Market Update
Movers: Children's Place, First Republic, FedEx, Signet Jewelers
Scott Peters
17 Mar, 2023
New York City
In Friday's trading, size of the bank did not matter and large and mid-sized banks declined amid lingering concerns about the health of the U.S. banking system.
JPMorgan Chase, Wells Fargo, Bank of America, PNC Bank, US Bancorp and Truist financial Corp declined between 3% and 7%.
U.S. banks are sitting on $620 billion of unrecognized losses as of the end of 2022, reflecting a 28% loss of unrealized equity capital in the banking system.
Moreover, in the first quarter of 2023, the yields on Treasury bonds have risen, generating additional losses for banks of all sizes holding long and short-dated U.S. Treasury securities.
First Republic Bank declined 23.7% to $26.16 despite 11 largest banks pledged to deposit $30 billion in the embattled bank in a show of support and prevent a run on the bank.
Western Alliance Bancorp dropped 18% to $30.28, Zions Bancorporation fell 5.5% to $30.39 and KeyCorp declined 6.6% to $11.47.
FedEx Corp increased 7.8% to $220.24 after the parcel delivery company revised higher its fiscal year outlook.
Revenue in the fiscal third quarter ending in February declined to $22.2 billion from $23.6 billion and net income fell to $771 million from $1.1 billion and diluted earnings per share dropped to $3.05 from $4.20 a year ago.
The parcel delivery company completed a repurchase of 9.2 million shares in the fiscal third quarter.
The company lifted its fiscal year 2023 diluted earnings per share forecast in the range of $13.80 to $14.40 before the mark-to-market retirement plans accounting adjustments, compared to the prior forecast of $12.50 to $13.50 a share.
The company estimated fiscal year capital spending of $5.9 billion.
Ballard Power Systems fell 2.4% to $5.01 after the Vancouver, Canada based company reported a sharp decline in revenue.
Revenue in the fourth quarter declined to $20.5 million from $36.7 million and net loss from continuing operations shrank to $34.4 million from $43.8 million and diluted loss per share fell to 12 cents from 15 cents a year ago.
The fuel cell power system maker said full-year revenue in the full-year 2022 declined to $83.8 million and $104.5 million and net loss per continuing operations increased to $173.5 million from $114.4 million a year ago.
The Children's Place Inc decreased 0.7% to $38.35 after the specialty retailer reported a decline in revenue and swung to a loss in the final quarter.
Revenue in the fourth quarter ending in January declined 10.2% to $456.1 million from $507.8 million a year ago.
The retailer swung to a loss of $50.5 million from a profit of $39.0 million and diluted earnings per share was ($4.10) from $2.68 a year ago.
In the full-year 2022 revenue dropped 10.8% to $1.71 billion compared to $1.92 billion in the previous year.
Net loss in the year was $1.1 million compared to a profit of $187.2 million and diluted earnings per share was ($0.09) compared to $12.59 in the previous year.
The retailer ended the quarter with 613 stores and square footage of 2.9 million, a decrease of 8.3% compared to the prior year.
The company permanently closed 59 stores in fiscal 2022 and permanently closed 586 stores, since the announcement of its optimization plan in 2013
Signet Jewelers Ltd fell 3.6% to $72.85 after the parent of Zales and Kay Jewelers reported a decline in sales in the holiday quarter.
Revenue in the fourth quarter ending in January declined 5.2% to $2.66 billion from $2.81 billion and net income fell to $268.7 million from $305.7 million a year ago.
Diluted earnings per share in the period increased to $5.02 from $4.91 in the previous year.
Same store sales declined 9.15% from the previous year but rose 16.4% from the comparable period in fiscal year 2020.
Total sales in the fiscal year 2023 decreased 0.2% to $7.8 billion and net income dropped to 342.2 million from 735.4 million and diluted earnings per share fell to $6.64 from $12.22 a year ago.
Same store sales in the year fell 6.1% from the previous year but rose 18.1% from the fiscal year 2020.
Large and Regional Banks Selloff Drives Market Indexes Down On Wall Street
Barry Adams
17 Mar, 2023
New York City
Stocks turned lower on Friday and investors digested the latest move by big banks to shore up confidence in regional banks.
