"This Is It!" - Von Greyerz Warns "The Financial System Is Terminally Broken"
por Tyler Durden

Zero Hedge / 2023-03-20 11:51407
"This Is It!" - Von Greyerz Warns "The Financial System Is Terminally Broken"
Authored by Egon von Greyerz via GoldSwitzerland.com,

The financial system is terminally broken, toast, kaput!
Anyone who doesn't see what it happening will soon lose a major part of their assets either through bank failure, currency debasement or the collapse of all bubble assets like stocks, property and bonds by 75-100%. Many bonds will become worthless.

Wealth preservation in physical gold is now absolutely critical. Obviously it must be stored outside a broken financial system. More later in this article.

The solidity of the banking system is based on confidence. With the fractal banking system, highly leveraged banks only have a fraction of the money available if all depositors ask for their money back. So when confidence evaporates, so do the balance sheets of the banks and depositors realise that the whole system is just a black hole.


And this is exactly what is about to happen. 

For anyone who believes that this is just a problem with a few smaller US banks and one big one (Credit Suisse), they must think again.

RE CREDIT SUISSE SEE 'STOP PRESS' AT THE END OF THE ARTICLE.
THE BANKS ARE FALLING LIKE DOMINOS, INCLUDING CREDIT SUISSE TONIGHT
Yes, Silicon Valley Bank (16th biggest US bank) is gone after an idiotic and irresponsible  policy to invest short term customer deposits in long term US Treasuries at the bottom of the interest rate cycle. Even worse, they then valued the bonds at maturity rather than market, to avoid taking a loss. Clearly a management that didn't have a clue about risk. SVB's demise is the second biggest failure of a US bank. 

Yes, Signature Bank (29th biggest) is gone due to a run on deposits. 

And yes, First Republic Bank had to be supported by US lenders and the Fed by a $30 billion loan due to a run on deposits. But this won't stop the rot as depositors attack the next bank and the next one and the next one……….

And yes, the Swiss second largest bank Credit Suisse (CS) is terminally ill after a number of poor investments over the years combined with poor management that has come and gone virtually every year.. I wrote an important article about the coming demise of CS 2 years ago here: "ARCHEGOS & CREDIT SUISSE – TIP OF THE ICEBERG."

The situation at CS is so dire that a solution needs to be found before Monday's (March 20) opening. The bank cannot survive in its present form. [ZH: a 'solution' was found... for now]

A failure for Credit Suisse would not just rock the Swiss financial system but have severe global repercussions. A merger with UBS is one solution. But UBS had to be bailed out in 2008 and doesn't want to be weakened again by Credit Suisse without state guarantees and support from the Swiss National Bank (SNB). The SNB injected CHF50 billion into CS last week but the share price still went to a new low.



No one should believe that a state subsidised takeover of Credit Suisse by UBS will solve the problem. No, it will just be rearranging the deck chairs on the titanic and making the problem bigger rather than smaller. So rather than a lifebuoy, UBS will have a massive lead weight to carry which will guarantee its demise as the banking system collapses. And the Swiss government will take on assets which will be unrealisable. 

Still, it is likely that by the end of the present weekend a deal will be announced with UBS being offered a deal they can't refuse by taking over the good assets and the SNB/Government nurturing the bad assets of Credit Suisse in a rescue vehicle.

The SNB is of course in a mess itself, having lost $143 billion in 2022. The SNB balance sheet is bigger than Swiss GDP and consists of currency speculation and US tech stocks. This central bank is the world's biggest hedge fund and the least successful. 

Just to put a balanced view on Switzerland. It has the best political system in the world with direct democracy. It also has low Federal debt and normally no budget deficits. It is also the safest country in the world.

SWISS BANKING SYSTEM TOO BIG TO SAVE
But the Swiss banking system is very unsound, just like the rest of the world's. A central bank which is bigger than the country's GDP is extremely unsound. And a banking system which is 5x Swiss GDP makes it too big to save. 

Although the Fed and ECB are much smaller in relation to their countries' GDP than the SNB, these two central banks will soon discover that their assets of around $8 trillion each are grossly overvalued. 

With a global banking system on the verge of a systemic failure, Central Bankers and bankers have been working around the clock this weekend to temporarily avoid the inevitable collapse of the bankrupt financial system. 

BIGGEST MONEY PRINTING IN HISTORY COMING
As I pointed out above, the main Central Banks would also be bankrupt if they valued their assets honestly. But they have a wonderful source of money that they will tap to save the system. 

Yes, I am of course talking about money printing. 

We will in coming months and years see the most massive avalanche of money printing that has ever hit the world.

For anyone who believes that we are just seeing another bank run that will quickly evaporate, they will need to take a shower in ice cold Alpine water. 

What we are witnessing is not just a temporary drama that will be sorted out by "the all powerful and resourceful" central banks. 

THE DEATH OF MONEY
No, instead what we are seeing is the end phase of this financial era which started with the formation of the Fed in 1913 and in the next few years, or much sooner, will end with the death of money.

But the Death of Money doesn't just mean that the dollar (and most currencies) will make their final move to ZERO, having already declined 98% since 1971. 

Currency debasement is not the cause but the effect of the banking Cabal taking control of the money for their own benefit. As Mayer Amschel Rothschild said in the late 1700s: "Let me issue and control a nation's money and I care not who makes the laws".

Sadly, as this Cassandra (me) has written about since the beginning of the century, the Death of Money is not just all currencies going to ZERO as they have throughout history. 

No, the Death of Money means a total and final collapse of this financial system. 

Cassandra was a priestess in Greek mythology who was given the gift of predicting major events accurately but also given the curse that no one would  believe her predictions. 

No depositor must believe that the FDIC (Federal Deposit Insurance Corp) in the US or similar vehicles in other countries will save their deposits. All these organisations are massively undercapitalised and in the end it will be the governments in all countries which step in. 

We know of course, that the government has no money. They just print whatever they need. That leaves ordinary people taking the final burden of all this money printing. 

But ordinary people will have no money either. Yes a few rich people will be taxed heavily to cover bank deficits and losses. Still, that will be a drop in the ocean. Instead ordinary people will be impoverished with little income, no government handouts, no pension and money which is worthless. 

The above is sadly the cycle that all economic eras go through. The issue this time is that the problem is global and of a magnitude never seen before in history. 

Regrettably a rotten and bankrupt financial system needs to go through a cleansing period which the world will now experience. There cannot be sound growth and sound values until the current corrupt and debt infested system implodes. Only then can the world grow soundly again. 

The transition will sadly be dramatic with a lot of suffering for most people. But there is no other way. We won't just see poverty, famine but also many human tragedies. The risk of social unrest or civil war is very high plus the risk of a global war.

Central banks had of course hoped that their Digital Currencies (CBDC) would be ready to save them (but not the world) from the present debacle by totally controlling people's spending. But in my view they will be to late. And since CBDCs are just another form of Fiat money, it would just exacerbate the problem with an even more severe outcome at the end. Still, it won't prevent them from trying.

MARKET VALUE OF US BANKING ASSETS $2 TRILLION LOWER THAN BOOK VALUE
A paper issued by 4 US academics in finance, illustrates the $2 trillion black hole in the US banking system: 

"Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?"

March 13, 2023 

Erica Jiang, Gregor Matvos, Tomasz Piskorski, and Amit Seru 

CONCLUSION

"We provide a simple analysis of U.S. banks' asset exposure to a recent rise in the interest rates with implications for financial stability. The U.S. banking system's market value of assets is $2 trillion lower than suggested by their book value of assets. We show that these losses, combined with a large share of uninsured deposits at some U.S. banks can impair their stability. Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to even insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk. Overall, these calculations suggest that recent declines in bank asset values significantly increased the fragility of the US banking system to uninsured depositors runs." 

What is crucial to understand is that the $2 trillion "loss" is only due to higher interest rates. When the US economy comes under pressure, the loan books of the banks will deteriorate dramatically and bad debts increase exponentially. With total assets of US commercial banks at $23 trillion, I would be surprised if 50% is repaid or recoverable in the coming crisis. 

The above risks are just for the US financial system. The global system will be no better with the EU under massive pressure partly due to US led sanctions of Russia. Virtually every major economy in the world is in a dire position. 

Lets just look at the debt pyramid which I have discussed in many articles LINK

In 1971, when Nixon closed the gold window, global debt was $4 trillion. With gold backing no currency, this became a free for all to print unlimited amounts of money. And thus by 2000 debt had grown 25x to $100t. In 2006, when the Great Financial Crisis started, global debt was $120 trillion. By 2021 it had grown 75x from 1971 to $300 trillion. 



The red column shows global debt at $3 quadrillion sometime between 2025 and 2030. 

This assumes that the shadow banking system plus outstanding derivatives of currently probably around $2 quadrillion will need to be saved by central banks in a money printing bonanza. This will obviously lead to hyperinflation and thereafter to a depressionary implosion.

I know this sounds sensational but still a very likely scenario at the end of the biggest credit bubble in history. 

GOLD – CRITICAL WEALTH PRESERVATION 
I have been standing on a soapbox for over 20 years, warning the world about the coming financial crisis and the importance of physical gold for wealth preservation purposes. In 2002 we invested important funds into physical gold with the purpose of holding it for the foreseeable future.

Between 2002 and 2011 gold went from $300 to $1,900. Since then gold corrected and then went sideways as stocks and the asset markets surged backed by massive credit expansion. 

With gold currently around $1990, there is not much gain since 2011. Still since 2002 gold is up 7x. Due to the temporarily stronger dollar, gold's gains measured in dollars are much smaller than in Euros, Pounds or Yen. But that will soon change. 

In the final section of the article "WILL NUCLEAR WAR, DEBT COLLAPSE OR ENERGY DEPLETION FINISH THE WORLD?", I outlined the importance of owning physical gold to store it in a safe jurisdiction away from kleptocratic governments.

