Now an exercise in extinguishing multiple fires

Fed's Hope of A Soft Landing Dashed

BankerAdvisor's Ongoing Series of How Fintech is Making Lives Better

Remitting it Forward

Banks everywhere are ratcheting up their credit card marketing activities greatly increasing marketing expenses. Credit-card issuers are staying aggressive and shrugging off potential liquidity issues from consumers, despite rising interest rates and potential recession.  

Big Banks Keep Pushing Credit Cards to Consumers

Bank stocks are often perceived to be a harbinger of broader economic trends so BankerAdvisor wheeled around some of the big banks’ reported second quarter earnings to spot broad movements

Tea Leaves and Emerging Economic Trends

Saudia Arabia No Longer Exclusively Selling Oil in US Dollars

Implications of the Expiration of the Petrodollar Agreement

Run on digital assets leads platforms to freeze user accounts, including withdrawals. Bankruptcy looms. 

The Big Chill in Crypto

Futility Index

Firm to combine asset, wealth and consumer banking into one unit

Goldman Sachs Reorganization 

Rising interest rates should ostensibly benefit all banks taking deposits. But, while large consumer institutions benefit, higher-risk banks have been hammered down

Lending Profits Differ Greatly by Bank

Germany, Europe’s New ‘Problem Child,’ Has a Series of Self-Inflicted Issues

Is German Deindustrialization Underway?

A new monster has emerged to compete with inflation: broad banking instability, particularly for smaller and regional banks

Pick Your Poison: More Banks in Peril or Prolonged Inflation

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Ally Financial's credit challenges have intensified over the current quarter as borrowers struggled with high inflation, the consumer lender's finance chief said on Tuesday. Shares of the company fell as much as 19.3%, set for their worst day since March 2020. Consumers have been cutting back on loans amid high interest rates, with the looming economic uncertainty also upping the chances of more loan defaults. In July and August, delinquencies and net charge-offs - that is, debts unlikely to be recovered - rose about 20 and 10 basis points, respectively, in Ally's retail auto business compared with its expectations, Chief Financial Officer Russell Hutchinson told investors at a financial conference in New York. 

Ally Financial warns of 'intensifying' credit challenges, shares slump

A week’s worth of inflation data showed that price pressures have eased substantially since their meteoric rise in 2021-22. Fed officials head into their two-day policy meeting Tuesday closer to their goal of low inflation, but how much they will ease interest rates remains an open question.  “The federal funds rate has been over 5%, has been there for over a year to fight inflation. That fight is won. They need to start getting out of the way,” economist Claudia Sahm said.

The Fed has the proof it wants that inflation is slowing, but the next move is still up in the air

Shares of Silicon Valley Bank, tumbled for a second day Friday and weighed on the entire banking sector again on concern that more banks would incur heavy losses on their bond portfolios.  Concern among founders and venture capital investors spiked earlier this week after Silicon Valley Bank surprised the market by announcing late Wednesday it needed to raise $2.25 billion in stock. The shares were down another 61% in premarket trading Friday.

Silicon Valley Bank drops another 60%, weighing on the bank sector again

Bill Ackman mentioned in a Twitter thread that the government could “guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections.” Additionally, if the bank is solvent, he said the intervention would then give the bank some time to raise new capital and restore itself.  Ackman added that he didn’t see another bank “stepping in” after what the “Feds did to JPMorgan,” in reference to the banking giant’s 2008 purchase of Bear Stearns and Washington Mutual at the government’s request, and its subsequent inheritance of $13 billion in penalties from the mis-sale of bad mortgages.

‘I don’t see another bank stepping in to help.’ Bill Ackman suggests government intervention to save Silicon Valley Bank parent. 

Major stock indexes fell on Thursday as shares of banks across the nation collapsed following a stark warning from one of Silicon Valley's biggest lenders, which said it hopes to raise billions of dollars to help shore up cash during the challenging economy—adding to industry concerns stoked by the collapse of crypto bank Silvergate and the threat of rising interest rates.

Dow Plunges Over 500 Points As Bank Stocks Collapse

The U.S. cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning. The company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to data from CoinDesk. In a tweet Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the continuity of the bank and said it will follow guidance from regulators.

Stablecoin USDC breaks dollar peg after firm reveals it has $3.3 billion in SVB exposure

SVB Financial Group, decades-long focused on the venture capital industry, faced a perfect storm, but there are plenty of other banks that would face big losses if they were forced to dump securities to raise cash.  Silicon Valley Bank has failed following a run on deposits after its parent company’s share price crashed a record 60% on Thursday. The bank announced a $21 billion dollars in securities sales on Thursday, SVB said it had taken the action not only to lower its interest-rate risk but because “client cash burn has remained elevated and increased further in February, resulting in lower deposits than forecasted.” 