The largest 11 banks on Thursday pledged to deposit $30 billion for the next 120 days only with First Republic Bank, the move was partly driven by self preservation.
Big bank's move was orchestrated by the FDIC, Federal Reserve, U.S. Treasury and Office of Comptroller in an effort to revive the flagging support and prevent a run on the bank before it happens and avoid the perception of a government bailout.
Despite the announcement, First Republic Bank plunged 20% after investors looked for details on how and how much interest rate the bank will pay on these new deposits.
The joint statement from the eleven banks is short on details.
First Republic Bank said in a filing with the Securities and Exchange Commission "on March 9, 2023, the bank has also increased short-term borrowings from the Federal Home Loan Bank by $10 billion at a rate of 5.09%."
In Friday's trading, size of the bank did not matter and large and mid-sized banks declined amid lingering concerns about the health of the U.S. banking system.
JPMorgan Chase, Wells Fargo, Bank of America, PNC Bank, US Bancorp and Truist financial Corp declined between 3% and 7%.
U.S. banks are sitting on $620 billion of unrecognized losses as of the end of 2022, reflecting a 28% loss of unrealized equity capital in the banking system.
Moreover, in the first quarter of 2023, the yields on Treasury bonds have risen, generating additional losses for banks of all sizes holding long and short-dated U.S. Treasury securities.
If the Federal Funds rates are increased to 6%, total unrealized equity capital loss across all banks could rise to 50%, effectively endangering the entire U.S. banking system.
The rapid collapse of Silicon Valley Bank is raising questions about how prepared banks are in facing swift departure of bank deposits in the world of online banking.
Silicon Valley Bank lost 25% or $42 billion of deposits in less than eight hours, after a bank run was started by the venture capitalists community.
Indexes & Yields
The S&P 500 index decreased 1.2% to 3,910.39 and the Nasdaq Composite index dropped 1% to 11,593.23.
The yield on 2-year Treasury notes inched lower to 3.96%, 10-year Treasury notes to 3.40% and 30-year Treasury bonds dropped to 3.60%.
Crude oil price for immediate month delivery decreased $2.30 to $66.93 a barrel and natural gas price fell 15 cents to $2.35 a thermal unit.
U.S. Stock Movers
First Republic Bank declined 23.7% to $26.16 despite 11 largest banks pledged to deposit $30 billion in the embattled bank in a show of support and prevent a run on the bank.
Western Alliance Bancorp dropped 18% to $30.28, Zions Bancorporation fell 5.5% to $30.39 and KeyCorp declined 6.6% to $11.47.
FedEx Corp increased 7.8% to $220.24 after the parcel delivery company revised higher its fiscal year outlook.
Revenue in the quarter ended in February declined to $22.2 billion from $23.6 billion and net income fell to $771 million from $1.1 billion and diluted earnings per share dropped to $3.05 from $4.20 a year ago.
The parcel delivery company completed a repurchase of 9.2 million shares in the fiscal third quarter.
The company lifted its fiscal year 2023 diluted earnings per share forecast in the range of $13.80 to $14.40 before the mark-to-market retirement plans accounting adjustments, compared to the prior forecast of $12.50 to $13.50 a share.
The company estimated fiscal year capital spending of $5.9 billion.
11 Big Banks to Temporarily Deposit $30 Billion In First Republic Bank
Barry Adams
16 Mar, 2023
New York City
Benchmark indexes advanced nearly 2% after a consortium of large banks announced a plan to deposit as much as $30 billion in First Republic Bank.
The surprising announcement bolstered market sentiment and regional banks rebounded.
The move appears to be orchestrated by the Federal Reserve and banking industry regulators to show the public a vote of confidence in the financial system.
But the surprise move also highlighted the fragile nature of the banking system and large banks were driven by the need to shore up confidence in the banking system so that wider bank runs do not arrive at their doors.
