Stocks and bond yields fell Friday, capping a tumultuous week as concerns rose that turmoil rocking the banking sector will tip the global economy into a recession. Investors pulled back from positions in First Republic and other regional bank shares, marking a turn from Thursday’s relief bounce that followed a commitment from a group of banks for $30 billion in deposits as a sign of confidence in the banking system. Despite the down session, the S&P 500 settled 1.4% higher on the week and the Nasdaq Composite jumped 4.4%, as investors bet on tech names ahead of next week’s Federal Reserve policy meeting. Friday’s slide pulled the Dow Jones average slightly negative for the week, down 0.15%. Read a preview of next week’s major events in Seeking Alpha’s Catalyst Watch.
The banking space saw another rescue deal in just a matter of days, with the nation’s biggest banks agreeing to deposit around $30 billion with troubled First Republic Bank (FRC). The big banks -including JPMorgan (JPM), Bank of America (BAC), Citi (C) and Wells Fargo (WFC) – will contribute $5 billion of deposits each. Goldman Sachs (GS) and Morgan Stanley (MS) will provide $2.5 billion each. PNC Financial (PNC), BNY Mellon (BK), Truist (TFC), U.S. Bancorp (USB) and State Street (STT) will each contribute $1 billion. While investors initially cheered the news, First Republic’s shares reversed course after the lender said it was suspending its dividend. Billionaire investor Bill Ackman denounced the rescue deal, saying, “Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy.” (342 comments)
Credit Suisse (CS) will borrow as much as 50 billion francs ($54 billion) from the Swiss National Bank liquidity facility. The troubled Swiss bank also announced public tender offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to ~3 billion francs. The announcement came a day after Credit Suisse’s top shareholder ruled out offering further financial assistance, which pushed its shares to a record low. In an effort to calm markets, the Swiss central bank and FINMA said the lender met capital requirements. Adding to concerns around the bank’s internal controls was its disclosure of a “material weakness” in its reporting procedures. (118 comments)
U.S. regulators rushed to minimize the impact of the collapse of Silicon Valley Bank, owned by SVB Financial (SIVB), on the wider financial sector, thereby easing market jitters. Depositors of the bank were able to access their funds on Monday, just days after the bank was shuttered. Additionally, the Federal Reserve made additional funding available to eligible depository institutions to avoid damaging bank runs. Meanwhile, HSBC’s (HSBC) ring-fenced subsidiary HSBC UK Bank acquired SVB’s British unit for £1. Germany’s financial regulator ordered a moratorium on SVB’s Frankfurt branch, citing risks to the fulfillment of obligations to creditors. Yesterday, SVB filed for Chapter 11 protection. (234 comments)
Market expectations have skewed firmly towards a 25-basis point rate hike by the Federal Reserve at its monetary policy meeting next week. The shift was spurred by turmoil in the financial sector and the European Central Bank’s decision to hike rates by 50 basis points. The ECB’s move came amid calls for central banks on both sides of the Atlantic to dial back on policy tightening in light of the banking crisis. Ahead of the release of the ECB’s decision, markets were pricing in a 56.8% probability of a 25-basis point hike by the Fed next week, according to the CME FedWatch Tool. The probability of no hike was at 43.2%. Now, the probability of a 25-basis point hike has grown to 76%, with 24% probability of no hike. “The larger issue of protecting the banking system and the economy takes center stage. The Fed will have to fine-tune between fighting inflation and over-tightening,” said SA contributor Fountainhead. (25 comments)
TikTok management is considering splitting itself from parent company ByteDance (BDNCE) if it can’t reach an agreement with the U.S. to address national security concerns. A TikTok divestiture may include a sale or an initial public offer, but these options would be the last resort if national security fears aren’t allayed. The Chinese government would still need to bless such a plan. However, TikTok CEO Shou Zi Chew said a sale would not resolve America’s national-security concerns over the app. Last week, Senate Intelligence Committee Chairman Mark Warner introduced bipartisan legislation aimed at policing the threat of technology from “adversarial” nations, a move lately pointed at a potential ban of TikTok. (26 comments)