Tema: PPCC-Pisitófilos Creditófagos-Invierno 2022

[Derby]

https://www.reuters.com/technology/facebook-parent-meta-lay-off-10000-employees-second-round-job-cuts-2023-03-14/

Meta to cut 10,000 jobs in second round of layoffs

[Derby]

https://www.benzinga.com/markets/cryptocurrency/23/03/31339109/binance-suspends-uk-withdrawals-and-deposits-what-you-need-to-know

Binance Suspends UK Withdrawals And Deposits: What You Need To Know

Cryptocurrency exchange Binance has suspended deposit and withdrawal services for UK customers using bank transfers and card payments due to the cessation of support for transactions in British pounds by its local banking partner.

The company's spokesperson told Bloomberg that the team is working to find an alternative solution for affected users.

This move reflects the deteriorating conditions for the cryptocurrency industry in the UK, with banks such as HSBC Holdings and Natwest Group imposing restrictions on the amount of money that clients can transfer to digital asset exchanges.

Paysafe, a London-based online payments company, has also decided to stop providing one of its products to Binance's customers in the UK, citing the challenging regulatory environment around cryptocurrency assets.

"We have concluded that the UK regulatory environment in relation to crypto is too challenging to offer this service at this time and so this is a prudent decision on our part taken in an abundance of caution," Paysafe stated.

It did not indicate whether it would stop supporting other crypto companies as well.

Paysafe stated that its UK business with Binance is relatively small. It will continue to work with the exchange in other parts of Europe and Latin America.

In contrast, Binance itself has struggled to establish a base in the UK.

The company acquired a local firm in 2020 to act as its UK subsidiary, Binance Markets Ltd.

However, the Financial Conduct Authority issued a warning against the company for lacking the relevant permissions to operate in the country.

Despite the UK government's attempt to embrace cryptocurrencies in the past year, the financial regulator has repeatedly warned investors about the risks of losing all their money when investing in digital assets.

[Derby]

https://www.cnbc.com/2023/03/14/moodys-cuts-outlook-on-us-banking-system-to-negative-citing-rapidly-deteriorating-operating-environment.html

Moody’s cuts outlook on U.S. banking system to negative, citing ‘rapidly deteriorating operating environment’

“We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a report.

[el malo]

“La compraventa de vivienda, sorprendentemente, remonta en enero.“

https://twitter.com/_combarro_/status/1635591569599504385?s=46&t=d1UBgFMdWJyaLP6Oq3OMTQ

Traducción: la compraventa de vivienda, nada sorprendentemente, tiene una pequeña fluctuacioncilla en una tendencia principal bajista, que damos por buena para declarar que siguen subiendo.

Derrumbe del Euríbor: la crisis del SVB baja hasta el 3,5% al índice de hipotecas







Cuando Hitler y Mussolini seguían haciendo el tonto con el Afrika Korps, cuando ya sólo les quedaba Túnez, presentaban como victorias todas las pequeñas resistencias que conseguían. Cuando se quisieron dar cuenta, habían perdido ahí casi un cuarto de millón de tropas en una pelea que estaba perdida de antemano.

Vamos a ver muchas noticias así. En el mismo blog del Euribor, Calopez ya ha hecho unas cuantas entradas así. Sólo para reconocer poco después que "Yuri" sólo se estaba tomando un descansito antes de seguir subiendo.

Cómo va a escocer el fin del dinero barato...

Hay que reconocer que es una bajada importante, sobre todo en el contexto en el que estamos. Los mercados están descontando que en el corto plazo no sólo no van a subir más los tipos sino que incluso van a bajar.

Espero que los BBCC no se bajen los pantalones y suban aunque sea un miserable cuartito de punto para dejar las cosas claras. Y ver el shock con palomitas.

[Derby]

https://www.reuters.com/markets/us/us-consumer-prices-increase-solidly-february-2023-03-14/

Higher rents boost US consumer prices in February

WASHINGTON, March 14 (Reuters) - U.S. consumer prices increased solidly in February as Americans faced persistently higher costs for rents and food, posing a dilemma for the Federal Reserve, whose fight against inflation has been complicated by the collapse of two regional banks.

Economists were divided on whether the report from the Labor Department on Tuesday, which also showed underlying inflation pressures building up last month despite a continued decline in the prices of used motor vehicles, would be sufficient for the U.S. central bank to raise interest rates again next week.