"The bank will receive uninsured deposits totaling $30 billion on March 16, 2023 from Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist, and U.S. Bank," First Republic said in a filing with the SEC today.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo will deposit about $5 billion each and Goldman Sachs and Morgan Stanley about $2.5 billion each and remaining banks will park $1 billion each.
Despite the show of support and industry solidarity, bank stock traded volatile.
Regulators are concerned that the deposit flows from regional banks will end up with larger banks, making the financial system even more concentrated.
"Today, 11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," noted a short joint statement released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, FDIC Chairman Martin J. Gruenberg, and Acting Comptroller of the Currency Michael J. Hsu.
The deposit move also shows that despite the strong temporary financial support, none of the large banks are interested in acquiring the troubled First Republic Bank.
If all assets held-to-maturing were sold by the First Republic Bank, the bank may suffer a loss of as much as $25 billion, wiping out more than three times its equity capital base.
Indexes & Yields
The S&P 500 index increased 1.8% to 3,960.28 and the Nasdaq Composite index advanced 2.5% to 11,717.28.
The yield on 2-year Treasury notes rose to 4.17%, 10-year Treasury notes inched lower to 3.57% and 30-year Treasury bonds inched lower to 3.71%.
Crude oil increased 75 cents to $68.37 a barrel and natural gas prices rose 8 cents to $2.52 a thermal unit.
U.S. Stock Movers
Regional banks continued their downward slide after the collapse of Silicon Valley Bank.
Comercia fell 1.5% and Zions Bancorp declined 3.5% but Western Alliance Bancorporation rose 1.4%.
First Republic Bank dropped as low as $20.47 but recovered to jump 10% to $34.37 and 161 million shares changed hands, ten times its average daily volume after the release of strong support from a consortium of largest 11 U.S. banks.
Credit Suisse AG jumped 20% to $2.23 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
Occidental Petroleum Corporation increased 2.0% to $57.93 after Warren Buffett controlled Berkshire Hathaway purchased additional 7.9 million shares for $466.7 million.
European Markets Rebounded After Switzerland Offered Emergency Liquidity
European markets rebounded and closed higher and the European Central Bank announced rate hikes matching expectations.
Benchmark indexes rebounded from one-year lows after bank stocks advanced following the Credit Suisse announcement.
The Swiss National Bank agreed to provide emergency lending of as much as 50 billion Swiss francs or $54 billion after the troubled lender's largest shareholder rejected calls to pump more liquidity.
The move to support the bank lifted banks across Europe and the broader market followed higher. The market mood further improved after several largest U.S. banks agreed to pump $30 billion in deposits in the Los Angeles-based First Republic Bank.
Investors also reviewed the latest rate hike of 50 basis points and the downward revision in inflation and a slight upward revision in economic growth by the European Central Bank.
ECB Hikes Rates by 50 Basis Points
The European Central Bank lifted its key lending rate by 50 basis points and said it is ready to provide more liquidity if banks need it.
"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points,
in line with its determination to ensure the timely return of inflation to the 2% medium-term target," noted the statement released by the European Central Bank.
After the latest rate hike, the deposit rate will increase to 3.0%, the rate on the marginal lending facility will increase to 3.75% and refinancing operation to 3.50%.
The European Central Bank has been raising rates as inflation stays near four-decade high and shows little sign of easing.
The overall inflation in February in the 20-member Euro Area was estimated at 8.5%, significantly higher than the central bank's target level of 2%.
The recent inflation surge was driven by a sharp jump in energy price but now the inflationary forces are fueled by price increase in food, industrial goods and services.
The central bank said inflation in the Euro Area is expected to cool to 5.3% in 2023 and 2.9% in 2024 from 6.3% and 3.4% in December.
and revised higher its baseline estimate of the economic growth from its previous projection in December to 1.0% in 2023.
The economic expansion is expected to gain a slight pace to 1.6% in 2024 and 2025.
President Christine Lagarde was keen to highlight that the recent market turmoil is different from what transpired during the global financial crisis of 2008.
"The euro area banking sector is resilient, with strong capital and liquidity positions.
In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," noted the statement released by the European Central Bank.
