into the Pacific.
It is still being propped up with $104billion (£83billion) of emergency loans, which effectively places it among the ‘living dead’, as The Wall Street Journal describes it.
Small wonder the shares have tumbled by a further 49 per cent, valuing the bank at $1.5billion (£1.2billion).
First Republic claims that it has sufficient cash resources to pay off those uninsured depositors who have not cut and run.
But it is being kept afloat by expensive short-term funding and will need to sell off securities and packages of loans at a steep discount to survive generating large and possibly unsustainable losses. Equally disconcerting are latest updates from Zurich.
UBS is not only having to liquidate Credit Suisse’s loan book but still has its own legacy problems dating back to the great financial crisis.
Income plunged by 52 per cent in the first quarter and the bank is making provisions of $655million (£532million) relating to litigation costs for sliced and diced sub-prime mortgages.
When it opens up the tin at Credit Suisse, with its Greensill, Archegos and past exposures dating back to the financial crisis, who knows what it will uncover.
After Stephen Hester moved into NatWest in 2008, in the tsunami of the financial crisis, he uncovered a torrent of worthless assets.
The full scale of the disaster to hit US regional banks and weaker European lenders is not fully known.
What we do understand, from remarks by Bank of England governor Andrew Bailey, is that social media and one-touch technology mean that deposits move to ‘safer’ homes in the blink of an eye. Results from First Republic and UBS are hardly reassuring.
The London Stock Exchange (LSE) and City regulator the Financial Conduct Authority (FCA) have taken a pasting for the loss of Arm Holdings listing to New York. It sparked fears of further exits across the Atlantic.
That is not how it is seen in the Square Mile. The LSE blames government. Amid the frequent leadership changes in Downing Street (including a non-stop revolving door at the Treasury, with four Chancellors over the last eight months), the LSE and FCA say the ball was dropped.
It was easy for Softbank boss Masayoshi Son to waltz around UK politicians, with demands for a London listing, because of confused and mixed messaging.
The LSE was willing to make existing rules work and the impressive FCA boss Nikhil Rathi is the author of a sweeping agenda for reform, with the aim of restoring London’s status as a great place to list shares.
The real tragedy was the speed with which Theresa May and Philip Hammond allowed Arm to be sold in the first place.
At the very least, they should have included a stipulation that if the Cambridge-based enterprise were restored to the public markets, London would be first choice.
Fascinating to see that ABF-owned Primark is daring to tread where British Isles retailers have been serial failures.
It is recognising that Texas, from where I have just returned, is one of the fastest growing states in the union. Oracle and Tesla are among the big tech outfits making the journey to state capital Austin.
Primark has at least five Texas stores in its sights and, as in Florida, believes that the demography works for its customers.