Wall Street points to another session with tailwinds. Green predominates in futures when there is less than an hour left for the opening of the US stock market in which regional banking is emerging as one of the great protagonists. In this sense, entities such as Pacwest or Western Alliance scored rebounds of 6% and 2.8% that would confirm continuity to yesterday’s session. In the case of the second, the increases take place after announcing an increase in its volume of deposits in the last week despite being designated as one of the next banks that could be intervened.
Something more moderate is the behavior of Comerica (+2.42%), First Horizon (+1.94%), KeyCorp, which registered a modest rise of 0.88% or Zions Bancorp (+0.57%). The upturns come after it emerged that Warren Buffett dumped his stake in US Bancorp and Bank of New York Mellon during the first quarter of the year. On the contrary, he has decided to bet on Capital One, dedicated to issuing credit cards.
The movement goes against the one executed by Michael Burry, who rose to fame for betting against the US real estate market before 2008. Through Scion Asset Management, Burry has raised positions in several regional banks, including the aforementioned Western Alliance, Pacwest Bancorp or the bankrupt First Republic Bank. He also includes Wells Fargo.
The optimism in the stock markets occurs while the US Congress negotiates an agreement to raise the debt ceiling ‘in extremis’, which currently amounts to 31.5 trillion dollars. Despite the fact that Tuesday’s meeting ended without an agreement, both Republicans and Democrats have assured that they are closer to reaching an understanding, encouraging investors.
An ‘unpredictable’ fall
The former directors of the US banks Silicon Valley, Signature and First Republic did not intone today the mea culpa for the fall of these first two institutions and the rescue of the third, and they attributed what happened to a series of events “unprecedented, impossible to foresee” . The House Financial Services Committee named former Silicon Valley Bank (SVB) and First Republic Bank CEOs Greg Becker and Michael Roffler, and Signature Bank co-founder and former Chairman Scott, in the witness box. Shay.
“The SVB’s downfall was triggered by an unprecedented series of events. We took risk management seriously and were receptive to the various regulators that controlled the SVB over time,” Becker said. SVB, specializing in emerging technology companies, had invested the excess capacity achieved during the Covid-19 crisis in long-term Treasury Bonds, assets that were affected by the rise in interest rates sponsored by the Federal Reserve .
“In 2020 and until the end of 2021, the message from the Federal Reserve is that interest rates were going to stay low and that the same inflation that was beginning to bubble was only transitory. While the SVB was going, many other banks invested in its portfolio of securities”, pointed out its ex-director. Becker criticized the fact that in early 2022 the Federal Reserve launched a series of rate hikes that led to the “steepest increase in 40 years in a 12-month period.”
The SVB suffered a massive run on deposits after being forced to sell assets for liquidity coverage needs. After its debacle, the authorities also intervened the regional bank Signature, dragged into the investor panic. “For the last day of March 9, 42 billion dollars in deposits were withdrawn in ten hours, approximately one million per second. This was unprecedented. I do not think that neither we nor any other bank could have exceeded that amount of deposit outflows in such a short time,” he said.
Becker stressed that although as a former manager he must accept the result of what happened, both the regulators and the SVB management did “the best they could”. More direct were the former heads of the Signature and First Republic banks when it came to not taking charge of a situation that ended up also hitting European banks hard for fear of contagion.
“No one at First Republic could have foreseen the collapse of SVB and Signature, the speed at which it happened and the catastrophic effect this had on the banking industry. As of March 10, First Republic was doing business as usual,” he said. Roffler. The former director recalled that 100,000 million dollars in deposits were withdrawn from his bank: “You cannot predict that something like this will happen. The contagion worsened very quickly and panic is very difficult to control,” he said.
Shay, in turn, defended that his bank, Signature, was “solvent” and had a solid plan to continue operating. “I think I exercised a responsible role,” he added before the Lower House, noting that although he did not agree with the decision of the regulators to intervene in that entity, he recognizes “the important role that they play in the financial system.” As Becker had affirmed the day before before the Senate Banking Committee, none of the three directors openly committed this Wednesday to return the bonuses received hours before the bankruptcy.