Indexes & Yields
The DAX index increased 1.6% to 14,967.10, the CAC-40 index rose 2.0% to 7,025.72 and the FTSE 100 index advanced 0.9% to 7,410.03.
The yield on 10-year German Bunds rose to 2.26%, French bonds advanced to 2.80%, the UK gilts to 3.47% and Italian bonds to 4.15%.
The euro inched higher to $1.06, the British pound edged up to $1.21 and the Swiss franc to 92.92 cents.
Brent crude oil increased $1.04 to $74.73 a barrel and the Dutch TTF natural gas price edged up 70 cents to Є43.60 per MWh.
Europe Movers
Credit Suisse AG jumped 19.2% to Sfr 2.02 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
The move to provide liquidity to the troubled Swiss bank lifted stocks of other banks in the Euro Area.
Deutsche Bank, BNP Paribas, Societe Generale and Commerzbank added between 2% and 3%.
Siemens Energy AG increased 5.1% to €19.16 after the company completed secondary stock offering and raised €1.259 billion.
The company sold 72.66 million shares priced at 17.32 a share through an accelerated book building process.
The net proceeds from the offering will be used to partially refinance the voluntary cash tender offer for all outstanding shares in Siemens Gamesa Renewable, S.A.
Investec Plc increased 3.5% to 455.30 pence after the wealth management firm estimated higher operating profit in the year ending in March.
United Utilities Group Plc increased 1.0% to 1,064.50 pence after the company said its chief executive Steve Mogford will retire at the end of March.
Centamin Plc fell 5.4% to 101.30 pence despite the gold mining company reporting higher pre-tax profit in fiscal 2022 on rising revenue.
Europe Movers: Centamin, Credit Suisse, Deutz, Investec, Siemens Energy, United Utilities
Bridgette Randall
16 Mar, 2023
Frankfurt
Credit Suisse AG jumped 19.2% to Sfr 2.02 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
The move to provide liquidity to the troubled Swiss bank lifted stocks of other banks in the Euro Area.
Deutsche Bank, BNP Paribas, Societe Generale and Commerzbank added between 2% and 3%.
Siemens Energy AG increased 5.1% to €19.16 after the company completed secondary stock offering and raised €1.259 billion.
The company sold 72.66 million shares priced at 17.32 a share through an accelerated book building process.
The net proceeds from the offering will be used to partially refinance the voluntary cash tender offer for all outstanding shares in Siemens Gamesa Renewable, S.A.
Investec Plc increased 3.5% to 455.30 pence after the wealth management firm estimated higher operating profit in the year ending in March.
United Utilities Group Plc increased 1.0% to 1,064.50 pence after the company said its chief executive Steve Mogford will retire at the end of March.
Centamin Plc fell 5.4% to 101.30 pence despite the gold mining company reporting higher pre-tax profit in fiscal 2022 on rising revenue.
Deutsz AG increased 2% to €5.56 after the heavy duty engine and powertrain maker said revenue in the full-year 2022 increased 20.8% to €1.95 billion.
Operating income more than doubled to €82.6 million from €34.1 million, including exceptional item of €6.8 million related to senior management reorganization.
Net income, which was boosted by deferred tax income of €20.5 million in 2022, jumped by 109.9% to €80.2 million from €38.2 million and earnings per share increased to €0.66 from €0.32 in the previous year.
Credit Suisse Bailout Lifted European Markets, ECB Hikes Rates
Bridgette Randall
16 Mar, 2023
Frankfurt
European markets rebounded and closed higher and the European Central Bank announced rate hikes matching expectations.
Benchmark indexes rebounded from one-year lows after bank stocks advanced following the Credit Suisse announcement.
The Swiss National Bank agreed to provide emergency lending of as much as 50 billion Swiss francs or $54 billion after the troubled lender's largest shareholder rejected calls to pump more liquidity.
The move to support the bank lifted banks across Europe and the broader market followed higher. The market mood further improved after several largest U.S. banks agreed to pump $30 billion in deposits in the Los Angeles-based First Republic Bank.
Investors also reviewed the latest rate hike of 50 basis points and the downward revision in inflation and a slight upward revision in economic growth by the European Central Bank.