20 banks that are sitting on huge potential securities losses—as was SVB 

Billionaire investor Bill Ackman posted a lengthy tweet about the Silicon Valley Bank collapse Saturday. Ackman criticized the federal government's response and its lack of monitoring SVB for risk. He said the government has "about 48 hours to fix a-soon-to-be-irreversible mistake" with its handling of SVB.

Billionaire investor Bill Ackman says feds 'screwed up' handling of Silicon Valley Bank collapse, warns they have '48 hours to fix a soon-to-be-irreversible mistake'

U.S. regulators said Sunday it shut down New York-based Signature Bank, a second financial institution they shuttered after Silicon Valley Bank’s collapse. “We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” Treasury, Federal Reserve, and FDIC said in a joined statement.

Regulators close New York’s Signature Bank, citing systemic risk

Asian equities curbed yesterday’s enthusiasm driven by China’s positive policies following the National People's Congress as SVB’s collapse crushed Asian investor sentiment on financial contagion fears.

SVB Financial Contagion Fears Go Global

n a harsh blow to an already-reeling sector, Moody’s Investors Service on Monday cut its view on the entire banking system to negative from stable. The firm, part of the big three rating services, said it was making the move in light of three key failures that prompted regulators to step in Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis.

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

Signature Bank was reportedly the target of a criminal investigation prior to its downfall. Federal authorities were examining the bank's relationships with its crypto clients. The news comes as regulators are considering tougher rules for mid-sized banks following the recent collapse of Signature and two other banks. According to the Bloomberg report, the U.S. Justice Department (DOJ) is investigating whether Signature took proper measures to sniff out money laundering by its clients. The Securities and Exchange Commission (SEC) is reportedly also involved.

Report: Feds Probed Signature Bank Money Laundering Controls

‘Based on my understanding of this dynamic and what is now happening (which line up), this bank failure is a “canary in the coal mine” early-sign dynamic that will have knock-on effects in the venture world and well beyond it.’ Dalio argued that SVB’s failure was a “very classic event” in what he termed the “very classic bubble-bursting part of the short-term debt cycle.” That phase occurs when tight money aimed at curtailing credit growth and inflation leads to a “self-reinforcing” contraction in debt and credit. That means a “contagion process” that sees dominoes fall until central banks relent and create “easy money,” which then sets the stage for the next big debt problem.

Why Ray Dalio says SVB collapse is a ‘canary in the coal mine’ 

Hedge fund manager Bill Ackman is not happy that the systemically important banks (SIBs) have been chivvied into recycling the deposits they received from First Republic Bank (FRB) back into the struggling lender. “The result is that FRB default risk is now being spread to our largest banks. Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy. The SIBs would never have made this low return investment in deposits unless they were pressured to do so and without assurances that FRB deposits would be backstopped if it failed,” Ackman wrote in a tweet late Thursday. 

‘We need to stop this now.’ First Republic support is spreading financial contagion, says Ackman. 

A group of creditors for Silicon Valley Bank's parent are reportedly pushing the company to file for bankruptcy. The group, most of which bought SVB Financial Group’s bonds ahead of last weekend, now want the company to declare bankruptcy and sell off its non-bank businesses. According to the report — which cites sources familiar with the matter — the creditor group holds a substantial piece of SVB Financial's $3.4 billion face value of bonds. While regulators say the company's stock is worthless, it also owns some potentially high-value assets: its investment manager SVB Capital, which oversees $9.5 billion, and the investment bank SVB Securities and wealth-management firm SVB Private.

Creditors Want SVB Parent to File for Bankruptcy

Swiss banking giant Credit Suisse on Wednesday saw its shares fall to a new record low, pressuring the broader market and the rest of the European banking sector days after two lenders collapsed in the U.S.  Credit Suisse shares fell as much as 23%, extending the declines that seen its shares drop 75% over the last 52 weeks. On Tuesday, Credit Suisse said in its annual report that it had material weaknesses in financial controls. Credit Suisse has lost money for five straight quarters, and its wealthy clients in the fourth quarter withdrew about $100 billion from the bank.

Credit Suisse shares tumble to new record low as European banking sector reels 

The Swiss regulator FINMA announced Sunday that the so-called additional tier-one bonds, which are widely regarded as relatively risky investments, will be written to zero as part of the deal.  The move has angered Credit Suisse AT1 bondholders as their investments have seemingly been lost. Credit Suisse’s takeover deal, worth $3.2 billion, by rival Swiss bank UBS was agreed Sunday with the help of Swiss authorities.

The $17 billion wipeout of Credit Suisse bondholders has not gone down well in Europe

The New Jersey-based regional bank has a higher profile after a trio of recent bank collapses – and will likely face added regulatory scrutiny. Cross River Bank – a venture capital-backed, FDIC-insured regional bank in New Jersey that’s part financial institution and part fintech – has an increased profile in crypto circles thanks to the collapses of crypto-friendly Silvergate Bank, Silicon Valley Bank and Signature Bank in under a week. 

