Swiss raise eyebrows after wiping out Credit Suisse bondholders
International regulators and bondholders have criticised Swiss authorities for wiping out holders of additional tier 1 bonds (AT1s) in the forced rescue of Credit Suisse by UBS. AT1s, or Contingent Convertibles (CoCos), are technically supposed to rank above common equity instruments when a bank hits trouble but the Swiss banking regulator, FINMA, wrote off $17bn of AT1s allowing shareholders to gain some return. US law firm Quinn Emanuel is in talks with several Credit Suisse bondholders looking to take legal action. Bonds issued by other European lenders plunged on Monday amid concern that other countries could repeat what happened in Switzerland. Investors are now demanding higher returns to take on the debt, with yields surging from just over 11% to nearly 17% on Monday. Both the European Central Bank and the Bank of England moved to clarify the order in which shareholders and creditors should bear losses after the European banking sector saw shares plunge on Monday morning. Prices recovered by the end of the session. UBS closed 1.2% higher after falling by over 14% at one stage. Banking stocks across the FTSE 100 and FTSE 250 remain down 1.3%.
Fears remain over bank runs despite assurances
Downing Street and the Bank of England insisted on Monday that the UK banking sector “remains safe and well capitalised” after the emergency rescue deal for Credit Suisse brought turmoil to the London market. But sceptics think there may be more to come from the Credit Suisse debacle. ACY Securities chief economist Clifford Bennett said: “A full banking crisis has suddenly rushed across the horizon toward us. Not only are investors now totally spooked, but as this news spreads, some depositors in some banks across Europe and the US will be looking to withdraw their funds.” Mark Yallop, former chief executive of UBS in the UK and now chairman of the Fixed Income, Currency and Commodities Markets Standards Board, said: “Looking at what has been released about the term of the deal, it looks like an attractive transaction for UBS and its shareholders but obviously the fact that it is so attractively priced suggests that potentially there is more risk sitting on the Credit Suisse balance sheet than perhaps has been visible publicly before now.” But he stressed that the current banking woes do not remind him of the 2008 financial crash. “The world is a very different place today,” he explained.
Senior Tory MP questions impact of planned revamp of capital rules on UK SMEs
Harriett Baldwin, the chair of the House of Commons Treasury select committee, has questioned why the Bank of England would introduce Basel regulations that risk cutting lending to SMEs by 25%.
VC firms urge start-ups to diversify their banking
A group of venture capital firms in the US have urged start-ups to ensure their cash is spread out over two to three different banks with one of them being a big four institution. The advice to founders comes after the collapse of Silicon Valley Bank. Start-ups were also advised to develop a short-term investment strategy with a “duration below six months”. The investors added: “Remember the goal is to preserve capital, not generate hedge fund returns.“
Wall Street CEOs try to come up with new plan for First Republic
Shares in US bank First Republic plunged by as much as 50% again on Monday after its credit rating was cut for the second time in a week. JP Morgan was among Wall Street banks to last week club together and provide $30bn to First Republic, but this failed to arrest a slump in the bank’s shares. JP Morgan CEO Jamie Dimon was reportedly spearheading talks for a new rescue package for the troubled lender. According to CNBC, First Republic has hired an investment bank to advise it on potential options. However, a $25bn hole in its balance sheet remained a hurdle for any deal.
Signature Bank bought out for £2.2bn
The Federal Deposit Insurance Corporation (FDIC) has sold most of the assets of the failed Signature Bank to Flagstar Bank, a subsidiary of New York Community Bancorp. The FDIC said $60bn in Signature Bank's loans will remain in receivership and are expected to be sold off in time. The FDIC is also seeking a similar deal to sell off parts of SVB, according to Bloomberg.
FCA issues warning to ESG ratings agencies
Following a review of ethical investing ratings agencies, the Financial Conduct Authority has warned benchmark compilers that the poor quality of their reviews could lead to greenwashing. The City watchdog said it will dish out fines if agencies continue to provide vague sustainability targets. “High quality ESG benchmarks are important to support trust in the market for ESG products and the transition to a net zero economy,” the FCA said in a letter to agencies. “Where firms fail to consider our feedback, we will deploy our formal supervisory tools and, where appropriate, consider enforcement action.”