(...) A 0.7% increase in owners' equivalent rent (OER), a measure of the amount homeowners would pay to rent or would earn from renting their property, was the main driver of the increase in the so-called core CPI. Last month's rise in the OER matched January's advance.

Independent measures, however, suggest rental inflation is cooling, leading many economists to believe that price pressures could decelerate considerably in the second half of the year. The rent measures in the CPI tend to lag the independent gauges.

There were also increases in the cost of hotel and motel rooms last month. There was upward pressure in core inflation despite an eighth straight monthly decline in the prices of used cars and trucks. Apparel prices rose and household furnishings and operations cost more. Still, core goods prices were unchanged after increasing in January for the first time since August.

[Benzino Napaloni]

Hay que reconocer que es una bajada importante, sobre todo en el contexto en el que estamos. Los mercados están descontando que en el corto plazo no sólo no van a subir más los tipos sino que incluso van a bajar.

Espero que los BBCC no se bajen los pantalones y suban aunque sea un miserable cuartito de punto para dejar las cosas claras. Y ver el shock con palomitas.

Los mercados están dando por hecho que estamos en 2008 bis, donde las subidas de Trichet al 4% se rebajaron en un año escaso. O más bien están presionando para que así suceda. Como bien dices, ahora se va a ver dónde tiene Lagarde el ancla, donde Trichet o donde Droghi.

Allá por 2009-10 salían en b.info historias de gente que se había hipotecado hasta las trancas "porque esto a peor ya no puede ir". A saber cuántos casos ha habido así, pero sí que recuerdo que en 2009 ya se decía una y otra vez que no podía faltar mucho para tocar fondo. Luego vino la resaca del mundial de Sudáfrica y los terribles 2011 y 2012.

Volviendo a tiempos presentes... adivinen a dónde irá el Euribor si se desvanecen las perspectivas los deseos de bajada de tipos. No llevamos ni un año desde la primera subida y ya estamos así... imaginen la de metadona que hace falta.

[el malo]

Hay que reconocer que es una bajada importante, sobre todo en el contexto en el que estamos. Los mercados están descontando que en el corto plazo no sólo no van a subir más los tipos sino que incluso van a bajar.

Espero que los BBCC no se bajen los pantalones y suban aunque sea un miserable cuartito de punto para dejar las cosas claras. Y ver el shock con palomitas.

Los mercados están dando por hecho que estamos en 2008 bis, donde las subidas de Trichet al 4% se rebajaron en un año escaso. O más bien están presionando para que así suceda. Como bien dices, ahora se va a ver dónde tiene Lagarde el ancla, donde Trichet o donde Droghi.

Allá por 2009-10 salían en b.info historias de gente que se había hipotecado hasta las trancas "porque esto a peor ya no puede ir". A saber cuántos casos ha habido así, pero sí que recuerdo que en 2009 ya se decía una y otra vez que no podía faltar mucho para tocar fondo. Luego vino la resaca del mundial de Sudáfrica y los terribles 2011 y 2012.

Volviendo a tiempos presentes... adivinen a dónde irá el Euribor si se desvanecen las perspectivas los deseos de bajada de tipos. No llevamos ni un año desde la primera subida y ya estamos así... imaginen la de metadona que hace falta.

Con la diferencia de la inflación en 2008-2009 y la de 2023. Entonces era una cuestión de burbuja inmobiliaria. Hoy es una cuestión de supervencia del sistema.
No hay economía que resista una inflación real sostenida de más del 10% con una moneda fuerte no devaluable.

Por si me van a decir que la inflación no es real, les digo que en mi caso es brutalmente real. Afortunadamente no he tenido que cambiar mis hábitos de consumo así que tengo datos sin maquillar de cúanto aumenta el ticket de la compra semanal. Y veo el cambio semana a semana. Un cálculo de brocha gorda me dice que desde marzo del año pasado hasta la semana pasada, mi compra típica ha subido un 15%.

Manu Oquendo, muy buena su observación del otro día sobre el aumento del precio de los derechos del CO2 y cómo eso impide que se trasladen las bajadas de precios al final de la cadena (al bolsillo del pepito).