"2023 is likely to be the year of gold. Both fundamentally and technically gold looks like it will make major up moves this year." 

And at the end of this article, I explain the importance of how and where gold should be held:"PREPARE FOR 10 YEARS OF GLOBAL DESTRUCTION."

"So my own preference would be to own physical gold and silver that only I have direct control of and can withdraw or sell with very short notice. 

It is also important to deal with a company that can move your metals at very short notice if the security or geopolitical situation would necessitate it."

In February 2019 I wrote about what I called the Gold Maginot Line which had held for 6 years below $1,350. This is typical for gold. Having gone from $250 in 1999 to $1,900 in 2011, it then spent 8 years in a correction. At the time I forecast that the Maginot Line would soon break which it did and swiftly moved to $2,000 by August 2020. We have now had another period of consolidation since then and the next move above $2,000 and towards $3,000 is imminent. 



Just to remind ourselves what happens to your money and gold during a hyperinflationary period, here is a photo from China's hyperinflation in 1949 as people try to get their 40 grammes (just over one ounce) that they were allocated by the government. At some point in the next few years, there will be a panic in the West to buy gold at any price. 



So as I have been urging investors for over 20 years, please get your gold NOW while it is still available. 

STOP PRESS
Intense discussions are right now going on here in Switzerland between UBS, Credit Suisse, the regulator FINMA, the Swiss National Bank – SNB – and the Swiss Government. The Fed, the bank of England and the ECB are also involved. 

The latest rumour is that UBS will buy Credit Suisse for CHF900 million ($1 billion). The shares of CS closed at a market cap of CHF8 billion on Friday. The deal would clearly involve backing from the SNB and the Swiss government which would have to take on major liabilities. 

The December 2022 book value of CS was CHF42 billion, as with all banks massively overstated. 

The deal isn't done at this point, 5.30pm Swiss time, but the whole banking world knows that without a deal, there will be global contagion starting tomorrow Monday the 20th. 

Even if a provisional deal will be done by Monday's open, the financial system has now been permanently injured with an open wound which won't heal. 

The problem will just move on to the next bank, and the next and the next….

Hold on to your seats but buy gold first.
Tyler Durden Mon, 03/20/2023 - 07:20

Enviado do meu Galaxy

Failed Signature Bank Finds a Buyer
por Ellen Chang

The Street: Stock Market / 2023-03-20 12:416
The 40 branches of Signature Bank were acquired by a subsidiary of New York Community Bancorp on March 19.

Signature Bank in New York, the third bank to fail in March, was acquired by Flagstar Bank, the FDIC said on Sunday.

The New York bank was taken over by a federal regulator on March 12 after the New York State Department of Financial Services closed the bank, only two days after Silicon Valley Bank was shut down by the FDIC.

DONT MISS: UBS-Credit Suisse Merger May Lead to Massive Layoffs

Flagstar, a subsidiary of New York Community Bancorp  (NYCB) - Get Free Report, acquired the former 40 branches of Signature Bank. 

The acquisition includes the purchase of $38.4 billion of Signature Bridge Bank, N.A.'s assets, including loans of $12.9 billion purchased at a discount of $2.7 billion. 

The bridge bank's $60 billion in loans will remain in the receivership for disposition by the FDIC at a later date.

The deal did not include approximately $4 billion of deposits related to the former Signature Bank's digital banking business, the FDIC said.

The deposits from the digital banking business will be provided "directly to customers whose accounts are associated with the digital banking business," the FDIC said.

Investigations
The former former Signature Bank had total deposits of $88.6 billion and total assets of $110.4 billion as of December 31, 2022.

The FDIC received common stock of New York Community Bancorp that has a "potential value of up to $300 million."

The failure of Signature Bank to its Deposit Insurance Fund is approximately $2.5 billion, the FDIC estimates. The exact cost will be determined when the FDIC terminates the receivership. 

The FDIC had named Greg D. Carmichael as CEO of Signature Bridge Bank, N.A. He recently served as president and CEO of Fifth Third Bancorp.

Signature Bank branched out into the cryptocurrency industry unlike other banks who stayed away from the virtual currencies.

The bank's involvement with its customers in the crypto industry was being investigated by prosecutors in the U.S. before it was shut down by regulators, sources told Bloomberg.

The investigators in Washington and Manhattan from the Justice Department were looking into whether Signature Bank had looked into if its clients were conducting money laundering, the article said.

Banks are required to follow steps to determine if they know their customers, such as examining who an account holder is. They are also required to look into the types of transactions made by customers and if they resemble any kind of criminal wrongdoing.

Sources told Bloomberg that the Securities and Exchange Commission was also investigating Signature Bank. 

The collapse of Signature Bank followed the failure of Silicon Valley Bank. 

SVB's parent company, SVB Financial, filing for bankruptcy protection on March 17. The bank's assets were not included in the filing. The Chapter 11 filing is the largest bankruptcy for a bank since Washington Mutual filed in 2008.

SVB was the second-largest bank failure in U.S. history and has shaken many investors. It was the result of a bank run, caused by the firm's announcement that it failed to raise the additional capital to increase liquidity.

The bank made investments into long-dated government securities, including Treasury securities. When depositors demanded their funds, the bank sold the securities, taking a $1.8 billion loss. The Santa Clara, Calif., bank then attempted to raise $2.25 billion in capital by issuing new common and convertible preferred shares to cover the shortfall.

Depositors made a run on the bank, withdrawing their cash and transferring it into other banks.

Enviado do meu Galaxy

Swiss regulators broke the rules of the game
por Peter Garnry

Saxo News & Research - Articles, Videos and Trade Views / 2023-03-20 13:28

The takeover design of Credit Suisse over the weekend broke the rules of the game sending shock waves through bank bonds this morning. There could be lasting damage to European banks from this.
Credit Suisse takeover design sends shock waves through AT1 bonds

The Swiss government's shotgun wedding of UBS and Credit Suisse with shareholders of Credit Suisse receiving one share in UBS for 22.48 shares in Credit Suisse valuing the bank at roughly $2.8bn. While shareholders were left with something on the table the additional tier 1 (AT1) capital holders were wiped out on their outstanding notional value of CHF 16bn breaking with precedence in prior bailouts. The move also goes against the capital structure order as AT1 capital sits above equity which means that it should always be shareholders that absorb all losses before they flow to AT1 capital holders.

Markets did not like the takeover design sending AT1 bonds down as much as 17.5% at their intraday lows. In order to stem further confidence loss, EU banking regulators reiterated that common equity tier 1 (CET1) capital still takes losses before AT1 capital holders. This announcement has calmed the market with AT1 bonds rallying 8% off their lows.

The two biggest ETFs tracking CoCos (a part of the tier 1 capital structure) and all AT1 bonds

Source: Bloomberg

As we still do not know the longer term consequences of the SVB bailout, which included the full guarantee of uninsured deposits, we also do not know the longer term consequences of the Credit Suisse bailout. Last night's event could create lasting damage to the AT1 capital market and thus long-term funding and cost of capital for European banks. In any case, the risk blow to banks the past two weeks will mean that risk-taking in the system will go down and thus cost of capital will go up for the economy.

What is AT1 capital?

The AT1 bonds framework was created after the Great Financial Crisis under the new Basel III rules as a new layer of capital to function as shock absorbers in case of banking stress and failures. The figure below shows a simplified capital structure of a financial institution and here it can be seen that AT1 bonds have the highest risk after the common equity tier 1 capital holders (shareholders).

One of the key criteria for an AT1 bond is that it is a perpetual, meaning that the bond does not expire, to ensure that it is permanent capital. Some of these AT1 bonds come with equity conversion in the case a bank's leverage ratio dips below a certain threshold. These AT1 bonds are called contingent convertible bonds, or 'CoCos', and correspond to around 40% of the outstanding AT1 bonds. The AT1 market size is around $254bn with most bonds denominated with banks representing 97% of the issues and European banks representing 80% of the AT1 universe.


Source: VanEck


Source: Lazard Asset Management

One of the reasons why European banks have been the main issuer of AT1 bonds is that the return profile on common equity has been so disastrous that it has not been a viable capital source unless a bank has been willing to issue capital at a high cost of capital. AT1 bonds have functioned as a bridge and vehicle to create tier 1 capital. Investors have been keen on investing in AT1 bonds, and especially in global systemically important banks because there has been this implicit idea that governments would only allow shareholders to loss everything. The risk-reward ratio has thus been seen as quite good for AT1 bondholders. As the return chart from Lazard Asset Management shows is that the capital structure return profile has been distorted. Bank equity, as the most risky part of the capital structure, should have yielded a higher return than AT1 bonds but it did not, indicating that the European banking system is structurally unsound from an investor point of view.

For those that want to educate themselves even more on AT1 capital we can recommend these two short notes from Lazard Asset management:

Focus on the AT1 Market – Part 1

Focus on the AT1 Market – Part 2

It should be noted, that in May 2022, Fitch Ratings wrote a note about the existential crisis in Europe over AT1 bonds as European supervisors are leading discussions about a capital stack redesign with a focus on common equity tier 1 capital. In other words, the EU regulators are acknowledging that the current system is not optimal. But how to get increase the emphasis on common equity tier 1 capital when European banks' return on equity is so low relative to the cost of equity?

European banks have the highest risk

Under the Basel III framework banks' leverage ratio is defined as the capital measure (tier 1 capital) over exposure measure (risk-weighted assets). The total regulatory capital includes tier 1 (CET1 + AT1) and tier 2 capital and most be minimum 8% implying a maximum leverage of 12x, but this is under assumption of course that the risk-weighting framework is set correctly and work linearly across all risk scenarios; we would argue that it is not the case and thus the system has an implicit hidden risk.


