Andrew Jacobin
March 18, 2023
Still great fear for banks on international markets yesterday on the day of the “three witches”, i.e. when index futures, index options and stock options expire at the same time. All while for the OECD secretary general Mathias Cormann “the bankruptcy of Svb (Silicon Valley Bank, ed) was significant as it was also the largest since the financial crisis of 2007-8, but since then the regulatory frameworks have greatly improved and while there is certainly increased risks to financial stability, we think the risks of contagion are fairly contained.
However, yesterday the American Svb Financial Group, owner of Svb closed last week, filed for assisted bankruptcy, the so-called “Chapter 11”, thus marking the unenviable record of having been the largest US financial institution to apply for this proceeding following Washington Mutual’s 2008. Silicon Valley Bank, the primary business of Svb Financial Group, was shut down by federal authorities, who took control of it to secure customers, and is not part of the Chapter 11 filing , which offers companies a process to find new owners for their assets. Svb Financial Group believes it has around $2.2 billion in cash.
In addition to cash and its holdings, it holds other investment securities accounts and other assets for which it is also exploring strategic alternatives. Also in the US, First Republic Bank yesterday saw its stock drop up to 20% in the open on the stock market after announcing it was suspending dividends a day after 11 US banks injected $30 billion to save the bank from bankruptcy. . The directors of the operation were the secretary of the Treasury of the United States, Janet Yellen, the president of the Federal Reserve, Jerome Powell and the CEO of JP Morgan Chase, Jamie Dimon, who discussed the terms of the agreement. US regulators said the show of support showed the banking system’s resilience.
From the United States to Switzerland, yesterday was also a very difficult day for Credit Suisse, which also received a loan of 50 billion francs from the Swiss central bank the day before yesterday. In fact, the institute’s share plummeted, losing up to 8% and the hedging contract returned above a thousand points after rumors spread that UBS, the other major Swiss bank, is unwilling to intervene as « white knight» although his intervention is given as almost inevitable.
The alternative scenario is that of a Credit Suisse stew, handing over the most profitable businesses to various operators, including large private equity funds. Meanwhile many investors are withdrawing their deposits from the bank and this further diminishes their value. Damming the customer outflow will be key to straightening out the business, especially in light of net outflows of CHF 110.5 billion recorded in the fourth quarter. But from the United States, among other things, the news that Credit Suisse has been sued by US shareholders with a class action has rebounded. The accusation leveled by the shareholders against the Swiss bank is that it has hidden the difficulties, both in terms of outflows, and of the weaknesses in the internal controls on financial reporting.
