It looks like you're new here. If you want to get involved, click one of these buttons!
The above is excerpted from a current article in The Wall Street Journal, and was edited for brevity.UBS Group AG agreed to take over its longtime rival Credit Suisse Group AG for more than $3 billion, pushed into the biggest banking deal in years by regulators eager to halt a dangerous decline in confidence in the global banking system. The deal between the twin pillars of Swiss finance is the first megamerger of systemically important global banks since the 2008 financial crisis when institutions across the banking landscape were carved up and matched with rivals, often at the behest of regulators.
The Swiss government said it would provide more than $9 billion to backstop some losses that UBS may incur by taking over Credit Suisse. The Swiss National Bank also provided more than $100 billion of liquidity to UBS to help facilitate the deal.
Swiss authorities were under pressure to make the deal happen before Asian markets opened for the week. The urgency on the part of regulators was prompted by an increasingly dire outlook at Credit Suisse, according to one of the people familiar with the matter. The bank faced as much as $10 billion in customer outflows a day last week, this person said.
The sudden collapse of Silicon Valley Bank earlier this month prompted investors globally to scour for weak spots in the financial system. Credit Suisse was already first on many lists of troubled institutions, weakened by years of self-inflicted scandals and trading losses. Swiss officials, along with regulators in the U.S., U.K. and European Union, who all oversee parts of the bank, feared it would become insolvent this week if not dealt with, and they were concerned crumbling confidence could spread to other banks.
An end to Credit Suisse’s nearly 167-year run marks one of the most significant moments in the banking world since the last financial crisis. It also represents a new global dimension of damage from a banking storm started with the sudden collapse of Silicon Valley Bank earlier this month.
Unlike Silicon Valley Bank, whose business was concentrated in a single geographic area and industry, Credit Suisse is a global player despite recent efforts to reduce its sprawl and curb riskier activities such as lending to hedge funds.
Credit Suisse had a half-trillion-dollar balance sheet and around 50,000 employees at the end of 2022, including more than 16,000 in Switzerland.
UBS has around 74,000 employees globally. It has a balance sheet roughly twice as large, at $1.1 trillion in total assets. After swallowing Credit Suisse, UBS’s balance sheet will rival Goldman Sachs Group Inc. and Deutsche Bank AG in asset size.
The above section contains excerpts from a lengthy article in The New York Times, which was heavily edited for brevity.Banks are teetering as customers yank their deposits. Markets are seesawing as investors scurry toward safety. Regulators are scrambling after years of complacency.
The sudden collapses of Silicon Valley Bank and Signature Bank — the biggest bank failures since the Great Recession — have put the precariousness of lenders in stark relief. The problem for SVB was that it held many bonds that were bought back when interest rates were low. Over the past year, the Federal Reserve has raised interest rates eight times. As rates went up, newer versions of bonds became more valuable to investors than those SVB was holding.
The bank racked up nearly $2 billion in losses. Those losses set off alarms with investors and some of the bank’s customers, who began withdrawing their money — a classic bank run was underway.
Even before SVB capsized, investors were racing to figure out which other banks might be susceptible to similar spirals. One bright red flag: large losses in a bank’s bond portfolios. These are known as unrealized losses — they turn into real losses only if the banks have to sell the assets. These unrealized losses are especially notable as a percentage of a bank’s deposits — a crucial metric, since more losses mean a greater chance of a bank struggling to repay its customers.
At the end of last year U.S. banks were facing more than $600 billion of unrealized losses because of rising rates, federal regulators estimated. Those losses had the potential to chew through more than one-third of banks’ so-called capital buffers, which are meant to protect depositors from losses. The thinner a bank’s capital buffers, the greater its customers’ risk of losing money and the more likely investors and customers are to flee.
But the $600 billion figure, which accounted for a limited set of a bank’s assets, might understate the severity of the industry’s potential losses. This week alone, two separate groups of academics released papers estimating that banks were facing at least $1.7 trillion in potential losses.
Midsize banks like SVB do not have the same regulatory oversight as the nation’s biggest banks, who, among other provisions, are subject to tougher requirements to have a certain amount of reserves in moments of crisis. But no bank is completely immune to a run.
First Republic Bank was forced to seek a lifeline this week, receiving tens of billions of dollars from other banks. On Thursday, the U.S. authorities helped organize an industry bailout of First Republic — one of the large banks that had attracted particular attention from nervous investors.
The troubles lurking in the balance sheets of small banks could have a large effect on the economy. The banks could change their lending standards in order to shore up their finances, making it harder for a person to take out a mortgage or a business to get a loan to expand.
Analysts at Goldman believe that this will have the same impact as a Fed interest rate increase of up to half a point. Economists have been debating whether the Fed should stop raising rates because of the financial turmoil, and futures markets suggest that many traders believe it could begin cutting rates before the end of the year.
On Friday, investors continued to pummel the shares of regional bank stocks. First Republic’s stock is down more than 80 percent for the year, and other regional banks like Pacific Western and Western Alliance have lost more than half their values.
Investors, in other words, are far from convinced that the crisis is over.
A few years from now you may look back and wonder why you didn’t take advantage of this volatility.Honestly, a roller coaster ride like I can't remember, ever before.
I only began investing in 2003. So maybe a bunch of you are more well versed in it all.
Never said any of that, merely pointed out as the article did that the Volcker cure for inflation wasn't all that, and had definite negative consequences. Nor can it be said that only one group of people wants lower rates. Most poor people in the U.S. have little to no savings to collect interest on, and actually have more variable-rate credit card debt that increases their burden as rates rise:https://bankrate.com/banking/savings/emergency-savings-report/#over-1-in-3But the chance for an average saver to get a safe return of 5-6% on their money will raise Maggie Thatcher from the dead, legitimize neocolonial revanchism, bring back the Cold War order, destroy unions that no longer exist, and, wait for it, throw people out of work.
Ultimately, rate cuts are economically stimulative while raising rates constricts. There needs to be consideration on both sides of the consequences. And you yourself by acknowledging labor has little power today compared to the 1970s have pointed out the reason we shouldn't perhaps be too fixated on raising rates too high.Over a third (36 percent) of people have more credit card debt than emergency savings, the highest percentage in 12 years of Bankrate asking this survey question. In comparison, 22 percent of people had more credit card debt in January 2022, while 28 percent of people had more credit card debt in January 2020, before COVID-19 began to affect the U.S.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