Source: Bank for International Settlements

The whole Basel III framework is built on the layered regulatory capital and then a risk-weighted approach to the assets on the balance sheet. Government bonds have the lowest risk weighting under the current framework and it makes sense. But when you add an interest rate shock and held-to-maturity accounting, which only works under the assumption of stable liabilities, then regulators add a highly non-linear risk to the system. Because as we saw with SVB and other banks, the risk-weighting was clearly too low relative to a situation with unstable liabilities. This is the key risk in the banking system. If the wider population finds the utility value of deposits too low to other alternatives such as short-term government bonds, gold, Bitcoin, equities etc. then the banking system could easily extend its decline in aggregate deposits which will deplete banks of its cheapest funding source and potentially increase the pressure on forced asset sale.

We have updated our banking monitor with Canadian banks and also added the AT1 capital so our clients can see which banks have the most outstanding notional of AT1 capital. In addition we computed the lower bound on leverage by dividend the tier 1 capital with the total assets. This is naturally the most conservative risk measure on banks as it sets all assets to the same risk. Under this assumption it becomes quite clear that US banks are better capitalised than European and Canadian banks.



Peter Garnry
Head of Equity Strategy
Saxo Bank
Topics: Equities Central Banks Financials Credit Suisse Group Europe European Union (EU) Switzerland

Enviado do meu Galaxy

UBS Seeks Government Backstop As It Rushes To Finalize Credit Suisse Takeover Deal As Soon As Tonight

por Tyler Durden

Zero Hedge / 2023-03-18 17:00177
UBS Seeks Government Backstop As It Rushes To Finalize Credit Suisse Takeover Deal As Soon As Tonight
So much can change in just 48 hours.

Late on Thursday, just hours after the SNB had launched the first (of many) bailout attempts of Swiss banking giant Credit Suisse, Bloomberg blasted the following headline:

*UBS, CREDIT SUISSE SAID TO OPPOSE IDEA OF A FORCED COMBINATION
This lack of enthusiasm by UBS to acquire its struggling rival of course forced the Swiss National Bank to front CS a CHF50 billion credit line to hold it over for the next four days amid a furious bank run, one which we said would be woefully insufficient to restore confidence in the collapsing lender, and which we probably used up in just a few hours.

Then, late on Friday, both banks "unexpectedly" changed their minds and we got the following 180 degree U-Turn report from the FT:

*UBS IN TALKS TO ACQUIRE ALL OR PART OF CREDIT SUISSE: FT
So a deal is inevitable after all... but as always, there is a footnote one which we predicted yesterday when we said that a deal would only happen if the acquiring bank - in this case UBS - got a full central bank backstop.

bank megamerger weekend, with lots of central bank backstops https://t.co/pobOLTtFJM

— zerohedge (@zerohedge) March 17, 2023
That now appears to be the case with Bloomberg, Reuters and the WSJ all reporting that UBS is asking the Swiss government for a backstop to cover future risks if it were to buy Credit Suisse Group AG, after the Swiss National Bank and regulator Finma have told international counterparts that they regard a deal with UBS as the only option to arrest a collapse in confidence in Credit Suisse. The FT reported that deposit outflows from the bank topped CHF10bn ($10.8bn) a day late last week as fears for its health mounted.

According to the reports, UBS is discussing scenarios in which the government would take on certain legal costs and potential losses in any deal. Credit Suisse set aside SFr1.2bn in legal provisions in 2022 and warned that as yet unresolved lawsuits and regulatory probes could add another SFr1.2bn.

UBS also wants to be allowed to phase in any demands it would face under global rules on capital for the world's biggest banks.

The backroom negotiations are taking place as the largest Swiss bank is exploring an urgent acquisition of all or parts of its smaller rival at the urging of regulators to halt a crisis of confidence, one which local authorities hope will be concluded on Saturday

Under one likely scenario, the deal would involve UBS acquiring Credit Suisse to obtain its wealth and asset management units, while possibly divesting the investment banking division, which has become the laughing stock on Wall Street after being one of the most iconic groups less than two decades ago. Talks are also still ongoing on the fate of Credit Suisse's profitable Swiss universal bank.

According to the FT, the boards of the two banks are meeting this weekend as Credit Suisse's regulators in the US, the UK and Switzerland are considering the legal structure of a deal and several concessions that UBS has sought.

UBS wants to be allowed to phase in any demands it would face under global rules on capital for the world's biggest banks. Additionally, UBS has requested some form of indemnity or government agreement to cover future legal costs, one of the people said.

* * *

The time scale for agreement is fluid, according to Bloomberg which notes that the goal is for an announcement of a deal between the two banks by Sunday evening at the latest, while the Financial Times reported that a deal could emerge as soon as Saturday evening.

UBS executives had been opposed to an arranged combination with its rival because they wanted to focus on their own wealth management-centric strategy and were reluctant to take on risks related to Credit Suisse, Bloomberg reported earlier this week.  Credit Suisse had 1.2 billion Swiss francs ($1.3 billion) in legal provisions at the end of 2022 and disclosed that it saw reasonably possible losses adding another 1.2 billion francs to that total, with several lawsuits and regulatory probes outstanding, according to Bloomberg Intelligence.

Credit Suisse has been unprofitable over the course of the last decade and has racked up billions in legal losses, while also suffering a historic bank run.


As we reported yesterday, the bank run spike late last week, and FT sources said deposit outflows from the bank topped Sfr10bn ($10.8bn) a day late last week as fears for its health mounted.

A government-brokered deal would address a rout in Credit Suisse that sent shock waves across the global financial system this week when panicked investors dumped its shares and bonds following the collapse of several smaller US lenders. A liquidity backstop by the Swiss central bank this week briefly arrested the declines, but the market drama carries the risk that clients or counterparties would continue fleeing, with potential ramifications for the broader industry.

The prospective takeover reflects the sharp divergence in the two banks' fortunes. Over the past three years, UBS shares have gained about 120% while those of its smaller rival have plunged roughly 70%.

The former has a market capitalisation of $56.6bn, while Credit Suisse closed trading on Friday with a value of $8bn. In 2022, UBS generated $7.6bn of profit, whereas Credit Suisse made a $7.9bn loss, effectively wiping out the entire previous decade's earnings.

* * *

Swiss regulators told their US and UK counterparts on Friday evening that merging the two banks was "plan A" to arrest a collapse in investor confidence in Credit Suisse, one of the people said. There is no guarantee a deal, which would need to be approved by UBS shareholders, will be reached the FT warned.

Negotiators have given Credit Suisse the code name Cedar and UBS is referred to as Ulmus, according to people briefed on the matter.

The fact that the SNB and Finma favour a Swiss solution has deterred other potential bidders. Earlier today the FT reported that BlackRock had drawn up a rival approach, evaluated a number of options and talked to other potential investors, but in the end withdrew from the process.

A full merger between UBS and Credit Suisse - whose headquarters face each other across Zurich's central Paradeplatz square, would be an historic event for the nation and global finance and would create one of the biggest global systemically important financial institutions in Europe. UBS has $1.1tn total assets on its balance sheet and Credit Suisse has $575bn. However, such a large deal may prove too unwieldy to execute.

The Financial Times has previously reported that other options under consideration include breaking up Credit Suisse and raising funds via a public offering of its ringfenced Swiss division, with the wealth and asset management units being sold to UBS or other bidders.

UBS has been on high alert for an emergency rescue call from the Swiss government after investors grew wary of Credit Suisse's most recent restructuring. Last year, chief executive Ulrich Körner announced a plan to cut 9,000 jobs and spin off much of its investment bank into a new entity called First Boston, run by former board member Michael Klein.

Tyler Durden Sat, 03/18/2023 - 12:39

Enviado de Outlook para Android

Credit Suisse's Fate Rests in the Hands of These Power Players

Yahoo! Finance: Top Stories / 2023-03-18 19:22



(Bloomberg) --

Most Read from Bloomberg

A politician, an economist, and a mathematician are among the select group of power players who will determine the future of what was once Switzerland's pre-eminent financial institution.

After a crisis of investor confidence, Credit Suisse Group AG is locked in emergency talks this weekend that are likely to end in the breakup of the 166-year-old bank. Longtime rival UBS Group AG is in negotiations with regulators about which parts of the firm it may acquire.

It's a dramatic fall from grace for a titan of Switzerland's all-powerful banking industry. The people at the epicenter are a small band of figures drawn from politics and finance. Here are some of the key players:

Karin Keller-Sutter, 59, has been Switzerland's finance minister for less than three months. A member of the country's pro-business liberals, she has been part of the seven-member government since 2019 and active in politics for 30 years. Before being elected to the government, she was on the board of insurer Baloise Holding AG and president of the Swiss Retail Federation.

Urban Angehrn, born in 1965, has been leading Finma, the Swiss financial regulator, since November 2021. He worked for 14 years at Zurich Insurance and previously as head of strategy at Winterthur's asset management division. Before that, he spent 11 years in derivatives marketing at Credit Suisse First Boston and JPMorgan Chase & Co. He earned a Masters degree in physics from ETH Zurich before completing a PhD in mathematics from Harvard.

Thomas Jordan, 60, has been chairman of the Swiss National Bank since April 2012. During his time, he has led the central bank through a phase of ultra-expansive monetary-policy, with the world's lowest interest rate and currency interventions to stop the franc — a haven in times of market stress — from strengthening. The SNB started raising rates in June and ended negative rates in September. Jordan studied economics and business at the University of Bern. He has been at the SNB since 1997.

UBS's chairman knows a crisis. Colm Kelleher, who took his current role less than a year ago, was Morgan Stanley's chief financial officer during the financial crisis of 2008. The 65-year-old helped orchestrate an emergency investment from Japan's Mitsubishi UFJ Financial Group Inc. that, along with state assistance, kept the US bank afloat. He then helped oversee Morgan Stanley's investment bank as it sought to win back clients lost in the panic. He retired from the firm in 2019 and joined UBS with the goal of replicating the success of Morgan Stanley's strategy of scaling up in wealth management to win over investors.

