Reply to: Recession Credit Suisse - DOOM

[SueEllen]

Wonder what the Friday 1pm news stream from Plymouth has to say about all this

[Largely Ginny]

yes, this seems very likely. DBK will be the next domino piece that will fall resulting in other failures

The timeframe is uncertain as they’ve been going up and down and current prices / CDS costs have been encountered in the past.

All will go down when our ruling masters will allow it to go down.

Wonder what the Friday 1pm news stream from Plymouth has to say about all this

[GigiBronz]

Deutsche Bank next? Deutsche Bank shares slide 13% after sudden spike in the cost of insuring against its default

yes, this seems very likely. DBK will be the next domino piece that will fall resulting in other failures

The timeframe is uncertain as they’ve been going up and down and current prices / CDS costs have been encountered in the past.

All will go down when our ruling masters will allow it to go down.

[jamesbrown]

Ouch

SVB and CS were never going to be the end of this. The markets won't be happy until there has been a proper bank run/failure or the rate rises have been paused/reversed or some other obnoxious intervention adopted

[Fraidycat]

Deutsche Bank next? Deutsche Bank shares slide 13% after sudden spike in the cost of insuring against its default

[GigiBronz]

it's quite simple, banks get deposits and then they invest that money in supposedly risk free assets. It's all a happy go lucky.

The products they were invested in were gov bonds so that went agains them and with the withdrawals they could not meet capital requirements.

Everyone was expecting interest rates to go up, there is no surprise there for the sector. The regulators are asleep at the wheel and the bankers were milking as much as they can and kicking the can down the road. Of course everyone knew, but short terms bonuses are more important than long term solvency.

Most likely a few other banks will follow.

The financial system is a mechanism of extracting capital from the working class and moving it into their pockets. By that definition it works as intended.

[jamesbrown]

It isn't a shock in general, because everyone can plainly see what is happening and central banks have been telegraphing the changes.

However, the financial system is complex and the levels of risk/exposure to certain instruments that are highly sensitive to rates are not always transparent until it's too late. For example, in zeroing out the AT1 bonds of CS, holders of CoCo bonds more generally will currently be doing their nut and the whole market will be repricing risk, just because they wouldn't have anticipated being behind shareholders when taking a hit (even though they knew, in theory, their bonds could be zeroed out, which is indeed the whole point of them).

[Protagoras]

Maybe someone familiar with the banking sector can explain the 'shock' ...

We have statements in the news, such as "Central banks around the world have been raising the cost of borrowing to try to dampen down rising prices. After years of very low interest rates, that has come as a shock."

https://www.bbc.co.uk/news/business-64951630

Why is this a 'shock'. It's been plainly obvious for years that the era of cheap money could not last forever.
I'm actually surprised that it's taken so long for inflation to become obvious. Surely these well paid bankers who think that they're cleverer than the rest of us would have seen this coming, and planned for it.

Perhaps the real 'shock' is the unwillingness of the public to bail them out and again reward their incompetence.

At the micro-scale, the UK Govt should raise the £85k deposit guarantee to prevent runs on the smaller banks as people seek to limit their exposure.

[Fraidycat]

After 13 years of ultra-low interest rates, it's not surprising that a few cracks appear in the system when rates jump 10-fold* in less than 12 months.

* In the US, the rate was 0.5% last May; now it's just shy of 5%.

It is not just a few cracks, it is widespread in the US banking system, only the biggest banks are not struggling, actually they get more deposits as customers flee the smaller banks. The smaller banks will be getting secret loans from the central banks. These are being kept quiet to avoid further bank runs. The Fed is effectively doing Trillions more in QE. This is why Bitcoin ran up 10,000 points recently, the Fed is printing more money and cant raise interest rates as much to bring down inflation.

[DealorNoDeal]

After 13 years of ultra-low interest rates, it's not surprising that a few cracks appear in the system when rates jump 10-fold* in less than 12 months.

* In the US, the rate was 0.5% last May; now it's just shy of 5%.

[jamesbrown]

https://www.reuters.com/business/fin...rs-2023-03-19/

[jamesbrown]

UBS bailing out CS. But..... 16bn euro of AT1 bond holders are completely zeroed out.

I'm sure that will go down well in the markets, given that shareholders are getting 3bn or whatever.

Probably not the end of the d00m.

[SueEllen]

And a US one -

https://www.theguardian.com/business...-rescued-lates


Wall Street’s giants moved to end the US’s spiraling banking crisis on Thursday by agreeing to prop up troubled First Republic, a mid-sized bank whose shares have been pummeled amid a wider banking turmoil.

Bank of America, Goldman Sachs, JP Morgan and others will deposit $30bn in First Republic, which has seen customers yank their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a joint statement on Thursday.

The big banks have received billions in deposits from smaller, regional banks as the banking crisis has spooked their customers. US authorities swooped in to take control of SVB and New York’s Signature bank last weekend after frightened customers pulled their deposits.

Banks and regulators are hoping that the action will act as a firewall by protecting First Republic and stopping the crisis spreading to other smaller banks.
Shares in First Republic – a San Francisco-based bank that largely caters to wealthier clients including Facebook co-founder Mark Zuckerberg – had fallen about 70% since the news of SVB’s collapse. They fell another 22% on Thursday before the bailout but ended the day up nearly 10%

[SueEllen]

There may be trouble ahead....

Professor Danny Blanchflower former member of the MCB said there is a banking crisis

https://www.lbc.co.uk/news/bank-of-e...anking-crisis/

The Bank of England has held emergency talks amid fears of a new global banking crisis after the worst day for FTSE since the beginning of the pandemic and a Swiss lender took a £44 billion bailout.

[SueEllen]

Euro Zone has raised interest rates.

https://www.theguardian.com/business...-credit-suisse

The European Central Bank has raised interest rates across the eurozone by 0.5 percentage points, despite fears that higher borrowing costs could set off a domino effect across a banking sector already reeling from a collapse in confidence in Switzerland’s second largest lender, Credit Suisse.

Officials at the ECB, the central bank covering the 19-member euro-bloc, said inflation was likely to remain high “for too long”, forcing it to continue with its planned run of rate increases.


The 0.5 percentage point rise pushes the central bank’s main rate up to 3.5%, while the rate paid on eurozone bank deposits left at the ECB increases to 3%.


The ECB had flagged its intention of a rate rise at its last meeting, which took place in February, but financial markets had been betting on a U-turn in light of recent turmoil. The decision to push ahead with inflation control measures came hours after the Swiss Central Bank stepped in with a CHF50bn (£44bn) loan facility for Credit Suisse. The intervention was designed to calm fears over the finances of the lender, one of 30 banks globally deemed too big to fail.

Without referencing the overnight rescue loan, the ECB said on Thursday that its governing council was “monitoring current market tensions closely” and stood “ready to respond as necessary to preserve price stability and financial stability in the euro area”.

In a statement designed to quell fears over contagion in the banking sector, the ECB said: “The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”

Christine Lagarde, the president of the ECB, said the central bank would treat the heightened tensions in financial markets separately from its strategy for bringing down inflation.