“Pax Volckeriana” is over
Bank stocks had their worst day in almost three years, thanks largely to SVB. The KBW Bank Index, which includes regional lenders, plunged 7.7%.
Silicon Valley Bank plummeted 60%, erasing nearly $10 billion in market value. CEO Greg Becker held a 10-minute call advising clients to “stay calm.” They didn’t.
March 10
By mid-morning, Silicon Valley Bank was closed by the regulators. The second-biggest bank failure in US history
Helg
March 13
SVB’s depositors were rescued, with the costs to be borne by depositors in other banks through higher deposit insurance premiums; its shareholders were wiped out and management fired.
Once trading opened, the turmoil spread, with First Republic Bank shares plummeting a record 62%
March 14
By the close, there was a new headline: Credit Suisse Group AG saying it had identified material weaknesses in its financial reporting.
March 15
Saudi National Bank — an anchor investor in Credit Suisse’s capital raise — said it would “absolutely” not provide more assistance to the lender. The bank is one of the world’s most powerful and inter-connected institutions, so it seemed implausible that it could be allowed to fail.
The evening in New York brought news that the Swiss National Bank was prepared to lend $54 billion.
March 16
The focus shifted to First Republic Bank in the US. Yet another selloff at the open meant that its shares were down 83% in two weeks.
From that position, they had regained 65% by the close as details of its rescue package steadily came out. Again, the government avoided using taxpayers’ money, instead persuading a group of 12 large banks to put $30 billion between them into deposits at First Republic.
Using a simple measure of subtracting the headline rate of inflation from the fed funds target to give a crude “real fed funds” rate, we see a record low a year ago. It remains negative.
Taking the metric of a share price’s multiple of sales, the S&P 500 is still as expensive as at its peak before the bursting of the dot-com bubble in 2000:
John Authers and Isabelle Lee Bloomberg 17 mars 2023
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