UBS Group AG Chief Executive Officer Ralph Hamers, 56, cuts a somewhat unusual figure among top executives at Swiss banks, with his preference for open-necked shirts and business buzzwords. His arrival at UBS from Dutch lender ING Groep NV in 2020 was clouded by a legal battle over his role in a money laundering scandal. Since taking over in Zurich, he has been buoyed by robust results — though his strategy of making UBS a more digital bank was dealt a blow when he was forced to abandon his acquisition of Wealthfront, a US robo-adviser.

Credit Suisse Group AG Chairman Axel Lehmann knows both addresses on Paradeplatz well, having served as chief operating officer at UBS and president of its Swiss bank. The 63-year-old was appointed as a safer, more local pair of hands after Antonio Horta-Osorio was forced to depart following a scandal over Covid-era quarantine breaks. Lehmann has since made forceful efforts to shore up confidence in Credit Suisse — including a controversial episode late last year when he claimed that outflows of client assets from the bank had "basically stopped." The bank's subsequent admission that they hadn't saw Lehmann briefly the subject of a regulatory probe, which was later dropped.

Another ex-UBS decision-maker, Chief Executive Officer Ulrich Koerner started his second stint at Credit Suisse in 2021 as head of the asset management unit before taking over the top job from Thomas Gottstein last year. The 60-year-old has the reputation of a ruthless cost-cutter, and the bank has claimed its effort to shed jobs since its October reboot is ahead of plan. The German-Swiss citizen ran Credit Suisse's domestic bank in the early 2000s, having begun his career at McKinsey & Co. Inc.

--With assistance from Bastian Benrath.

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©2023 Bloomberg L.P.

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UBS Reportedly In Talks to Acquire Credit Suisse

por Tyler Durden

Zero Hedge / 2023-03-17 21:477
UBS Reportedly In Talks to Acquire Credit Suisse
Just a few short hours ago, Bloomberg reported that UBS and Credit Suisse were both against any merger scenario.

Citing sources close to the matter, Bloomberg said UBS would prefer to focus on its own wealth-centric standalone strategy and is reluctant to take on risks related to Credit Suisse.


Well since then things haven't gone so well.

First, at least four major banks including Societe Generale and Deutsche Bank have placed restrictions on their trades involving Credit Suisse or its securities, Reuters reports, citing five unidentified people with direct knowledge of the matter.

Another source at a major global bank, who deals directly with Credit Suisse in Asia, said their bank had started asking the Swiss lender to gross settle, a trading scenario where the counterparty demands upfront payment from Credit Suisse instead of collecting later any money the Swiss lender might owe them as a result of the trade.

Another global bank has reduced its unsecured exposure to Credit Suisse, which includes all lending with no collateral, according to a person with knowledge of the matter. The bank is still providing repurchase agreements, which is secured lending.

This likely explains why the classic counterparty-risk hedge (1Y CDS) has barely budged despite the $50 billion liquidity injection from the SNB...



And second, given the continued collapse in Credit Suisse shares today (despite the billions from the SNB... and maybe even more from the ECB)...



...it appears a deal between the two Swiss banks could be on.

The Financial Times reports that, according to multiple people briefed on the talks, UBS is in discussions to take over all or part of Credit Suisse, with the boards of Switzerland's two biggest lenders set to meet separately over the weekend to consider Europe's most consequential banking combination since the financial crisis

The Swiss National Bank and regulator Finma are orchestrating the talks in an attempt to shore up confidence in the country's banking sector.

Swiss regulators told their US and UK counterparts on Friday evening that merging the two banks was their "plan A" to arrest a collapse in confidence in Credit Suisse, a person familiar with those discussions told the FT.

UBS has a market value of $65bn (CHF60bn), while shares in Credit Suisse closed on Friday with a value of $8bn (CHF7.4bn).



Will this be bank mega-merger weekend?

*  *  *

As we detailed earlier, we knew this was the endgame more than two weeks ago when we reported that "Credit Suisse Crashes To All Time Low After Boosting Deposit Rates To Reverse Bank Run" in which we reported that after a quarter of "staggering" bank runs, the second largest Swiss bank - clearly panicking - was offering a 6.5% annual rate on new three-month deposits of $5 million or above - and a rate as high as 7% for one-year deposits - far above matched maturity Bills, and suggesting that to attract a client, the bank is forced to eat a loss.

The hope, we explained, "was that after it attracts enough new clients, the bank will then be able to quietly lower the rates and make the new accounts profitable, however as the various DeFi blow ups of 2022 showed, it never quite works out that way."

This time was no different, and as the bank run accelerated, the Swiss bank ended up getting an (interim) $50 billion rescue financing from the SNB to cover the most recent deposit run, and it will get much more before it's all said and done. To underscore this point, two days ago - in our post summarizing the SNB bailout - we said that "this is a last-ditch liquidity infusion, and all it does is prevent forced asset liquidations (a la SVB). Meanwhile it does nothing to halt the depositor flight because once confidence is gone, it rarely returns."

Again we were right, and one day after the failed bailout attempt, Bloomberg writes that while the $54 billion lifeline won by Credit Suisse on Thursday gives it a fighting chance to rebuild its business, "some clients aren't waiting around to find out how that goes." To wit:

In Asia, several ultra-wealthy clients continued to cut back their exposure amid the tumult this week.
In the Middle East, some customers asked the bank to convert cash deposits into treasury bills and bonds.
An executive at a rival European bank said they're seeing some deposits shifting from Credit Suisse, although the amount isn't yet sizable.
Such attrition, Bloomberg notes redundantly, "will make the overhaul that Chief Executive Officer Ulrich Koerner and his team are overseeing that much harder." Because, at its heart, a successful bailout of Credit Suisse means halting the record historic run. Recall, the bank saw net outflows hit 110.5 billion francs ($119 billion) in the fourth quarter...



... and despite this week's rescue, the bank run is once again picking up, setting up the bank for another bailout because unless the SNB and the Swiss government want a historic bank implosion on their hands, they now have no choice but to keep throwing good money after bad.

For the CEO, hope still lives: "We want to get back all what we lost," Koerner said at an investor conference on Tuesday. "And once we are there, we go beyond and grow the business again."

The problem is getting "there." And while the bank has consistently said it has sufficient liquidity, "it isn't yet clear what the overall flows are or whether the backstop is helping attract clients back." Actually, it's clear it is not, which begs the question: if an SNB rescue isn't enough, what else can the bank do to restore confidence?

Not much: bankers are calling round clients to reassure them, primed with talking points sent out by executives or communicated at town halls. The lender is offering deposit rates that are significantly higher than rivals to win back funds, and even that is not working.

And as Bloomberg reports today, "some ultra-wealthy families booking out of Asia accelerated their retreat from the Swiss bank this week, according to three large single family offices that collectively manage billions and multiple private bankers based across Hong Kong and Singapore."

One family office in the region is planning to cut back as much as 30% of its money parked with the embattled bank after the wealth manager was unable to assure it that non-Swiss clients would be protected in the event of a collapse, Bloomberg reports citing an unnamed person.

Some clients in the Middle East asked the bank to convert their cash deposits into fixed income securities, giving them more comfort to keep money with the firm, according to another person familiar with the matter. In Germany, a wealth manager received inquiries from Credit Suisse clients looking to shift deposits to his firm

To be sure, some clients are still optimistic:

Others are less concerned, with one adviser to several trusts saying he's recommended they keep their deposits at Credit Suisse even though they far exceed the amounts covered by the country's deposit insurance. He said he's convinced there's no risk because the Swiss government will never let the firm fail.

Then again, SVB's corporate clients were also optimistic the bank would never fail.... until it did.

The bottom line for CS: "outflows haven't reversed as of this month, though they have stabilized at much lower levels, according to the bank's annual report released Tuesday, the same day Koerner said on Bloomberg Television that the bank had seen inflows on Monday."

A day later, his bank's shares plunged after its biggest shareholder ruled out adding to its stake, unnerving investors already on edge after three regional US banks failed in a span of days.  It's not like the bank won't lie to restore confidence. Last month Reuters reported that Switzerland's financial regulator is reviewing comments by Credit Suisse Chairman Axel Lehmann made in December on outflows from the company having "stabilized", on the basis that they may have been misleading. In other words, the bank's highest official was lying on the record, just to slow down the bank run.

The support of Credit Suisse's counterparties will also be critical, and here too cracks are emerging: the biggest banks in the US have been paring down their direct exposure to Credit Suisse for months as it stumbled from one crisis to the next. Firms including JPMorgan, Bank of America and Citigroup have told regulators their exposures are now minimal. And then, earlier this week, Paris-based BNP Paribas also moved to trim its exposure telling clients that it will no longer accept so-called novations where BNP is asked to step in on derivatives contracts where Credit Suisse is a counterparty, Bloomberg reported.

And with every passing day, doubts grow. JPMorgan. analyst Kian Abouhossein wrote in a note (available to pro subscribers) that the "status quo is no longer an option," laying out three possible scenarios for Credit Suisse and saying that a takeover is the most likely. However, shortly after Bloomberg reported that "both lenders are opposed to a forced combination."

Any such move could be followed by a listing or spinoff of the Swiss unit. Other possibilities mooted in the note included the Swiss National Bank stepping in with a full deposit guarantee or Credit Suisse's entire investment bank being shuttered.

While executives insist such drastic solutions aren't needed now the backstop is in place, they are dead wrong since the deposit run is once again picking up. Meanwhile, the bank is claiming that its strategic revamp announced in October remains the core plan to turn around the bank, they say, with the bank's offer to buy back debt underlining its core strength.

"We see it as preventive liquidity so that we can carry out the transformation of Credit Suisse and continue to work well in this turbulent situation," Swiss bank head Andre Helfenstein said in an interview with national broadcaster SRF on Thursday.

It adds up to a finely balanced situation. With camera crews gathering Thursday outside of Credit Suisse's stone-clad headquarters on Zurich's moneyed Paradeplatz, CEO Koerner urged staff to stay focused.