What Is Cross River Bank, USDC Stablecoin Issuer Circle’s New Partner?

Struggling banks kept alive by government guarantees can cause havoc. As a resutl of concerns over more bank runs like the one on Silicon Valley Bank, commentators and government officials are discussing expanding the current $250,000 cap on deposit insurance or even insuring all bank deposits. When other countries like Japan tried insuring all bank deposits, it didn’t help weak banks attract more deposits. That forced the weak banks to double down on risky investments to make money.

The dark side of insuring all bank deposits: zombie banks 

 Pacific Western Bank has raised $1.4 billion from investment firm Atlas SP Partners, the lender said on Wednesday, as the crisis-hit sector scrambles to limit the damage from the recent collapse of two mid-sized lenders.

Pacific Western Bank raises $1.4 bln, says deposits have stabilized

The deal will see First Citizens Bank purchase around $72 billion of Silicon Valley Bank assets at a discount of $16.5 billion.  A further $90 billion in securities and other assets will remain “in receivership for disposition by the FDIC.”  The U.S. Federal Deposit Insurance Corporation transferred all SVB deposits and assets into a new “bridge bank” earlier this month in an effort to protect depositors of the failed lender.

First Citizens to buy large chunk of failed Silicon Valley Bank

Raleigh-based First Citizens and the Holding family have kept a low profile for decades, but the family-owned bank has been on a mission to expand nationwide via opportunistic acquisitions. Its growth has accelerated since the 2008 financial crisis thanks in part to a series of more than 20 FDIC-assisted acquisitions of small failed banks, including California’s $1.8 billion (assets) First Regional Bank, $1.1 billion Temecula Valley Bank, also based in Southern California, and $1.8-billion Denver-based United Western Bank. At the end of 2008, First Citizens had assets of $16.7 billion. Prior to this weekend’s SVB deal, the bank’s assets stood at $109 billion.

SVB’s New Owners, The Billionaire North Carolina Family Behind First Citizens, Are Quietly Building A Banking Empire

Stocks slipped Tuesday after First Republic Bank’s earnings report reignited concerns about the broader sector. Shares of First Republic Bank tumbled more than 40% after the regional bank posted its latest quarterly results, saying late Monday that deposits dropped 40% to $104.5 billion in the first quarter but have since stabilized. First Republic will also be trimming expenses, including slashing headcount by 20% to 25% in the second quarter. Bloomberg News reported Tuesday that the bank was trying to sell as much as $100 billion of loans and securities to restructure its balance sheet.

Dow falls 300 points as First Republic slide rekindles bank worries: Live updates

Moody’s Investor Services on Friday issued downgrades for 11 regional investors after the credit agency signaled last month that it was conducting reviews of some banks following the collapse of tech-centric Silicon Valley Bank. Moody’s said strains in the way banks are managing their assets and liabilities are becoming “increasingly evident,” and are pressuring profitability. Recent events “have called into question whether some banks’ assumed high stability of deposits, and their operational nature, should be reevaluated,” the ratings firm said in its report.

Moody’s downgrades 11 regional banks, including Zions, U.S. Bank, Western Alliance

Regional banks have received merciless scrutiny since the collapse of Silicon Valley Bank on March 10. Uninsured deposits and cash levels have been weighed—and where they’re found wanting, bank stocks have been cut in half. The next worry for regional banks could be commercial real estate. Postpandemic changes in how we work and shop are leaving vacancies across the country. If a recession arrives, experts warn, large numbers of property owners could default on their loans.

These 15 Banks Have a Risky Specialty. It Isn’t a Problem—So Far.

The recent collapses of tech-friendly banks, including Silicon Valley Bank (SVB), Signature Bank, Silvergate Bank and First Republic Bank, have rightly caused a global conversation about the future of banking, and even more so, of financial services. The Federal Reserve’s autopsy on Silicon Valley Bank’s failure puts blame partially on its own doorstep, while separate regulator reports on Signature Bank’s collapse cite that lender’s “poor management.” 

Banking Failures Must be a Wake-up Call for Regulatory Modernization, Says Cross River Bank CEO

Fund managers are warning of growing problems in the $5.6tn US commercial real estate industry that could prove painful for lenders already shaken by turmoil in the banking sector.  Rising interest rates, falling prices and waning demand for office space following the pandemic had strained the commercial property market. But these troubles intensified after this year’s failures of Silicon Valley Bank, Signature Bank and First Republic raised worries about other regional banks that account for the bulk of commercial real estate loans.