[Derby]

Los mercados están dando por hecho que estamos en 2008 bis, donde las subidas de Trichet al 4% se rebajaron en un año escaso. O más bien están presionando para que así suceda. Como bien dices, ahora se va a ver dónde tiene Lagarde el ancla, donde Trichet o donde Droghi.

En el sector inmobiliario es la impresión que hay, aquí en España. El sentimiento general es de que se trata de un ciclo como tantos otros hemos visto. El endurecimiento de la financiación ha frenado el mercado y cuando acabe la guerra o después de las elecciones se "reactivará" todo de nuevo. Ya de por sí es un sector muy proclive al pensamiento mágico.

[Benzino Napaloni]

Los mercados están dando por hecho que estamos en 2008 bis, donde las subidas de Trichet al 4% se rebajaron en un año escaso. O más bien están presionando para que así suceda. Como bien dices, ahora se va a ver dónde tiene Lagarde el ancla, donde Trichet o donde Droghi.

En el sector inmobiliario es la impresión que hay, aquí en España. El sentimiento general es de que se trata de un ciclo como tantos otros hemos visto. El endurecimiento de la financiación ha frenado el mercado y cuando acabe la guerra o después de las elecciones se "reactivará" todo de nuevo. Ya de por sí es un sector muy proclive al pensamiento mágico.

Un ciclo como tantos otros... Me recuerda a un profesor que nos pedía que le regalásemos un reloj de los que teníamos, de ésos que atrasaba la hora de entrada a clase y adelantaba la hora de la salida .

No es que sea proclive al pensamiento mágico, es que para el sector "la normalidad" es cerdear con el ladrillo hasta el infinito y más allá. Todo lo que se salga de ahí son accidentes. La crisis un accidente (y menudo accidente, que los precios estuvieron bajando desde 2007 hasta 2013). El covid otro accidente. La guerra otro accidente. La inflación que ya se estaba empezando a manifestar antes de la guerra otro accidente. ¿No son demasiados accidentes?


Está visto que para que caiga el banano tiene que haber la purga que no se completó en la crisis. Que se prolongue lo suficiente como para que el personal acabe perdiendo las esperanzas. No va a ser fácil en un país de propietarietes desde los 60. Que ya no llevamos una o dos generaciones oiga, que ya es una vida entera.

[senslev]

Lo que hace la Fed es lo siguiente. Implemento una política monetaria de tipos cero y QEs de todo tipo, si la inflación está controlada bajo mis parámetros, cada vez que hay un pequeño susto en los mercados digo que mantengo los tipos a cero grados kelvin y que lo compro todo, lo que hace que el riesgo que perciben los partícipes de la pirámide ponzi sea cero, total, pase lo que pase, siempre queda la Fed y por lo tanto BTFD. ¿Tipos a cero de forma indefinida?, pues a buscar yield como sea y si es requetehipotecando mi tesoro cienes de veces, comprando jpegs de piedras a precio de oro o financiando empresas que me dicen que tienen un algo fantástico que va a ser la bomba en unos años aunque sea un truño, así sea.

Por el motivo X (pandemias, cheques al portador, supuesta falta de recursos materiales y energéticos, maldad o rareza) la inflación actual no me permite hacer la política de cero grados kelvin y seguir con la subida de mi balance como lo he hecho hasta ahora. Empiezo a subir tipos y todos los que compraron bonos del estado cuando la rentabilidad estaba a cero grados kelvin y por su supuesta mala gestión, tienen que vender esos activos que son los más líquidos para conseguir efectivo y tapar los agujeros que se han producido por esa misma subida de tipos. Resulta que esos bonos que tienen que vender ahora para tapar agujeros que compraron y eran muy seguros, por esa subida de tipos pierden muchísimo valor y los tengo que vender con pérdidas. Como esas pérdidas son tan abultadas no me da para tapar más que un agujeriilo y el banco se declara insolvente.