"Effective communication is key to ensure that our clients and external stakeholders understand the strengths of the bank, our strategy and the accelerated progress we are making to create the new Credit Suisse," he said in a memo.

So far the only thing the bank has communicated clearly is that it has no clear vision of how it will emerge from the current crisis while preserving depositor confidence.

Tyler Durden Fri, 03/17/2023 - 17:34

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Fed Balance Sheet, Deposits, Hotel California & TINA

por Tyler Durden

Zero Hedge / 2023-03-17 13:5836
Fed Balance Sheet, Deposits, Hotel California & TINA
By Peter Tchir of Academy Securities

This is, broadly speaking, a follow-up to yesterday's Liquency & Solvidity piece, where we took a hard close look at what the U.S., Europe and Switzerland have done so far in response to pressures on banks.

No surprise here, but while banks borrowed a record $152 billion from the discount window, they "only" borrowed $11.9 billion from the new Bank Term Lending Program (BTLP).


I expect BTLP to get little use, because it is a bit like the Hotel California, you can check out any time you like, but you can never leave.

Using that facility means that you are replacing low cost deposits for roughly market priced funding. A strain on NIM that erodes capital – not ideal. It also means that you have long dated, low dollar price bonds, presumably long enough and in big enough size, that this method of funding is preferable to others. Not a winning combination. The discount window, is temporary and a true "stop gap" measure, so it makes sense banks use that, rather than the new BTLP.

I could be wrong on BTLP, but if I see that increase, I would be selling bank shares, because that really is a facility of last resort, as it is currently designed, and I believe users will experience a Hotel California type of existence.

Which brings us to deposits.

A consortium of banks are going to deposit $30 billion with FRC. This is interesting on many levels, and there are a lot of details that I don't know, but here are the quick takes:

FRC, from various reports, didn't have many assets eligible for BTLP, which is maybe why they needed an alternative source? So it doesn't prove my point that BTLP takedown will be low, but it doesn't refute it either.

We don't know the rate FRC is paying on the deposits. If it is a rate typical of deposits, then it might demonstrate how unappealing it is for banks to have to replace deposits with high cost funds. IF it is a rate that low, then the banks providing the deposits are foregoing significant interest (in addition to in theory taking credit risk, as the point was made that these are "unsecured" deposits). If it is a market rate, then that has some different implications.

We don't know if this provides money to buy new assets, or merely covers deposits that have been removed from FRC. New deposits, at low rates, letting them buy more assets to generate NIM would help generate equity capital for the bank and be interesting.

Lots we don't know about the deposits and the details will be important to determining the impact. The deposits, in any case, are a new and interesting twist to this period of banking weakness and are a step towards the "private solution" that I think will be needed to really get us over the hump.

Fed Balance Sheet, FOMC and TINA
The Fed balance sheet has grown, significantly, even with QT continuing.



Rate hike probabilities for the FOMC have dropped from a split between 25 & 50, to a split between 0 and 25. I'm leaning towards zero, but a lot can change between now and then (let's be honest, with current headlines and low liquidity, things can change between the time I hit send and the time you receive this in your inbox!).

There is some discussion that the Fed could suspend the current balance sheet reduction activity (or maybe it is just me musing on it). I doubt this happens, but they could mention it as a tool, during the press conference, which would be "risk-on".

So, is it back to TINA (There Is No Alternative)?

Yes, the balance sheet has grown, but using the discount window has nothing like the impact large scale asset purchases had.

Yes, the Fed is close to being done hiking, but rates are nowhere near zero, so are not the headwind they were.

I think the TINA case is weak at best. Any balance sheet growth is likely to be temporary. There are legitimate concerns that financial conditions will tighten. While the SVB depositors were saved, I'm seeing little evidence of a rush to fund and to spend money (the drumbeat of tech layoffs continues).

This is still a trader's market and it is time to be cautious on risk broadly after the strength of yesterday.

Tyler Durden Fri, 03/17/2023 - 09:36

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While Yellen Assures, Banks Run

RSSOpinion / 2023-03-16 22:511


Speaking to the Senate Finance Committee on Mar. 16, 2023, the Treasury Secretary defended the Biden administration and Federal Reserve's response to the collapse of two U.S. banks. Images: Shutterstock/Bloomberg News Composite: Mark Kelly

Janet Yellen offered more assurances Thursday that U.S. banks are safe and sound—and we doubt even the Treasury Secretary believes it. Certainly no one else does. The biggest American banks had to commit $30 billion on Thursday to rescue First Republic Bank—15 years to the day since Bear Stearns's collapse. Happy anniversary!

The San Francisco-based bank's shares have lost 70% since last Wednesday, and its credit rating has been downgraded to junk. First Republic investors and depositors haven't been soothed by the Federal Deposit Insurance Corp.'s guarantee of uninsured deposits at Silicon Valley ( SVB ) and Signature banks, or the Federal Reserve's new emergency lending facility.

More troubling, a $70 billion liquidity lifeline offered by J.P. Morgan and others over the weekend appears to have been insufficient. If First Republic's problems go deeper than liquidity, the risks in the U.S. banking system may be bigger than regulators recognized and could grow if the economy slows.

First Republic caters to the affluent in California's Bay Area, Los Angeles, Boston and New York. About two-thirds of its deposits are uninsured and thus susceptible to a run if customers lose confidence. Wealthy customers were pulling deposits even before SVB failed.

The SVB blowup accelerated the flight, and the Fed's emergency lending facility was intended to help banks ride out a run. At the same time the FDIC guarantee of uninsured SVB and Signature deposits under its "systemic risk exception" was supposed to prevent contagion by creating an implicit backstop at other banks. Fed data show banks borrowed $164.8 billion from two Fed backstop facilities in the most recent week, but the panic is still on.

One reason is that only 15% of First Republic's $212.6 billion in assets are investment securities, mostly made up of municipal bonds. By contrast, most of SVB's assets consisted of U.S. government or mortgage-backed securities, which bear a duration risk if interest rates rise, but can also easily be liquidated in a crunch.

Muni bonds have the advantage of being tax-exempt and bear a low-risk weighting for the purposes of calculating capital to meet regulatory standards. Regulators also deem muni bonds "high-quality liquid assets"—except they're really not. Most muni bonds are held by households and mutual funds and are thinly traded on the secondary market.

Muni bonds have a similar duration risk to other long-dated government securities but can't be rapidly sold to redeem deposits. The Fed's emergency lending facility also doesn't accept most muni bonds as collateral, and First Republic holds few securities that it can borrow against at the central bank's new super-duper discount window.

Most of the bank's assets consist of commercial and residential real-estate loans. "Our loan portfolio is concentrated in single family residential mortgage loans, including non-conforming, adjustable-rate, initial interest-only period and jumbo mortgages," its investor report warns, adding these may be vulnerable to defaults as interest rates rise. Uh-oh.

Defaults on commercial real-estate loans have been increasing, especially in First Republic's chief lending markets. Housing prices have crashed in California's Bay Area to near pre-pandemic levels, and tech layoffs raise another credit risk. The risk of loan losses could explain the government's rush to shore up First Republic with a capital infusion.

Like SVB, First Republic benefited from the Federal Reserve's zero-interest rates and quantitative easing, which caused deposits from its wealthy customers to soar. It used these deposits to fund loans that appeared safe at the time but now look much less so. Markets today are enforcing more discipline.

This is another illustration of how the Dodd-Frank regulatory apparatus has failed. Democrats blame the 2018 bipartisan banking reform, which freed regional banks from many burdensome regulations applied to the big banks. But First Republic's Tier 1 leverage ratio is greater than that of most big banks, though it still may not be enough to absorb losses.

The underlying problem is that the Fed's modern monetary experiment and Dodd-Frank regulation distorted bank balance sheets. Vulnerabilities are emerging as the Fed corrects its inflationary mistakes. The more the Biden Administration insists the economy and banking system are A-ok when they're manifestly not, the more markets get nervous.

To adapt Taylor Swift, banks might be okay, but they're not fine at all.

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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U.S. stocks set for wild swings as trillions in options contracts set to expire Friday

Yahoo! Finance: Top Stories / 2023-03-16 23:19



U.S. stocks could see increasingly wild swings in the coming days as option contracts tied to trillions of dollars in securities are set to expire on Friday, removing a buffer that some say has helped to keep the S&P 500 index from breaking out of a tight trading range.

Option contracts worth $2.8 trillion are set to expire during Friday's "quadruple witching" event, according to figures from Goldman Sachs Group GS, +0.93%.

"Quadruple witching," as its known, happens when equity futures and option contracts tied to individual stocks and indexes —- as well as exchange-traded funds — all expire on the same day. Some option contracts expire in the morning, while others expire in the afternoon. This typically happens four times a year, roughly once per quarter.

Days like these sometimes coincide with volatility in markets as traders scramble to cut their losses or exercise "in the money" contracts to claim their winnings.

However, a top derivatives analyst at Goldman sees the potential for stocks to see even wilder swings in the sessions to come as a rash of contracts that have helped to suppress volatility in the equity market expire.

Options expiring on Friday could "remove the 4k pinner that has kept a lid on big moves," said Scott Rubner, a managing director and top derivatives strategist at Goldman, in a note to clients obtained by MarketWatch. This could make the S&P 500 more vulnerable to a big swing in either direction.

"Either way. We are going to move next week."

Since the start of the year, the S&P 500 has traded in a narrow channel of about 400 points bounded by 3,800 on the downside, and 4,200 on the upside, according to data from FactSet.

These levels correspond with some of the most popular strike prices for options tied to the S&P 500, according to data from Rubner's note. A strike price is the level at which the holder of a contract has the opportunity — but not the obligation — to buy or sell a security, depending on the type of option one owns.

That's not a coincidence. Over the past year, trading in option contracts on the verge of expiring, known as "zero-days to expiration" or "0DTE" options, has become increasingly popular.