US lenders warned that commercial property is ‘next shoe to drop’

Charlie Munger has warned of a brewing storm in the US commercial property market, with American banks “full of” what he said were “bad loans” as property prices fall.  The comments come as turmoil ripples through the country’s financial system, which is reckoning with a potential commercial property crash following a handful of bank failures. “A lot of real estate isn’t so good anymore,” Munger said. “We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties. There’s a lot of agony out there.


Charlie Munger: US banks are ‘full of’ bad commercial property loans

These banks have high exposure to loans secured by office properties — here’s how their stocks have performed. Owners of office buildings face declines in rental income as companies right-size their space. Banks with commercial real-estate loans secured by office buildings face difficult times as loans mature. KBW analyst Jade Rahmani estimates that close to $1 trillion in commercial real estate (CRE) loans will mature in 2023 or 2024, with loans by banks making up about half of that total.

These banks have high exposure to loans secured by office properties — here’s how their stocks have performed

The Pershing Square Capital Management CEO said in a long tweet early Thursday that First Republic Bank would not have failed if the Federal Deposit Insurance Corporation temporarily guaranteed deposits while the sector waits for a new guarantee regime to be created. “At this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows, insured and uninsured deposits are withdrawn and ‘pursuing strategic alternatives’ means an FDIC shutdown over the coming weekend,” he added. “And there is no incentive to bid until Sunday after the failure.”

‘We are running out of time to fix this problem’ — Bill Ackman’s latest warning on regional banks

Federal Reserve Chair Jerome Powell finds himself in a difficult place that no central banker wants to be: working to avert a credit crunch, which calls for looser monetary policy, while fighting high inflation, which demands the opposite. Strains in the banking industry, which followed the collapse of three midsize lenders this spring, help explain why some central bank officials are leaning toward holding interest rates steady at their meeting this week—even though the economy and inflation haven’t slowed as much as they expected.
But current and former central bankers say if stresses worsen, the Fed will face a more difficult trade off. Powell and his colleagues would have to choose between focusing on failing banks or high inflation.

Jerome Powell’s Big Problem Just Got Even More Complicated

Banking giant JPMorgan Chase and 40 other US banks are testing the Federal Reserve’s new instant payment infrastructure called FedNow. According to a new Federal Reserve press release, 41 banks and 15 service providers are wrapping up FedNow test trials ahead of an official launch of the service, which is scheduled for late July. According to the Federal Reserve, the FedNow Service aims to enable businesses and individuals to send and receive instant payments anytime.

JPMorgan Chase and 40 Other US Banks Conducting FedNow Trial Runs Ahead of the Instant Payment Service’s Launch

India’s largest private lender HDFC Bank has completed its merger with Housing Development Finance Corporation, the country’s biggest mortgage lender. The merged entity will be the world’s fourth largest bank, behind JPMogran Chase, Industrial and Commercial Bank of China and Bank of America, according to Soumya Rajan, CEO and founder of Mumbai-based Waterfield Advisors.  HDFC Bank announced in April last year that it will be acquiring its parent company Housing Development Finance Corporation, the largest home financing lender in India, in a $40 billion all-stock deal. 

India’s HDFC Bank completes $40 billion takeover of the country’s largest mortgage lender. Here’s what it means

Rising interest rates, losses on commercial real estate and heightened regulatory scrutiny will pressure regional and midsized banks, leading to a wave of mergers, sources told CNBC. Some of those pressures will be visible as regional banks disclose second-quarter results this month. Firms including Zions and KeyCorp already have warned of sinking revenues. Half the country’s banks will likely be swallowed by competitors in the next decade, according to Fitch analyst Chris Wolfe. “Some of these banks will survive by being the buyer rather than the target,” said incoming Lazard CEO Peter Orszag. “We could see over time fewer, larger regionals.”

The American banking landscape is on the cusp of a seismic shift. Expect more pain to come

A recent article was quoted as saying "that Wall Street is coming for crypto, whether early believers like it or not." Something has changed, and maybe the biggest change is that treasury managers want to use cryptocurrencies. If the customer wants it, then the big banks have to service it and there’s the rub. The big banks have stirred and incorporated digital assets, and specifically cryptocurrencies, into their remit. And then you know that cryptocurrencies are going mainstream when Standard and Poor’s (S&P) start to rate them. They don’t do that today, but they are moving that way. 

The moment you realise crypto has gone mainstream

SVB Financial Group has sued the US Federal Deposit Insurance Corporation in a bid to recover $1.9bn in cash that the regulator has kept since it took over the group’s banking subsidiary in March. SVB Financial Group, a parent holding company, filed for bankruptcy in March after Silicon Valley Bank became the ward of the FDIC following a $42bn bank run. SVB Financial said retention of the cash by the FDIC violated US bankruptcy law.