Resulta que todo es tan sólido que si no salvo al banco todo el sistema se va a la mierda, pero tengo un dilema, si la inflación estuviese controlada según mis parámetros haría un bail-out sin ningún problema y sin dar explicaciones, un par de trilloncillos más y listo (algo que no podría pasar porque con la inflación controlada no habría subida de tipos y no se hubiese dado esa bajada tan brusca en los activos de más calidad que tiene ese banco), pero la inflación no está controlada, ¿Cómo hago para salvar al banco-sistema-pirámide y seguir subiendo tipos?. Como se que el precio de esos activos ha bajado un montón lo que hago es lo siguiente, no hay problema, soy la Fed, véndeme esos bonos a mí pero en vez de a precio de mercado y con pérdidas, al precio que los compraste y problema resuelto. Todo el que haya comprado bonos a 100 y ahora estén a 50, no problem, te los compro a 100, total, soy la Fed y tengo trillones para dar y tomar. Así puedo seguir subiendo tipos y si hay algún problema ya computo yo las pérdidas y no te preocupes que nunca vas a tener pérdidas con esos bonos. ¿Necesitas liquidez porque has comprado jpegs de menhires a 20 millones de $$ y resulta que no ha sido una buena idea?, te compro esos bonos con no-pérdidas (¿o habría que llamarles no-bonos?) y así no me generas dolor de cabeza y puedo seguir subiendo tipos.

En este juego sólo puede quedar uno. BTFP (Buy the fuckin' Ponzi).

[Derby]

https://twitter.com/SteveRattner/status/1635622671370301440

@SteveRattner Looking at Powell's three key inflation "buckets" — core services, core goods, & shelter (which operates w/ a lag) — we see:

- Shelter far above 2018-19 avg, starting to plateau
- Goods around '18-19 avg, normalizing
- Services re-accelerating, above '18-19 avg

[muyuu]

https://edition.cnn.com/2023/03/14/investing/credit-suisse-financial-reporting-weakness/index.html

Credit Suisse finds ‘material weakness’ in its financial reporting, scraps exec bonuses
By Hanna Ziady, CNN
Updated 9:09 AM EDT, Tue March 14, 2023


Vuk Valcic/SOPA Images/LightRocket/Getty Images
London
CNN
 —
Credit Suisse acknowledged “material weakness” in its financial reporting Tuesday as it scrapped bonuses for top executives in the wake of the bank’s worst annual performance since the global financial crisis.

The embattled Swiss lender also said chairman Axel Lehmann had proposed to “voluntarily waive” a share award worth 1.5 million Swiss francs ($1.6 million) for the 2022-2023 financial year, given the firm’s “poor financial performance.”

Credit Suisse (CSGKF) said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to financial statements.

The revelations come just days after the bank delayed the publication of the annual report after an eleventh-hour query from the US Securities and Exchange Commission over cash flow statements for 2019 and 2020.


The board concluded that the “material weakness could result in misstatements of account balances or disclosures that would result in a material misstatement to the annual financial statements of Credit Suisse,” the annual report said. Credit Suisse is urgently developing a “remediation plan” to strengthen controls.

The bank’s stock fell more than 3% but recovered as European markets steadied to trade up 0.7% by 9 a.m. ET. It had fallen to a new record low Monday, as the collapse of Silicon Valley Bank and Signature Bank in the United States scared investors and pummeled banking stocks around the world.

Outflows continue

Customers withdrew billions from Credit Suisse last year, contributing to the bank’s biggest annual loss since the financial crisis in 2008. The stock has plunged 67% over the past 12 months.

The health of the bank’s finances is once again under the microscope following the demise of SVB and spillover effects on global financial markets.

Despite the fallout from SVB’s collapse, Credit Suisse saw “material good inflows” Monday, according to CEO Ulrich Körner.

“So far it’s calm,” he said in an interview on Bloomberg TV Tuesday. Outflows from the bank had “significantly moderated” after customers withdrew 111 billion francs ($122 billion) in the three months to December, Körner added. The annual report painted a similar picture, saying outflows had not yet reversed by the end of last year.

Körner said the collapse of SVB was “somewhat of an isolated problem.” Credit Suisse follows “materially different and higher standards when it comes to capital funding, liquidity and so on,” he added.

Exec bonuses scrapped
In a separate compensation report, Credit Suisse said it had cut its employee bonus pool in half last year compared with 2021, setting aside 1 billion Swiss francs ($1.1 million).

Executive board members took home 32.2 million francs ($35.3 million) in fixed compensation but received no bonuses.

Once a big player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance failures over the past few years that have damaged its reputation and profit, as well as cost several top executives their jobs.

In October, the lender embarked on a “radical” restructuring plan that entails cutting 9,000 full-time jobs, spinning off its investment bank and focusing on wealth management.