One result of this trend is that they have helped keep stocks in a narrow range, while fueling more intraday swings within that range, a pattern that several traders have compared to a "game of ping pong."

According to Goldman, 0DTEs represent more than 40% of average daily trading volume in contracts tied to the S&P 500.

Earlier this week, trading in 0DTEs helped keep the S&P 500 from breaking below the 3,800 level as markets reeled following the closure of three U.S. banks, according to Brent Kochuba, founder of SpotGamma, a provider of data and analytics about the option market.

Analysts says this is one reason that the Cboe Volatility Index VIX, -12.05%, otherwise known as the Vix or Wall Street volatility gauge, has remained so subdued compared with the ICE BofAML MOVE Index, a gauge of implied volatility for the Treasury market, Kochuba and others told MarketWatch.

The MOVE index awed traders earlier this week as volatility in normally placid Treasurys sent it surging to its highest level since the 2008 financial crisis. Meanwhile, the Vix VIX barely managed to break above 30, a level it last visited as recently as October.

But some believe this could change starting Friday.

To be sure, Friday isn't the only session where large slugs of option contracts are set to expire over the next week. On Wednesday, a slug of contracts tied to the Vix will expire on the same day the Federal Reserve is set to announce its latest interest rate-hike decision.

"50% of all Vix open interest expires on Wednesday. That's pretty significant," Kochuba said during an interview with MarketWatch.

The end result is that this could help the Vix "catch up" to the MOVE, something that could result in a sharp selloff in stocks, according to Alon Rosin and Sam Skinner, two equity derivatives experts at Oppenheimer.

"The bottom line is this: more volatility is likely coming to the equity market," Skinner said during a call with MarketWatch. "And the Vix is underpricing it."

Amy Wu Silverman, an equity derivatives strategist at RBC Capital Markets, expressed a similar view. In emailed comments shared with MarketWatch, she said she expects "volatility levels to remain elevated" heading into next week's Fed meeting.

Futures traders are pricing in a high likelihood that the Fed will hike its policy rate by 25 basis points. However, traders still see a roughly 20% chance that the Fed could opt to leave interest rates on hold, according to the CME's FedWatch tool.

Enclosures

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Regulators say Credit Suisse is fine so please chill

Financial Times: Markets / 2023-03-15 20:4268


The SNB and FINMA have published a "statement on market uncertainty" after Credit Suisse shares fell 24 per cent Wednesday.

TL;DR: there's no contagion between US regional banks and Switzerland's financial markets, besides bad vibes.

With our emphasis:

The Swiss National Bank SNB and the Swiss Financial Market Supervisory Authority FINMA assert that the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets. The strict capital and liquidity requirements applicable to Swiss financial institutions ensure their stability. Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.

The SNB and FINMA are pointing out in this joint statement that there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market.

Regulation in Switzerland requires all banks to maintain capital and liquidity buffers that meet or exceed the minimum requirements of the Basel standards. Furthermore, systemically important banks have to meet higher capital and liquidity requirements. This allows negative effects of major crises and shocks to be absorbed.

Credit Suisse's stock exchange value and the value of its debt securities have been particularly affected by market reactions in recent days. FINMA is in very close contact with the bank and has access to all information relevant to supervisory law. Against this background, FINMA confirms that Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks. In addition, the SNB will provide liquidity to the globally active bank if necessary. FINMA and the SNB are following developments very closely and are in close contact with the Federal Department of Finance to ensure financial stability.

Of course the real precipitating event for this sell-off was the chair of a different SNB — the Saudi National Bank — saying they would "absolutely not" be interested in providing more equity capital to CS.

But Swiss regulators will provide liquidity. If they must.

Did Credit Suisse lose deposits last year? Sure! Are they financed by an exceptionally panicky and highly concentrated depositor base, who all may or may not be in a few bank-run-coordinating group chats? Probably not!

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Pioneer Natural Resources Vs. Devon Energy: Which Is The Best Of The Permian?
Seeking Alpha: Stock Market Analysis / 2023-03-13 20:242

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Thesis
In this article I will compare, head-to-head, two big names of the Permian Basin. The winner will be based on the following metrics for both Devon Energy Corporation (NYSE:DVN) and Pioneer Natural Resources Company (NYSE:PXD).

Dividends - which company has the best shareholder return model.
Debt & Dollars - a measure of overall management performance and forward flexibility.
Dirt - a measure of the physical asset we are investing in. Whoever has the best acreage should (over the long haul) provide the best returns.
A Quick Look
Before we get started, let's take a look at each company. Both DVN and PXD have similar business models as independent oil and gas producers. Pioneer operates strictly in the Midland Basin, while Devon is slightly more diverse. Devon produces roughly 67% of its output from the Delaware Basin (the next-door neighbor to the Midland Basin, but we'll touch on that later). The rest of its production is sprinkled amongst the Eagle Ford, Anadarko, Powder River, and Williston Basins.

Both companies cash flows are derived from commodity prices. Due to the volatility this can create, both companies have created, a variable shareholder return model. Pioneer is the larger company of the two, coming in at a $48 billion market cap, compared to $35 billion at Devon.

DIRT
Ultimately when investing in an oil/gas producing entity, we must remember that the quality of property they own will be the limitation to their success. Poor quality wells will produce poor financial returns. The main focus of this discussion will compare and contrast the Midland Basin and the Delaware Basin, both of which are located in West Texas and Southern New Mexico.

Going back over the last 10 years or so, Devon and Pioneer owned property in both basins. Interestingly, each company progressively sold their acreage in the opposing basin to become focused and have developed into their current form. In 2016, Devon sold its Midland Basin property to Pioneer for $435 million. In 2021, Pioneer also swapped its basin profile away from the Delaware Basin as part of a $3 billion deal.

Midland Basin
The Midland Basin is Pioneer's heart and soul. It is fully committed to that territory and has been able to produce excellent results. The Midland Basin is located just east of the Delaware Basin. One of different physical aspects of the Midland versus the Delaware is that the Midland Basin is in the ballpark of 2,000 ft higher in elevation to the oil producing layers of the basin such as the Wolfberry or the Wolfcamp. This gives Pioneer a distinct cost advantage, having to drill through 2,000 less feet of rock to reach their product. Pioneer uses this advantage to yield one of the lowest production costs per BOE in the industry.


Depth Profile of the Midland and Delaware Basins (Search and Discovery Article #10412)

Delaware Basin
If it's easier to get to the oil products in the Midland Basin, why on earth would someone bother drilling in the Delaware Basin? Being 2,000 feet deeper isn't necessarily ALL bad. The additional rock overhead creates more pressure and thus more oil can be extracted per well. This does create the potential for higher ROIs if the wells are drilled and executed correctly.


Delaware Vs. Midland Basin Properties (Search and Discovery Article #10412)

Diversity
Devon has roughly 1/3 of its production in other basins. These basins include the Eagle Ford, Power River, Williston, and Anadarko. In the aggregate, these basins carry roughly the same margin as the Delaware. The benefit to having some diversity is some sheltering from weather risk. A winter storm or hurricane in Texas can take entire systems offline and reduce output (as was seen in Q4). By having some assets in other regions, this risk is somewhat mitigated. I categorize this as a small, rainy day, advantage for Devon.

Acreage Continuity
Another important variable when evaluating a company's acreage is the continuity of the entire property portfolio. Having large blocks of continuous property allows for longer lateral drilling and a higher ROI per well due to capital efficiency.

The industry has been pushing the envelope to reach 3-mile lateral lengths to boost the overall returns of their wells. Since hundreds of wells are drilled every year by both companies, large swaths of territory are needed to facilitate this capital efficiency push. Therefore, a company who has pockets of acreage would be disadvantaged to one who owns large blocks.


ROI Growth for 3 Mile Laterals (PXD Earnings Presentation)

The following two figures will compare the bulk of both Devon's and Pioneer's acreage. Devon certainly has solid operating pockets but cannot be truly compared to Pioneer's almost entirely continuous acreage. The pros and cons of the Delaware and Midland Basins can be called a push in my opinion. The point goes to PXD on this one for having the best opportunity to maximize its acreage.


Devon Acreage Map (DVN Earnings Presentation)


Pioneer Acreage Map (PXD Earnings Presentation)

Dividends
Devon has a stated goal of returning 50% excess free cash flow to shareholders after the base dividend is paid in the form of a variable dividend. Currently the base dividend is $0.20/quarter, or roughly 1.5% at $55/share. Beyond that, the company executes buybacks opportunistically and are not included in the 50% goal.

Conversely, Pioneer pays back 75% of free cash flow ("FCF") following the base dividend (roughly 2.2% at $200/share) and also buys back shares in addition to the dividend policy. Pioneer has been so generous to its shareholders that it has paid out over 100% of FCF in both Q3 and Q4 of 2022 (108% and 103% respectively when factoring in buybacks). This obviously cannot be sustainable for the long term without taking on debt. Because of this, I put a personal asterisk by the overall payout for Pioneer, but not to diminish that the company is truly delivering for its shareholders.

At this point, it's easy to see a clear difference in shareholder returns. Most would say Devon shouldn't even be in this discussion based on the previous two paragraphs. But we should be asking ourselves the following question.

What is Devon doing with the 25% that Pioneer is giving to their shareholders? Are they lining their pockets with cash?

The short answer is YES! Sort of, anyway.

Let us look at how Devon is spending its excess cash in 2022.

DVN spent $1.8 billion to acquire Validus.
DVN spent $865 million to acquire Rim Rock Oil and Gas.
$2.665 billion total spent between the two purchases.
Combined these acquisitions will net the company an additional output of approximately 60k BOE/day.
Acquired acreage is adjacent to existing property to allow for longer lateral wells, thereby increasing capital efficiency.
This is where the return models diverge. Pioneer will give you cash today, while Devon is earmarking some shareholder cash for inorganic growth to generate cash tomorrow. To say which is strategy is superior may entirely depend on your age and financial goals. The younger you are, the more willing you may be to leave some cash on the table to benefit you later. To decide the victor here I will go with the old tried and true motto, "Cash is King." The score is now 2-0 PXD.