SVB Financial sues US banking regulator to recover $1.9bn

JPMorgan Chase executives warned that tougher regulations in the wake of bank failures this year would raise costs for consumers and businesses.  JPMorgan CEO Jamie Dimon said that other financial players could end up winners. “This is great news for hedge funds, private equity, private credit, Apollo, Blackstone,” Dimon said, naming two of the largest private equity players. “They’re dancing in the streets.”

Dimon says private equity giants are ‘dancing in the streets’ over tougher bank rules

Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA. The agency had placed the country’s rating on negative watch in May, citing the debt ceiling fight in Washington. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.

Fitch downgrades U.S. long-term rating to AA+ from AAA

Just a day after the Treasury Department released a $1 trillion borrowing estimate for the third quarter, questions are being raised about the extent to which foreign and domestic buyers can continue to keep up their demand for U.S. government debt. Further details about Treasury’s financing need will be released at 8:30 a.m. on Wednesday. For now, the $1 trillion estimate, the largest ever for the July-September period, has analysts concluding that the U.S. is facing a deteriorating fiscal deficit outlook and continuing pressure to borrow.

‘Eye-popping’ $1 trillion third-quarter borrowing need from U.S. Treasury raises risk of buyers’ fatigue 

Minneapolis Federal Reserve President Neel Kashkari favors getting tougher on regional banks, following a crisis earlier this year that he said may not be over. Asked during a town hall whether he agrees with proposals setting higher capital requirements for banks with more than $100 billion in assets, the central bank official said, “My own personal opinion is it doesn’t go far enough. I think it’s a step in the right direction, but I would like to go significantly further.”

Regional banks slide after Fed’s Kashkari advocates ‘significantly further’ capital regulation

Moody’s Investors Services may downgrade its credit ratings on six major U.S. banks, including U.S. Bancorp, State Street Corp., and Bank of New York Mellon Corp., and has downgraded its debt ratings on several small and mid-sized banks as part of the credit ratings agency’s rash of rating actions on U.S. banks late Monday.

Moody’s places credit ratings of 6 major U.S. banks on review for downgrade 

A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase. The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks. But another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC in an exclusive interview at the firm’s New York headquarters.

Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

U.S. banking regulators on Tuesday unveiled plans to force regional banks to issue debt to protect depositors in the event of more failures. All American banks with at least $100 billion in assets would be subject to the new requirement, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corporation.

Regulators unveil plans to force regional banks to raise debt in case of failure

The Bank of England’s losses on bonds bought to shore up the U.K. economy will be “materially higher than projected,” according to Deutsche Bank. In late July, the Bank of England estimated that it would require the U.K. Treasury to backstop £150 billion ($189 billion) of losses on its asset purchase facility.

The Bank of England is facing major losses on its bond purchases — and it’s set to get much worse

Subprime consumers are falling behind on their credit-card bills. From Generation Z and millennials to Generation X and baby boomers, credit-card delinquency rates have been trending upwards for four generations of borrowers since January 2020, reaching a new high in August, according to new data from VantageScore. Borrowers with a VantageScore between 300 and 600 across these four cohorts experienced an 8.9% delinquency rate — of 30 to 59 days — in July 2023, up from 7.49% a year earlier. Credit-card delinquency rates at smaller banks hit a record high of 7.51% in the second quarter of 2023, up from 6.01% at the same time last year, according to the Federal Reserve Bank. 

Is there a subprime credit-card crisis on the horizon? 

The collapse of Silicon Valley Bank and the US regional banking crisis that followed earlier this year had major economic and regulatory repercussions for lenders across the globe, some of which may be felt for years to come. But now that the more immediate threat of the crisis has dissipated, some clear winners have emerged. Shares of UBS (UBS) are up about 20% since it rescued Credit Suisse from collapse, and just last week the bank reported a $29 billion quarterly profit. The huge figure was almost entirely due to the discrepancy between Credit Suisse’s balance sheet value and the $3.8 billion that UBS paid to acquire the bank. JPMorgan Chase (JPM) shares, meanwhile, have gained more than 6% since it purchased First Republic Bank. 

How big banks won the banking crisis

U.S. banks collectively held more than $1.2 trillion in brokered deposits in the second quarter, according to a Wall Street Journal analysis of data from the Federal Deposit Insurance Corp. The total marked an 86% increase from a year earlier. Brokered deposits are what they sound like: A bank can go to a third-party broker such as Morgan Stanley or Fidelity to find customers to invest in the bank’s high-yielding certificates of deposit. That allows the bank to get big influxes of money at once, rather than customer by customer. Lots of banks are loading up on them—a sign of the distress that continues to afflict many lenders who now must compete for customer funds they long took for granted.  