ECB Hikes Rates by 50 Basis Points
The European Central Bank lifted its key lending rate by 50 basis points and said it is ready to provide more liquidity if banks need it.
"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points,
in line with its determination to ensure the timely return of inflation to the 2% medium-term target," noted the statement released by the European Central Bank.
After the latest rate hike, the deposit rate will increase to 3.0%, the rate on the marginal lending facility will increase to 3.75% and refinancing operation to 3.50%.
The European Central Bank has been raising rates as inflation stays near four-decade high and shows little sign of easing.
The overall inflation in February in the 20-member Euro Area was estimated at 8.5%, significantly higher than the central bank's target level of 2%.
The recent inflation surge was driven by a sharp jump in energy price but now the inflationary forces are fueled by price increase in food, industrial goods and services.
The central bank said inflation in the Euro Area is expected to cool to 5.3% in 2023 and 2.9% in 2024 from 6.3% and 3.4% in December.
and revised higher its baseline estimate of the economic growth from its previous projection in December to 1.0% in 2023.
The economic expansion is expected to gain a slight pace to 1.6% in 2024 and 2025.
President Christine Lagarde was keen to highlight that the recent market turmoil is different from what transpired during the global financial crisis of 2008.
"The euro area banking sector is resilient, with strong capital and liquidity positions.
In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," noted the statement released by the European Central Bank.
Indexes & Yields
The DAX index increased 1.6% to 14,967.10, the CAC-40 index rose 2.0% to 7,025.72 and the FTSE 100 index advanced 0.9% to 7,410.03.
The yield on 10-year German Bunds rose to 2.26%, French bonds advanced to 2.80%, the UK gilts to 3.47% and Italian bonds to 4.15%.
The euro inched higher to $1.06, the British pound edged up to $1.21 and the Swiss franc to 92.92 cents.
Brent crude oil increased $1.04 to $74.73 a barrel and the Dutch TTF natural gas price edged up 70 cents to Є43.60 per MWh.
Europe Movers
Credit Suisse AG jumped 19.2% to Sfr 2.02 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
The move to provide liquidity to the troubled Swiss bank lifted stocks of other banks in the Euro Area.
Deutsche Bank, BNP Paribas, Societe Generale and Commerzbank added between 2% and 3%.
Siemens Energy AG increased 5.1% to €19.16 after the company completed secondary stock offering and raised €1.259 billion.
The company sold 72.66 million shares priced at 17.32 a share through an accelerated book building process.
The net proceeds from the offering will be used to partially refinance the voluntary cash tender offer for all outstanding shares in Siemens Gamesa Renewable, S.A.
Investec Plc increased 3.5% to 455.30 pence after the wealth management firm estimated higher operating profit in the year ending in March.
United Utilities Group Plc increased 1.0% to 1,064.50 pence after the company said its chief executive Steve Mogford will retire at the end of March.
Centamin Plc fell 5.4% to 101.30 pence despite the gold mining company reporting higher pre-tax profit in fiscal 2022 on rising revenue.
ECB Hiked Rates by 50 Basis Points, Lowered Inflation Estimates
Brian Turner
16 Mar, 2023
New York City
The European Central Bank lifted its key lending rate by 50 basis points and said it is ready to provide more liquidity if banks need it.
"Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points,
in line with its determination to ensure the timely return of inflation to the 2% medium-term target," noted the statement released by the European Central Bank.
After the latest rate hike, the deposit rate will increase to 3.0%, the rate on the marginal lending facility will increase to 3.75% and refinancing operation to 3.50%.
The European Central Bank has been raising rates as inflation stays near four-decade high and shows little sign of easing.
The overall inflation in February in the 20-member Euro Area was estimated at 8.5%, significantly higher than the central bank's target level of 2%.
The recent inflation surge was driven by a sharp jump in energy price but now the inflationary forces are fueled by price increase in food, industrial goods and services.
The central bank said inflation in the Euro Area is expected to cool to 5.3% in 2023 and 2.9% in 2024 from 6.3% and 3.4% in December.
and revised higher its baseline estimate of the economic growth from its previous projection in December to 1.0% in 2023.