Debt & Dollars
To measure the work of the management team, we must evaluate the financial condition the company is operating under. We will compare the debt and cash profiles of both companies as well as the cost of said debt on a per share basis.

Total Debt Interest Rate Interest Cost Cash Reserves
Devon $6.4 Billion 5.8% $0.14/share/quarter $1.5 Billion
Pioneer $4.9 Billion 1.6% $0.33/share/quarter $1 Billion
Pioneer has the obvious advantage in both total amount of debt and terms of that debt. An average interest rate of 1.6% is hard to compete with and in all honesty is not something that can be replicated. Devon does have a slightly better cash position, especially when considering it has the smaller market cap of the two companies.

Near-Term Maturities
Since both of these investments are aimed at cash production for their shareholders via FCF, one thing that can get in the way is a debt maturity. Over the next 3 years Devon has $1.2 billion in debt coming due, barring any refinancing activity. Conversely, Pioneer has $1.7 billion due in that same timeframe. This comes out to be fairly equivalent debt loads (Devon's is slightly less) when compared to the difference in market cap of the two companies.

Somehow, Pioneer's fantastic debt profile works against them when we look at the maturity dates. The company can either pay off the debt and take the huge hit to FCF. This will jeopardize the payout of the variable dividend. The other option is to refinance into a loan that will be at a considerably higher interest rate. For example, paying off the 2023 notes will burn $750 million that can't be returned to shareholders (and doesn't even help by saving on interest costs). At the same time, refinancing a 0.55% interest loan, into something that can only assumed to be 5% interest or more, would be just embarrassing.

It is hard to refute an average debt profile of 1.6%, and for that reason alone, this section has to be awarded to Pioneer. The score is now 3-0 PXD.


Devon Energy Debt Profile (DVN Form 10-K)


Pioneer Natural Resources Debt Profile (PXD Form 10-K)

The Risks
Both companies operate in the commodities space and thus their earnings can fluctuate wildly. Unfortunately, this is largely out of their control. In one of my previous articles, I discussed the potential near term impacts that face Devon. Pioneer is in the same business and therefore the thesis is applicable.

Both companies have done an excellent job of maintaining a low breakeven operating structure despite inflationary pressures. Breakeven is roughly $40/barrel, WTI. This level is sufficient to fund operations and CAPEX for 2023, which we have been well above so far this year.

Per the EIA, over the last 10 years, oil prices have averaged about $65/barrel. The downside risk is real however, as prices have flirted with breakeven in 3 out of the 10 years. That is why I stress the need to be patient, waiting for an entry point that protects against capital losses. At this time I believe there is adequate support to oil prices to preclude any near term fall out.

Summary
The "official" score has Pioneer Natural Resources Company for the win with a final score of 3-0. I think the overall contest is closer than the score would indicate. Here are the highlights of each discussion.

The Delaware and Midland basins have contrasting qualities between cost and oil production. Pioneer has a more continuous block of acreage allowing it to drill lateral runs that are longer and thus more capital efficient. Pioneer was awarded the point for that reason.
Pioneer has a 75% cash return model plus buybacks. Devon only returns 50% cash plus buybacks. Pioneer was awarded the point because "Cash is King." Readers should not dismiss that Devon's model allows management more flexibility for acquisitions to fund external growth. If you are not solely focused on income as your financial goal this could be useful.
Pioneer's debt levels and metrics are nothing short of phenomenal. An average interest rate of 1.6% was good for the last point in our head to head.
Both companies do an excellent job of rewarding shareholders but Pioneer takes the edge as a total package from a cash perspective. Devon Energy Corporation may be more suited for an investor looking for a combination of cash and growth as more of the profits stay internal to the company. Most importantly, investors should remember it is okay to own both companies for a blended position.

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Startups Are Worried About Paying Employees After SVB Collapse
Yahoo! Finance: Top Stories / 2023-03-10 22:2641


(Bloomberg) -- Startup founders are beginning to worry about whether they'll be able to keep paying employees following the failure of Silicon Valley Bank.

Most Read from Bloomberg

Payroll service provider Rippling notified customers on Friday that some payroll processing had stalled because SVB helped process its payments. The company, a startup itself, switched to JPMorgan Chase, but not soon enough: Paychecks were already "in flight" with SVB and have yet to be paid out — and the firm is still trying to understand what the bank's collapse on Friday will mean for them, Rippling Chief Executive Officer Parker Conrad said in a Twitter post.

Startup founder Brad Hargreaves said some firms may not be able to make payroll next week. And because boards are incredibly sensitive to employing workers they can't pay, he said, "Expect mass layoffs later today, Monday at latest."

Sarika Bajaj, the CEO of early-stage startup Refiberd, said she had been a customer of Silicon Valley Bank for three years and kept most of the company's funds there. Bajaj, who was at the Sand Hill Road branch of SVB in California on Friday, tried to make withdrawals but couldn't and is growing concerned about payroll for her and her two team members.

"I'm sure there are lots of people here with lots and lots of employees," she said. "It's not our reality, but I know it's going to be a lot of people's realities."

More than half of tech companies "keep the lion's share of their cash at SVB," said Greg Martin, founding partner of the investment firm Liquid Stock. "They all need to make payroll early next week."

Martin said he believes the bank is healthier than people think. But the worst-case scenario, he said, is "tens of thousands of people" don't get paid next week.

At least one startup was planning to do layoffs today, but the Silicon Valley Bank situation forestalled those plans because the business, which banked with SVB, no longer had the capital to pay severance, according to a person with knowledge of the matter.

Conversely, other startups were considering doing layoffs because of the SVB situation, because it's illegal to have employees without paying them, this person said. Furloughing was also under consideration, as a potential way to bring employees back on the payroll when funds are received. Startups are frantically discussing their options with lawyers, the person added.

(Updates with detail about a startup delaying layoffs in final paragraph.)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

Enclosures

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SVB Meltdown Brings Another Blow to Cash-Starved Biotech Industry
Bloomberg / 2023-03-10 22:497


Biotech companies are racing to assess the damage from the failure at SVB Financial Group, the latest issue facing many of the startups in search of cash. 

SVB, which collapsed Friday after a run on assets, plays a large role in financing early-stage life sciences and health-care companies. Venture-backed health companies account for 12% of SVB's $173 billion of deposits and 36% of $168 billion in funds held off balance sheets as of year-end.

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CEO of failed Silicon Valley Bank no longer a director at SF Fed
por Reuters

Investing.com: Stock Market News / 2023-03-10 22:42



© Reuters. FILE PHOTO: Greg Becker, President and CEO at SVB speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2022. REUTERS/Mike Blake
By Michael S. Derby

(Reuters) -The chief executive officer of failed Silicon Valley Bank, Greg Becker, is no longer on the board of directors at the Federal Reserve Bank of San Francisco.

Becker's departure was effective on Friday, a spokesperson for the Federal Reserve said. Earlier on Friday, Silicon Valley Bank (O:) was closed by regulators.

The spokesperson declined to say how Becker exited the San Francisco Fed board. Becker served as a Class A director at the San Francisco Fed, one of three finance executives representing member banks in the San Francisco Fed district.

Each regional bank is overseen by boards comprised of private citizens. In addition to having three directors to represent banks, there are six other directors who present a mix of local businesses and community interests. Three of those directors are selected by the Fed's Board of Governors in Washington, while the remainder are selected in a local process.

San

Silicon Valley Francisco Fed no longer

CEO leaves San features Silicon Valley

Francisco Fed Bank CEO on website

board

The 12 regional Federal Reserve banks are quasi-private institutions overseen by the Fed in Washington. Their respective boards watch over the banks directly and provide advice on governance as well as local economic intelligence.

Most importantly, these boards also lead the process to select new presidents when there are vacancies, although directors from firms regulated by the Fed are not allowed to participate in that process.

The directors of the Fed banks have been in the spotlight in recent years as the central bank has faced criticism that bank directors lacked racial and gender diversity and were too weighted towards the business and banking community. The Fed has been working on expanding who serves in these roles.

The boards have also created issues for the Fed in years past. The New York Fed's board was heavily dominated by bankers at the onset of the global financial crisis and even included the leader of Lehman Brothers, a firm whose failure in the fall of 2008 is widely seen as kicking off the most acute phase of the financial crisis.

In 2019, the Chicago Fed's then board chair resigned her term early as her employer faced legal trouble.

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After Silicon Valley Bank's shutdown, uninsured depositors face tense wait
por Reuters

Investing.com: Stock Market News / 2023-03-10 23:111


© Reuters. People gather outside of the Silicon Valley Bank (SVB) headquarters in Santa Clara, California, U.S. March 10, 2023. REUTERS/Nathan Frandino
By Pete Schroeder

WASHINGTON (Reuters) - Silicon Valley Bank's high level of uninsured deposits helped kick off the run that led to the bank's closing down, and now any of those depositors will need to hold their breath to see if bank regulators can recover enough to make them whole.

Friday's announcement by the Federal Deposit Insurance Corporation that the bank was closed came with few specifics on what will happen to bank customers who held more than the $250,000 per account that is guaranteed by the government.

In prior large bank failures like IndyMac and Washington Mutual, the FDIC found other firms to take on the assets and keep deposits intact. But failing that, uninsured depositors will be left with a portion of whatever funds the FDIC can raise selling off the bank's assets.

SVB Financial Group's Silicon Valley Bank had a relatively high amount of uninsured deposits as it courted tech workers and venture capital firms. The FDIC said on Friday the amount of uninsured deposits at the bank was "undetermined," likely complicated by the rush of bank customers to remove uninsured funds. But data submitted to the FDIC by the bank at the end of 2022 showed that 89% of its $175 billion in deposits were uninsured.