Banks Load Up on $1.2 Trillion in Risky ‘Hot’ Deposits

Close to a third of all publicly-held, outstanding U.S. government debt is set to mature in the next 12 months, raising questions about where Treasury might go from there to finance the government’s borrowing needs. A total of $7.6 trillion will mature in the next year, approaching the level seen in early 2021. Concerns about Treasury’s increased issuance of T-bills and the potential for volatility or market disruptions emerged following the debt-ceiling fight in May, when angst over the government’s ability to pay all its bills pushed yields above 7% on debt maturing in early June. 

$7.6 trillion of publicly held U.S. government debt matures in next 12 months. What does the Treasury do next? 

The U.S. Federal Reserve launched FedNow in July, the first government real-time payment system in the U.S. The service allows banks and credit unions to transfer money for their customers instantly. Working alongside existing systems like Fedwire and FedACH, FedNow aims to improve the U.S.'s inter-bank and retail transaction infrastructure.

FedNow Has Launched As Blockchain Innovation Delivers Next-Gen Instant Payments

Even as the economy has surprised forecasters with its resilience, lenders have cut headcount or announced plans to do so, with the key exception being JPMorgan Chase. The next five largest U.S. banks cut a combined 20,000 positions so far this year, according to company filings. A key factor driving the cuts is that job-hopping in finance slowed drastically from earlier years, leaving banks with more people than they expected.

Big banks are quietly cutting thousands of employees, and more layoffs are coming

The U.S. financial services division of Chinese bank ICBC was hit by a cyberattack that reportedly affected the trade of U.S. Treasurys. ICBC, the world’s largest lender by assets, said Thursday its financial services arm experienced a ransomware attack “that resulted in disruption to certain” systems. Security expert have said ransomware from the hacking group LockBit was used to carry out the cyberattack on ICBC. 

China’s ICBC, the world’s biggest bank, hit by cyberattack that reportedly disrupted Treasury markets

Back in November, UBS chair Colm Kelleher predicted that the next financial crisis would happen in shadow banking — delightfully infuriating Apollo’s Marc Rowan, speaking at the same conference later that day. So, the Chairman of UBS was asked at the tail end of his presentation, what is the single biggest risk to financial markets? And Colm said, a blow-up in the shadow banking industry. And with that, he got off the stage.


Is private credit a systemic risk?

Federal Reserve Chair Jerome Powell joined a chorus of US officials who have argued that mounting bad commercial real estate loans will likely cause some bank failures, but don’t pose a risk to the overall system.  The central bank chief told lawmakers on the Senate Banking Committee on Thursday that the Fed is talking with lenders to make sure they are on top of potential losses. His comments repeated the assessment of Treasury Secretary Janet Yellen, who last month said there will likely be some failures, but the situation will be “manageable.”

Powell warns commercial real estate woes will lead to bank failures: ‘This is a problem that we’ll be working on for years’

Goldman Sachs Asset Management is reportedly planning a major expansion of its private credit portfolio. The Wall Street giant aims to grow that portfolio to $300 billion in five years, up from $130 billion, a senior executive told Reuters Tuesday (March 12). “It’s a huge opportunity,” said Marc Nachmann, Goldman Sachs’ global head of asset and wealth management. According to the report, Goldman has loftier goals than other banking titans. For example, Morgan Stanley is planning to double its private credit portfolio to $50 billion, while JPMorgan Chase has set aside at least $10 billion for private credit. 

Goldman Sachs Aims for $300 Billion Private Credit Portfolio

New York Community Bancorp Inc.’s stock lost more than a third of its value Wednesday in its steepest one-day drop ever, after it posted a surprise loss, built up its reserves and signaled challenges in the office-space sector with one of two troubled loans. The bank also said it would cut its dividend by more than two-thirds to build up capital to meet regulatory requirements as a larger Category IV bank with assets of $100 billion to $250 billion.  The Hicksville, N.Y.-based bank missed Wall Street’s revenue and net-interest-income estimates and reported an increase in net charge-offs.

New York Community Bancorp’s stock crushed on surprise loss, dividend cut and cost of two loans

Temenos shares were down over 6% on Friday after closing over 28% lower on Thursday.
The Swiss software company said its board of directors “fundamentally refutes” a report by short-seller Hindenburg Research. Short-seller Hindenburg Research made headlines after accusing Indian conglomerate Adani of stock manipulation and accounting fraud in early 2023.

Hindenburg’s latest short target Temenos rejects allegations as share price tumbles

The $1 billion-plus injection that New York Community Bank announced Wednesday is the latest example of private equity players coming to the need of a wounded American lender. Key to these deals is speed and discretion, according to advisors to several recent transactions and external experts. Steven Mnuchin reached out to NYCB directly to offer support amid headlines about the duress it was under, according to a person with knowledge of the matter.