Körner said Tuesday the bank had the “right plan” in place and it was executing on it “at pace.”

“Nobody is pleased about the share price development…I can’t manage the share price, I can manage the execution and I do,” he added.

[Derby]

https://www.netinterest.co/p/the-demise-of-silicon-valley-bank

The Demise of Silicon Valley Bank

The Rapid Collapse of the 16th Largest Bank in America

“When you’re not working, what do you do to de-stress?”

That was the last question Greg Becker, CEO of Silicon Valley Bank, fielded at an investor conference on Tuesday this week.

“Cycling is my advice,” he replied. “Living in Northern California and being on the peninsula. That’s just—I think it’s the best bike-riding cycling in the world, period.”

Three days later, Becker’s bank is in receivership.

We’ve talked before about the interest rate risk that lurks on banks’ balance sheets and how the industry manages it. During the pandemic, banks took in record volumes of new deposits. Between the end of 2019 and the first quarter of 2022, deposits at US banks rose by $5.40 trillion. With loan demand weak, only around 15% of that volume was channelled towards loans; the rest was invested in securities portfolios or kept as cash. Securities portfolios ballooned to $6.26 trillion, up from $3.98 trillion at the end of 2019, and cash balances went up to $3.38 trillion from $1.67 trillion.

When banks purchase securities, they are forced to decide up-front whether they intend to hold them to maturity. The decision dictates whether the securities are designated as “held-to-maturity” (HTM) assets or as “available-for-sale” (AFS) assets. HTM assets are not marked to market: Banks can look on nonchalantly as bonds lose value; they remain glued to balance sheets at amortised cost regardless. By contrast, AFS assets are marked-to-market—a purer designation but one that injects an element of volatility into a bank’s capital base. For smaller banks, regulators look through this volatility but for banks with over $700 billion in assets, that volatility directly impacts regulatory capital.

Initially, banks favoured the flexibility that AFS gave them. If conditions changed and they wanted to sell, they could do so without much fuss. Sell even a single bond out of an HTM portfolio, however, and the entire portfolio would need to be re-marked accordingly. Through 2020, around three quarters of banks’ securities portfolios were held as AFS.

But then interest rate expectations started to shift and bond prices began to slide. Having been sitting on mark-to-market gains on their securities portfolios, banks started to see losses emerge. Unrealised gains of $39 billion across banks’ AFS portfolios at the end of 2020 swung to unrealised losses of $31 billion by the end of 2021.

To staunch the bleed, many banks reclassified AFS securities as HTM. This meant recognising losses upfront, but the switch would protect balance sheets from further losses as bond prices continued to fall. The largest bank, JPMorgan transferred $342 billion of securities from AFS to HTM, taking its weighting of AFS down to 30%. Others followed suit: Across the industry, the weighting of banks’ securities held as AFS shrank from three-quarters to just over half by the end of 2022.

But rising rates didn’t just present cosmetic challenges around how banks classify their bond holdings; they also gave rise to more fundamental challenges around how to manage the portfolio. Although bank treasury executives witnessed a brief tightening cycle in 2017/18, they had never had to contend with as sharp a rates move as occurred in 2022.

Different banks adopted different strategies. JPMorgan retained a lot of cash and chose to manage its AFS book aggressively. “We sell rich securities and buy cheap,” said CEO Jamie Dimon on his third quarter earnings call. Fifth Third decided to wait before deploying its excess deposits in securities. “We can afford to be patient,” its CFO said on an earnings call in January 2021. Fifth Third arguably made its move too early in 2022 but nevertheless was able to lock in slightly better yields than banks that had bought into the market sooner.

Some banks got it completely wrong. First Republic is one we discussed in October. Another, now apparent, is Silicon Valley Bank.

A Peek Into Silicon Valley’s Balance Sheet

Silicon Valley Bank was set up in 1983 to service the burgeoning tech ecosystem taking root in the Valley. Revised regulations eased the process for acquiring a bank licence, and Silicon Valley Bank became one of 72 new banks launched in California that year. It grew slowly, surviving a real estate wobble that led to a big write off in 1992, before confronting the tech boom and bust several years later.

Silicon Valley Bank offers tech companies a range of products: deposit services, loans, investment products, cash management, commercial finance and more. Because younger companies tend to have more cash on hand than debt, most of the bank’s money is traditionally made on the deposit side of the business.