All insured deposits will be accessible in full no later than Monday morning, but the FDIC said uninsured depositors will get a "receivership certificate," and that future dividend payments "may be made" to pay off uninsured funds as the bank's assets are sold. Customers with uninsured deposits were told to call the FDIC.

An SVB spokeswoman referred questions to the FDIC. An FDIC spokeswoman did not respond to a request for comment.

Regulatory experts say account holders with uninsured funds are not typically individuals. Usually, accounts with such high funds are companies that need cash on hand for payroll and other expenses. But Silicon Valley Bank's relatively well-off clientele could be the exception, and the push for full repayment was already coming from some corners.

"We must make sure all deposits exceeding the FDIC $250k limit are honored," tweeted U.S. Representative Eric Swalwell, a California Democrat. "Banking is about confidence. If depositors lose confidence on the safety of their deposits over 250k then we are in trouble."

Beyond selling off the assets piecemeal, another possible move by the FDIC would be to find another firm to take on all or a portion of the assets. This move is typically preferred by the regulator as a smoother process that ensures depositors are minimally disrupted and usually kept whole. But that process can be lengthy, leaving uninsured depositors in the dark.

"This will likely be similar to the failure of IndyMac Bank in 2008," said Joseph Lynyak, a partner with Dorsey & Whitney who specializes in bank failures. "The FDIC closed that bank but had not already lined up an assuming bank. It took several weeks to find an investor."

"The FDIC is likely negotiating a similar arrangement as we speak, with the result that virtually all assets and liabilities of Silicon Valley Bank will be transferred to the assuming bank in a short period of time."

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Silvergate stock falls Thursday after bank announces voluntary 'wind down'
Yahoo! Finance: Top Stories / 2023-03-09 20:57



Silvergate Capital (SI) stock fell 41% at the open of Thursday's trading day after the bank announced it would wind down operations and liquidate its bank.

Silvergate shares are trading above $3.00, a slight improvement from the open.

Shares of its crypto-friendly peer, Signature Bank (SBNY), were also volatile Thursday morning. They were down more than 8% as of Thursday at 11:30 a.m. New York time.

Silvergate announced its voluntary liquidation and wind down of its business Wednesday after the close.

The total market capitalization for all crypto assets as measured by Coinmarketcap fell below $1 trillion early Thursday morning. It is currently valued at $997 billion, down more than 1% over the past 24 hours.

Bitcoin (BTC-USD) is changing hands below $22,000, 2% lower for the same period.

Silvergate's shutdown raises new doubts about the relationship between traditional banks and the cryptocurrency world, said one observer.

"One of the crypto industry's favorite narratives has always been that it would overwhelm traditional banks by providing superior services," said John Paul Koning, author of the financial blog Moneyness. "Well, crypto has finally overwhelmed its first bank, not because crypto was superior," he added.

Representations of virtual currency bitcoin on top of a U.S. dollar banknote are pictured through broken glass in this illustration taken June 25, 2021. REUTERS/Dado Ruvic/Illustration
But one analyst, Conor Ryder with Kaiko, said Thursday that there is still "glaring" evidence of the need for a crypto-friendly bank. "The next best contender will likely be a smaller bank raising their hand to take on the risk of crypto in search of a wave of new deposits," Kaiko's Ryder added in a research note.

Silvergate's decision to liquidate came one week after it said Silvergate faced business and regulatory challenges causing the company to weigh its "ability to continue as a going concern for the twelve months."

That notice spooked crypto-related firms using the bank such as Coinbase, Paxos, Galaxy Digital and others that chose to distance themselves from Silvergate last Thursday, hastening further withdrawals.

"The Bank's wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets," Silvergate said.

Silvergate Bank, a state-chartered bank, is jointly regulated by the Federal Reserve and the state of California. Its holding company, Silvergate Capital, is also regulated by the Federal Reserve.

California's Department of Financial Protection and Innovation is monitoring the situation according to a statement from its commissioner, Clothilde Hewlett.

The bank added that it intends to repay depositors in full and has hired financial advisors, Centerview Partners LLC, legal advisors, Cravath, Swaine & Moore LLP, and Strategic Risk Associates for "transition project management assistance."

U.S. attorney Damian Williams speaks to the media regarding the indictment of Samuel Bankman-Fried the founder of failed crypto exchange FTX in New York City, U.S., December 13, 2022. REUTERS/David 'Dee' Delgado
Silvergate became a regional bank in 1996, but it wasn't until 2014 that CEO Alan Lane chose for the company to begin servicing crypto clients like the now-bankrupt Genesis.

It carved out a niche for itself by giving banking access to a growing number of crypto startups. Those offerings evolved into the SEN, where 24/7 operating crypto depositors could make U.S. dollar transfers and loans outside traditional banking hours.

Silvergate held $1.8 billion in total deposits and $2 billion in assets at the end of its 2018 fourth quarter. By crypto's peak in 2021, its total deposits and assets had risen to $14.3 billion and $16 billion, respectively.

Following the bankruptcy of crypto exchange FTX, Silvergate's total deposits and assets fell to $6.2 billion and $11.3 billion by the end of last year's fourth quarter.

Like Silvergate, New York-based Signature Bank also attracted a growing number of crypto depositors in recent years with Signet, its own 24/7 USD transfer platform.

Now it is pulling back its crypto exposure. In a mid-quarter update, Signature showed its spot deposit balances through January and February were $826 million lower, driven by a $1.5 billion decline in digital asset deposits as part of a planned reduction announced last November.

JPMorgan's North American equity research team said in a Monday research note that Signature can "thread the needle" on cutting its exposure to the industry's firms.

David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers

Click here for the latest crypto news, updates, values, prices, and more related to Bitcoin, Ethereum, Dogecoin, DeFi and NFTs

Read the latest financial and business news from Yahoo Finance

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Tankers
VLCCs charge towards $100,000 a day
 Sam ChambersMarch 9, 20230 1,491 1 minute read
 Euronav
Tanker watchers are keeping a firm eye on the volatile VLCC markets today, with a $ 100,000-a-day fixture widely anticipated, the first time this landmark has been broken since November.

VLCC fixtures have been on a charge all week, with eco, scrubber-fitted ships fixing at figures pushing above $90,000 a day. Demand from China has been leading rates to new highs each day of the week so far.

Pareto Securities called the $100,000 figure this morning, noting in a report to clients that modern ships with scrubbers are "effectively in three-digit territory" out of the US Gulf.

VLCCs are showing a very strong upside in tonne-miles, according to commodity data platform Vortexa, which has also detected the tightness in the sector, with more laden than ballast VLCCs at present.

"Looking ahead, crude buying from China could be sustained in March as domestic demand continues to increase," Vortexa noted in a recent report. Additionally, China's crude inventories showed a draw last month, indicating increased domestic refining demand. "This could support VLCCs towards China and continue to support crude freight rates in March," Vortexa suggested.

Fearnleys described the VLCC market this week as "frenzied" while Arctic Securities said the sector is sizzling.

"VLCC spot rates are pushing higher with a notable uptick in Atlantic Basin fixture activity this week, especially out of the US Gulf region. In the Middle East market charterers are focusing on late March loadings before attention shifts to April cargoes next week," Jefferies reported in a note to clients.

A sign of the very firm market can be seen out in South Korea, where Euronav's brand new VLCC called Camus has opted to take a dirty cargo on its maiden voyage from Hyundai Samho Heavy Industries, eschewing a high paying diesel cargo as has become common on maiden voyages from Asian yards.


          


Sam Chambers
Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world's oldest newspaper, Lloyd's List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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When The Yield Curve Inverts Over 100bps "A Recession Is Already Underway Or Begins Within 8 Months"
por Tyler Durden

Zero Hedge / 2023-03-08 19:4159
When The Yield Curve Inverts Over 100bps "A Recession Is Already Underway Or Begins Within 8 Months"
Yesterday, the spread between 2- and 10-year yields rose above 1% (and in the past 24 hours yield curve has blown out another 10bps to 110bps) for the first time since 1981, when Paul Volcker was engineering hikes that broke the back of double-digit inflation at the cost of a lengthy recession and millions of unemployed workers.


A similar dynamic is unfolding now, according to Ken Griffin, the chief executive officer and founder of hedge fund giant Citadel. "We have the setup for a recession unfolding" as the Fed responds to inflation, Griffin told Bloomberg in an interview in Palm Beach.

"Every time they take the foot off the brake, or the market perceives they're taking their foot off the brake, and the job's not done, they make their work even harder," Griffin said.

What does the the historical record say?

One question history can help answer, is how long this continued deep inversion could last. Here is what DB's Jim Reid found when asking just this question:

If we look at the last 70 years of hiking cycles, we can see that the curve on average flattens from around the first hike to 12 months after. It then stabilizes for 6 months and then starts steepening.
Alternatively, if we look at what happens before a recession, on average the curve hits its most inverted around 3 months prior to a recession before seeing a substantial steepening over the next 12-18 months, especially in the first three months of the recession.


What do DB's rates strategists' think? They expect that by year-end 2023, the 2s10s will uninvert back to +45bps, so some 135bps steeper than current levels. While that sounds a huge move, Reid notes that "it's not too far out of line with what you would expect if there was a recession in H2." To be sure, investors are not currently in a rush to buy the front end though given current inflation risks, and are looking for evidence of labor market weakness or more clarity on fiscal tightening from debt ceiling negotiations before they do. However if and when it happens, the curve can steepen quite quickly if history is to be believed, Reid warns.

How about those historical cases when we saw an inversion as big as today's? Here Reid calculates that on all the previous occasions that the 2s10s has been more than -100bps inverted since data is available from the early 1940s (there are just four of these - 1969, 1979, 1980 and 1981) a recession has either been underway, or has occurred within a maximum of 8 months.

And just to highlight how rare the current inversion truly is, Reid says that there have only been 7-month end closes lower than -100bps in 80 years of available data: "so we are in rarefied air."

Tyler Durden Wed, 03/08/2023 - 13:45

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