Warehouses rush to check nickel supplies after fraud uncovered
JPMorgan has been revealed as the owner of $1.3m in London Metal Exchange nickel contracts that turned out to be backed by bags of stones. The LME cancelled nine nickel contracts after discovering “irregularities” at a Rotterdam warehouse owned by Access World. The material was already inside the warehouse when the bank bought it several years ago, sources told Bloomberg. It’s not clear whether the bags ever contained nickel, or whether the issue is a result of error, theft or fraud. Warehouse companies were racing over the weekend to re-inspect and re-weigh thousands of tons of metal after the LME asked them to verify all the nickel currently on warrant.
UK housing market proves resilient
The average asking price of homes put up for sale climbed 0.8% to £365,357 in March compared with the previous month, according to data from property portal Rightmove. Typical first-time buyer properties with two bedrooms or fewer were leading the recovery, Rightmove said, with average asking prices are now just £500 below last year’s record. Asking prices for larger homes rose by about 1.2% but sales of top-of-the-ladder properties are 10% behind the same period in 2019. Second-stepper homes are 13% behind. Tim Bannister, Rightmove’s director of property science, comments: “While higher mortgage rates and economic headwinds raise challenges, many potential home movers who were effectively side-lined in the frenetic bidding wars of the last two years will find that a slower-paced market gives them time to plan and secure their next move.”
Amazon cuts 9,000 more workers in efficiency drive
Amazon is cutting another 9,000 jobs after laying off 18,000 in January as concerns over the economy force the company to reverse its expansion plans. Most of the cuts will come at the company’s cloud computing unit, Amazon Web Services, the video-game streaming platform Twitch, and its human resources and advertising departments. Chief executive Andy Jassy said: “Given the uncertain economy in which we reside, and the uncertainty that exists in the near future, we have chosen to be more streamlined in our costs and headcount.” The announcement takes redundancies across the global tech sector to almost 140,000 so far this year.
Lending contraction to hit UK economy
Goldman Sachs has warned that nervousness in the banking sector caused by the collapse of Silicon Valley Bank and Credit Suisse will shave 0.4% to 0.6% off UK GDP growth as banks rein in lending and financial conditions rapidly tighten. “We find that the recent drop in bank stocks, rise in financials spreads, and increase in uncertainty might tighten bank lending standards by around 10 percentage points both in the Euro area and the UK,” Goldman said. The bank now expects a 0.2% GDP hit to the UK economy compared to previous projections, meaning growth flatlines this year. Elsewhere, Susannah Streeter at Hargreaves Lansdown said: “As risk aversion grips the sector, the worry is that overall banks will become more cautious in their lending, which could be another blow for already fragile housing markets in particular. Worries are rattling investors about what repercussions a potential lending squeeze will have on the global economy.”
BoE expected to abandon rate rise
Analysts are predicting an about turn by the Bank of England this week with bankers now betting the Bank will hold rates at 4% instead of hiking them a further 0.25%. Silvia Ardagna, chief European economist at Barclays, said: “In light of elevated tensions in the US and European banking systems, we change our call and expect the Bank of England to pause next week and reassess the need for further hikes at the May meeting.” Elsewhere, Deutsche Bank has maintained its forecast for a 0.25 percentage point increase but the bank’s chief UK economist Sanjay Raja said the situation is live.
Bitcoin and bullion rally amid bank jitters
Bitcoin hit its highest level in nine months on Monday as investors rediscovered its appeal as an uncorrelated asset. After a rally over the weekend, Bitcoin breached the $28,550,00 mark in morning trading. The cryptocurrency’s correlation with the S&P 500 is now at its lowest since September 2021, after reaching its highest in 2022, according to Coin Metrics. Investors also turned to the safe haven of gold, sending it up above $2,000 having rallied more than $100 after the collapse of Silicon Valley Bank earlier this month.
Female banker wins £300,000 payout from Commerzbank
A former senior female compliance officer at Commerzbank has won a £300,684 payout after an employment tribunal agreed the German bank had discriminated against Jagruti Rajput over treatment after maternity leave.