Driven by the boom in venture capital funding, many of Silicon Valley’s customers became flush with cash over 2020 and 2021. Between the end of 2019 and the first quarter of 2022, the bank’s deposit balances more than tripled to $198 billion (including a small acquisition of Boston Private Financial Holdings). This compares with industry deposit growth of “only” 37% over the period. Around two-thirds of the deposits were non-interest-bearing demand deposits and the rest offered a small rate of interest. All-in, at the end of 2022, the cost of Silicon Valley’s deposits was 1.17% (up from 0.04% at the end of 2021).

The bank invested the bulk of these deposits in securities. It adopted a two-pronged strategy: to shelter some of its liquidity in shorter duration available-for-sale securities, while reaching for yield with a longer duration held-to-maturity book. On a cost basis, the shorter duration AFS book grew from $13.9 billion at the end of 2019 to $27.3 billion at its peak in the first quarter of 2022; the longer duration HTM book grew by much more: from $13.8 billion to $98.7 billion. Part of the increase reflects a transfer of $8.8 billion of securities from AFS to HTM, but most reflected market purchases.

“Based on the current environment, we’d probably be putting money to work in the 1.65%, 1.75% range,” said the bank’s CFO at the beginning of 2022, referring to the yields he wanted to achieve. “The vast majority of that…being agency mortgage backed, mortgage collateral, things along those lines.”


Note: All data is US$ millions, cumulative from December 2019; securities valuations are expressed at amortised costs

The trouble is that when rates started to go up, mortgage assets got hit hard. The duration of Silicon Valley’s HTM portfolio extended to 6.2 years, as at the end of 2022, and unrealised losses snowballed, from nothing in June 2021, to $16 billion by September 2022. That’s a 17% mark-to-market hit. The smaller AFS book was also impacted, but not as badly. Mark-to-market losses there amounted to 9% by the end of September.

So big was this drawdown that on a marked-to-market basis, Silicon Valley Bank was technically insolvent at the end of September. Its $15.9 billion of HTM mark-to-market losses completely subsumed the $11.8 billion of tangible common equity that supported the bank’s balance sheet.

Remember, though, that these losses don’t have to be recorded on the bank’s books and so Silicon Valley’s CEO could take his bike for a spin without a care. Although not great for its margin – much higher yields were now available in the market than the 1.65%, 1.75% the bank had chased – the situation wasn’t fatal. “The good news is that the securities portfolio is constantly paying down. And so we’re roughly seeing about $3 billion a quarter,” said the group’s CFO on his third quarter earnings call. It would take a long time, but the losses were expected to unwind as the bonds redeemed.

What neither the CEO nor the CFO anticipated, however, was that deposits might run off faster. Which is odd, because they’d seen deposits run off before. In the aftermath of the dotcom crash 20 years ago, deposits at the bank fell from $4.5 billion to $3.4 billion by the end of 2001 as customers drew down on their cash reserves.

The Chief Risk Officer may have spotted some clouds, but she didn’t hang around to find out. She left her role in April 2022 (after selling some stock in December) and wasn’t replaced until January 2023.

This time around, deposits fell from $198 billion at the end of March 2022 to $173 billion at the end of December (and $165 billion by the end of February 2023). Part of the decline reflects a system-wide contraction. Prior to 2022, there had only been 10 quarters of deposit outflows in the US in the past fifty years; we’ve now seen four quarters of outflows. But the factors that led to Silicon Valley Bank gaining deposit share on the way up are instrumental in it losing share on the way down.

In order to reposition its balance sheet to accommodate the outflows and increase flexibility, Silicon Valley this week sold $21 billion of available-for-sale securities to raise cash. Because the loss ($1.8 billion after tax) would be sucked into its regulatory capital position, the bank needed to raise capital alongside the restructuring.

Unfortunately, the capital raise never got done. The bank chose to announce its balance sheet restructuring the same day that Silvergate Capital announced it is going into voluntary liquidation. We spoke about Silvergate here last week. The business models are quite different, but the treasury challenges are not. Both banks struggled to contain bond losses at a time they were losing deposits. Customer fear turned Silicon Valley Bank’s trickle of deposit outflows into a flood.