Why private equity has been involved in every recent bank deal

The six largest U.S. banks saw delinquent commercial property loans nearly triple to $9.3 billion in 2023 amid high vacancy rates and increasing borrowing costs. Today, the sector is facing greater scrutiny from regulators amid growing risks to bank stability. In fact, for almost half of all U.S. banks, commercial real estate debt is the largest loan category overall. While commercial loans are more heavily concentrated in small U.S. banks, several major financial institutions have amassed significant commercial loan portfolios.

Visualizing Major U.S. Banks by Commercial Real Estate Exposure

Banks have now regained all deposits they lost following the collapse of Silicon Valley Bank. But that doesn't solve many of the problems still faced by regional lenders. The amount of deposits held by all US banks hit $17.56 trillion during the week ending March 20, according to the latest Federal Reserve data, exceeding pre-SVB levels for the first time since the California regional lender was seized on March 10, 2023.

Bank deposits are back above pre-SVB levels. Regional lenders still have problems.

In the six months following its groundbreaking launch in July 2023, FedNow has emerged as a transformative force in real-time payments, marking a significant departure from the traditional Automated Clearing House (ACH) system.  This shift signifies a pivotal moment in banking innovation, offering instantaneous transaction processing that aligns with the modern financial transaction demands.

How FedNow is Shaping Payments Since its Groundbreaking Launch

The Federal Reserve is stressing the importance of fintechs and core providers for the future expansion of its new instant payments system FedNow. The Federal Reserve won’t provide fintechs with direct access to its new instant payments system FedNow, but it’s still courting their participation in the new real-time ecosystem. 

Fintechs can help the Fed see what’s on the horizon for the new faster payment system and allow the new real-time payments services to be easier to use, said Mollie Markham, a Federal Reserve Bank of Chicago industry specialist who works with nonbanks. Fintechs can also assist the Fed in providing services that make the most of FedNow’s data-rich capabilities, she said during a conference this month.

Fed courts nonbanks for FedNow growth

The first bank failure of 2024 punctuates the discord that has brewed at Republic First for more than two years. Fulton, meanwhile, will double its Philadelphia presence through the deal. Lancaster, Pennsylvania-based Fulton Bank agreed to purchase substantially all of the assets of beleaguered Philadelphia lender Republic First Bank and assume substantially all of its deposits, the Federal Deposit Insurance Corp. said Friday. The Pennsylvania Department of Banking and Securities closed Republic First earlier in the day and appointed the FDIC as receiver.

Republic First is seized, assets sold to Fulton Bank

Private equity firms including Apollo Global, KKR, Blackstone and Brookfield are accelerating efforts to make low-risk loans, encroaching on territory dominated by banks and public debt markets. New York-based group Apollo on Thursday increased its long-term forecasts for its lending business, telling shareholders it expected to be able to originate more than $200bn a year in new loans, up from $150bn previously. This compares with $97bn issued last year including to investment grades European group Vonovia and Air France-KLM. Volumes reached a record $40bn in the first quarter of 2024, it said.


Private equity firms step up plans to edge banks out of low-risk lending

The failures of Silicon Valley Bank and First Republic Bank in 2023 caused plenty of finger-pointing at bank regulators. Many US financial institutions including SVB and First Republic were covering large portions of their liabilities with assets such as government bonds that stood to lose value if interest rates rose significantly—which is exactly what happened. As the Federal Reserve hiked interest rates, rumors swirled that the two banks might not have sufficient assets to cover all their deposits. Customers yanked their money out, causing runs at both.

US Bank Regulators Could Have Averted $9 Billion in Losses

The Consumer Financial Protection Bureau declared on Wednesday that customers of the burgeoning buy now, pay later industry have the same federal protections as users of credit cards. The agency unveiled what it called an “interpretive rule” that deemed BNPL lenders essentially the same as traditional credit card providers under the decades-old Truth in Lending Act. The BNPL market is dominated by fintech firms like Affirm, Klarna and PayPal.

CFPB says buy now, pay later firms must comply with U.S. credit card laws

“Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary stated. The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.” The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024.

Federal Reserve minutes indicate worries over lack of progress on inflation

JPMorgan Chase CEO Jamie Dimon said private credit could spark turmoil if the opaque sector of financial markets weakens. "There could be hell to pay," he said at a conference on Wednesday. "I've seen a couple of these deals that were rated by a rating agency and, I have to confess, it shocked me what they got rated. So, it reminds me a little bit of mortgages."

Jamie Dimon says there could be 'hell to pay' if the swelling private-credit market starts showing cracks

Monetary policy in advanced countries is diverging in a manner that was thought highly unlikely just a few months ago.  A major question facing many central banks around the world is no longer whether interest rate policies in advanced countries will decouple in a manner that was thought highly unlikely just a few months ago. They already have and will do so even more.  The question is the scope and size of the potential divergence, and the implications for reconciling domestic economic priorities with the avoidance of harmful exchange rate volatility.