US$ in millions

Heart Attack in the Treasury

We’ve never really had a bank run in the digital age. Northern Rock in the UK in 2007 predated mobile banking; it is remembered via images of depositors lining up (patiently) outside its suburban branches. In 2019, a false rumour on WhatsApp started a small run on Metro Bank, also in the UK, but it was localised and quickly resolved. Credit Suisse lost 37% of its deposits in a single quarter at the end of last year as concerns mounted about its financial position although, at least internationally, high net worth withdrawals would have had to have been phoned in rather than executed via an app.

The issue, of course, is that it is quicker and more efficient to process a withdrawal online than via a branch. And although the image of a run may be different, it is no less visible. Yesterday, Twitter was alight with stories of venture capital firms instructing portfolio companies to move their funds out of Silicon Valley Bank. People posted screenshots of Silicon Valley Bank’s website struggling to keep up with user demand. Greg Becker, the bank’s CEO, was forced to hold a call with top venture capitalists. “I would ask everyone to stay calm and to support us just like we supported you during the challenging times,” he said.


Source: @MaxfieldOnBanks
[Edit: According to an order filed by California’s bank regulator, the Department of Financial Protection and Innovation, customers initiated withdrawals of $42 billion in deposits from the bank on March 9, 2023, equivalent to a quarter of its overall deposit base.]

The problem at Silicon Valley Bank is compounded by its relatively concentrated customer base. In its niche, its customers all know each other. And Silicon Valley Bank doesn’t have that many of them. As at the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account. Great for referrals when business is booming, such concentration can magnify a feedback loop when conditions reverse.

The $250,000 threshold is in fact highly relevant. It represents the limit for deposit insurance. In aggregate those customers with balances greater than this account for $157 billion of Silicon Valley Bank’s deposit base, holding an average of $4.2 million on account each. The bank does have another 106,420 customers whose accounts are fully insured but they only control $4.8 billion of deposits. Compared with more consumer-oriented banks, Silicon Valley’s deposit base skews very heavily towards uninsured deposits. Out of its total $173 billion deposits at end 2022, $152 billion are uninsured.

So how could the bank have satisfied customers’ deposit demands?

One thing it couldn’t do is tap into its held-to-maturity securities portfolio. The sale of a single bond would trigger the whole portfolio being market to market which the bank didn’t have the capital to absorb.

It could have enticed depositors back with higher rates (as Credit Suisse has tried to do). In particular, Silicon Valley Bank oversees $161 billion of off-balance sheet client funds (as at end February) which it could have seduced back onto its balance sheet. But the bank already offers 1.17% on deposits which is almost twice the 0.65% median of large US peers. And… well… over $250,000 and you’re not insured.

It could have borrowed the funds. Last year, Silicon Valley Bank tapped the Federal Home Loan Bank of San Francisco for $15 billion and it had capacity to borrow more. We discussed the Federal Home Loan Bank of San Francisco here last week in the context of Silvergate. They’re the ones who pulled their funding lines to Silvergate, tipping it into liquidation. At year end, Silicon Valley Bank was already their biggest borrower, accounting for 17% of advances. To lock in that borrowing, Silicon Valley Bank had to pledge $19 billion of assets. The problem is that it doesn’t come cheap. The bank paid 4.17% on its total short-term borrowings at the end of 2022, of which Federal Home Loan Bank funding is the largest slice. Against a yield of 1.79% on the HTM securities portfolio, it’s not a particularly attractive enterprise.

All of this is now moot. Its crisis meant that the capital raise to cover AFS portfolio losses was pulled, leaving Silicon Valley Bank undercapitalised. Earlier today, the bank was closed by the California Department of Financial Protection and Innovation (who have had a busy week, what with Silvergate as well) which cited inadequate liquidity and insolvency. [Edit: the California DFPI disclosed that as of the close of business on March 9, Silicon Valley Bank had a negative cash balance of approximately $958 million and that despite attempts to transfer collateral from various sources, it didn’t meet its “cash letter” with the Federal Reserve.]

The Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. All insured deposits have been transferred to a newly created bank, the Deposit Insurance National Bank of Santa Clara (DINB). Uninsured depositors meanwhile are left hanging. They will receive an “advance dividend” next week, with future dividend payments contingent on FDIC selling Silicon Valley Bank assets.

Fortunately, Silicon Valley Bank’s resolution plan is still fresh. The bank became large enough in 2021 that regulators required it to draw up a “living will” on a three-yearly cycle. Silicon Valley Bank submitted its first one in December.

Afterword

For the industry overall, the episode is likely to cast a long shadow. It’s been 868 days since a bank last failed in the US, close to the longest stretch on record. In the meantime, consumers have become inured to the risk, evidenced by the growth of uninsured deposits, including in digital wallets.

One of the features of banking crises is that they rarely repeat consecutively. This matters because policymakers have a tendency to craft regulation around the last war. US stress tests include all manner of scenarios for bad credit, but few for interest rate shocks. The severely adverse scenario for 10 years Treasury yields is 0.8-1.5%; the baseline scenario, reflecting a shallower recession, incorporates yields of 3.2-3.9%.

In Europe, interest rate risk is overseen by regulators through the Liquidity Coverage Ratio (LCR). It requires banks to hold enough high-quality liquid assets (HQLA) – such as short-term government debt – that can be sold to fund banks during a 30-day stress scenario designed by regulators. Banks are required to hold HQLA equivalent to at least 100% of projected cash outflows during the stress scenario.

Credit Suisse withstood its surge in deposit outflows with an average LCR of 144% (albeit down from 192% at the end of the third quarter). Silicon Valley Bank was never subjected to the Federal Reserve’s LCR requirement – even as the 16th largest bank in America, it was deemed too small. It’s a shame. Regulation is not a panacea since banks are paid to take risk. But a regulatory framework to suit the risks of the day seems appropriate and it’s one US policymakers may now be scrambling for.

[Derby]

https://www.channelnewsasia.com/business/top-china-property-developer-country-garden-book-net-loss-2022-3342276

Top China property developer Country Garden to book net loss for 2022

HONG KONG: Top Chinese property developer Country Garden Holdings said on Monday (Mar 13) it expected to post its first net loss since listing in 2007 due to a sluggish property market and flagged a worse-than-feared drop in core profit.

China's top homebuilder by sales was the latest in a growing list of developers that have warned they would report a loss or drop in profit for 2022 after being hit last year by a debt crisis and COVID-19 lockdowns that delayed or halted home-building.

Country Garden said in a filing its estimated net loss would be between 5.5 billion yuan to 7.5 billion yuan (US$799 million to US$1.09 billion), down from a 26.8 billion yuan profit in 2021.

It attributed the big loss to a drop in gross profit margin, a rise in provisions for impairments on property projects, and net foreign exchange losses it expected to report.

"The board is of the view that the above factors which affected profit are mainly in non-cash nature," said Country Garden, adding its net debt ratio had long remained low and the company maintained a good credit record.

It said core net profit was expected to be in the range of 1 billion yuan to 3 billion yuan, still positive but down sharply from 26.9 billion yuan in 2021 and well below analysts' forecasts for a core profit of around 9.3 billion yuan, according to SmartEstimate.

Smaller developer Logan Group Co Ltd also said it expected to record a net loss of 7 billion yuan to 9 billion yuan for 2022.

Shares of Country Garden fell as much as 5.5 per cent in early trade but improved to trade down 1.8 per cent by noon, while Logan fell 3.2 per cent, underperforming a 0.3 per cent drop in the Hang Seng Mainland Properties Index.

The profit warnings followed similar flags from peers CIFI Holdings and the property management unit of state-backed Greentown China, Greentown Service Group, on Friday.

"We expect to see more profit warnings for both China property and property management ahead," said Raymond Cheng, head of China research at CGS-CIMB Securities Ltd.

He said results for the sector would vary, with state-owned or quality private firms set to report between a 15 per cent drop and a 20 per cent gain in core profit, while troubled developers' profits would fall at least 50 per cent or slide to losses.

On Sunday, Sunac Services, the property services arm of major developer Sunac China, said it expected a net loss of up to 500 million yuan due to significant increases in the impairment provisions for money due from related parties.

[Derby]

https://edition.cnn.com/2023/03/14/tech/viral-bank-run/index.html

SVB collapse was driven by ‘the first Twitter fueled bank run’

New York CNN — The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the hallmarks of an old-fashioned bank run, but with a new twist befitting the primary industry the bank served: much of it unfolded online.

Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.(...)