Europe May Soon Discover the Limits of Decoupling on Rates

The Bank of Canada cut on Wednesday its main interest rate by a quarter-percentage point, becoming the first Group of Seven central bank to provide rate relief after a rapid and aggressive increase in borrowing costs to tame inflation. Canada's central bank said a cut was warranted because of increased confidence that inflation is moving closer to its 2% target. Bank of Canada Gov. Tiff Macklem said more rate cuts could be in the offing should inflation show further signs of slowing. The Bank of Canada lowered its target for the overnight rate to 4.75% from 5%, where it sat for 11 months. 

Bank of Canada Cuts Policy Rate to 4.75%, Signals More Easing Possible

The European Central Bank cut its policy rates by 25 basis points, as expected, on Thursday, its first cut in almost five years amid signs that price pressures have weakened. "Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady," the ECB's Governing Council said in a statement. The ECB is the third major central bank to lower its key policy rates, following the Swiss National Bank's move last month and the Bank of Canada's cut on Wednesday.

ECB cuts key interest rates by 25 bps even as outlook on inflation revised up

China’s central bank took new steps to shore up the country’s sputtering economy, highlighting officials’ growing anxiety about growth only days after leader Xi Jinping set out his long-term vision to transform China into a technological powerhouse to rival the U.S. The People’s Bank of China said Thursday that it cut a key interest rate and pumped the equivalent of more than $25 billion into China’s banking system. The move caught investors by surprise, as it occurred outside the usual sequence for policy shifts in the PBOC’s complex collection of interest rates and other tools.

As Growth Sputters, Beijing Tries Again to Jolt China’s Economy

Moody’s Ratings has placed the long-term debt ratings of Old National Bancorp. and several other U.S. regional banks on review for downgrade amid concerns over commercial real-estate exposure.  Peapack-Gladstone Financial. FNB, Old National Bancorp, First Merchants  and Fulton Financial. The rationale for the downgrade warning by Moody’s analysts was the same for all those lenders: “as a regional bank with a substantial concentration in commercial real estate (CRE) loans, it faces ongoing asset quality and profitability pressures as higher-for-longer interest rates heighten the longstanding risks of CRE for banks’ creditworthiness especially during cycle downturns,” said Moody’s.

Moody’s puts several U.S. regional banks on downgrade review over commercial real-estate concerns

The IMF’s second-in-command has urged the US to shrink its mounting fiscal burden, saying strong growth in the world’s largest economy gave it “ample” room to rein in spending and raise taxes. Gita Gopinath, the fund’s first deputy managing director, said it was time for advanced economies to “invest in fiscal consolidation” and address how they plan to bring debt burdens back down to pre-pandemic levels. “For the US, we see ample ground for them to reduce the size of their fiscal deficits, also given the strength of the US economy,” she told the Financial Times in an interview. The warnings come as economists and investors fear that years of fiscal profligacy by both Democrats and Republicans are storing up trouble for the US economy.


IMF warns US on ballooning fiscal burden

Regional banks around the U.S. are striking complex and costly bargains with hedge funds, hoping to insulate themselves from a replay of the turmoil that followed Silicon Valley Bank’s failure last year. Wall Street smells a payday. Ohio-based Huntington Bancshares recently entered into an arrangement to sell investors some of the risk that its borrowers won’t repay their loans. That helps the bank meet new proposed standards meant to make lenders look healthy to regulators.  The deal is known on Wall Street as a synthetic risk transfer, and it offers cash-flush, private-debt fund managers—such as Ares Management and Blackstone—an attractive investment. 

Regional Banks Want to Slim Down. Hedge Funds Smell a Bargain.

China's yuan is in the midst of a steep decline as holders of the currency eye the risk of US sanctions. The value of the yuan slumped against Russia's ruble for the fifth day in a row on Wednesday, falling to a level of 11.51 rubles. That's the cheapest the yuan has been in about a year.  Central banks, meanwhile, are looking to dump the yuan while raising their holdings of the US dollar. Nearly 20% of central bank reserve managers said they planned on raising dollar holdings over the next one to two years, while 12% said they planned on reducing yuan holdings, according to a survey from the Official Monetary and Financial Institutions Forum.

China's yuan is tumbling amid US sanctions and as central banks boost dollar holdings

Norinchukin Bank will consider investing in a range of assets as it braces for massive losses on the sale of roughly 10 trillion yen ($63 billion) in US and European sovereign bonds. Japan’s biggest agricultural bank will dispose of the foreign bonds gradually during the fiscal year ending March, a company spokesman said in an email. It expects a net loss of 1.5 trillion yen for the year, triple the previous estimate of 500 billion yen. 

https://finance.yahoo.com/news/norinchukin-eyes-assets-including-clos-014942422.html

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