The economic expansion is expected to gain a slight pace to 1.6% in 2024 and 2025.
President Christine Lagarde was keen to highlight that the recent market turmoil is different from what transpired during the global financial crisis of 2008.
"The euro area banking sector is resilient, with strong capital and liquidity positions.
In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy," noted the statement released by the European Central Bank.
Movers: Adobe, Credit Suisse, Dollar General, First Republic Bank, Occidental Petroleum
Barry Adams
16 Mar, 2023
New York City
Adobe Inc increased 5.5% to $351.79 after the software company reported better-than-expected quarterly results and revised higher its 2023 profit outlook.
Revenue in the fiscal first quarter ended on March 3 increased 9% to $4.7 billion from $4.2 billion and net income edged slightly lower to $1.24 billion from $1.26 billion and diluted earnings per share rose to $2.71 from $2.66 a year ago.
The software company guided fiscal second quarter revenue in the range between $4.75 billion and $4.78 billion and GAAP earnings per share between $2.65 and $2.70.
For the fiscal year 2023, the company estimated GAAP earnings per share between $10.85 and $11.15 and digital media net new average revenue rate of $1.70 billion.
Credit Suisse AG jumped 3% to $2.23 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
Dollar General Corp declined 2.3% to $213.51 after the deep discount store chain reported weaker-than-expected same store sales.
Same store sales in the fourth quarter increased 5.7% and in the full-year 2022 rose 4.3%.
Revenue in the fourth quarter ending on February 3 increased to $10.2 billion from $8.6 billion and net income rose to $659.1 million from $597.4 million and diluted earnings per share advanced to $2.96 from $2.57 a year ago.
In the fiscal year 2022, revenue increased to $37.8 billion from $34.2 billion and net income expanded to $2.42 billion from $2.39 billion and diluted earnings per share advanced to $10.68 from $10.17 a year ago.
Five Below Inc declined 5% to $191.08 after the deep discount general merchandise retailer forecasted cautious outlook for the first quarter.
Net sales in the fourth quarter ending on January 28, 2023 increased 12.7% to $1.1 billion from $996.3 million, driven by 1.9% rise in comparable sales.
Net income in the quarter increased to $171.3 million compared to $140.2 million and diluted earnings per share rose to $3.07 compared to $2.49 a year ago.
In the fiscal year 2022, net sales increased to $3.07 billion from $2.85 billion and comparable sales decreased 2.0% from the previous year.
For the first quarter of 2023, the retailer forecasted net sales in the range of $723 million to $735 million, reflecting 25 new stores and assuming an approximate 2.5% to 4% increase in comparable sales.
Net income is expected to be in the range of $33 million to $37 million and diluted income per common share is expected to be in the range of 59 cents to 65 cents.
In 2023, the company said it plans to open a record 200 new stores and convert 400 stores to the new Five Beyond format.
Regional banks continued their downward slide after the collapse of Silicon Valley Bank.
Comercia fell 1.5% and Zions Bancorp declined 3.5% but Western Alliance Bancorporation rose 1.4%.
First Republic Bank dropped 20.2% to $24.87 and 61 million shares changed hands, four times its average daily volume.
Investors are worried that the Los Angeles-based bank has a high percentage of uninsured deposits.
Occidental Petroleum Corporation increased 2.0% to $57.93 after Warren Buffett controlled Berkshire Hathaway purchased additional 7.9 million shares for $466.7 million.
Federal Reserve and Regulators are Powerless In Preventing Bank Runs, U.S. Stocks Rebounded
Barry Adams
16 Mar, 2023
New York City
Stocks rebounded amid lingering worries of the health of the U.S. financial system and lax oversight of banks.
Benchmark indexes advanced 1% but bank stocks traded volatile as investors searched for banks with a higher percentage of uninsured bank deposits.
The rapid collapse of Silicon Valley Bank was initiated by the persistent urging of venture capitalists to their list of companies to yank deposits.
Silicon Valley Bank had as much as 80% of its accounts holding balances above the insured amount of $250,000.
There is a widespread erroneous perception in the regulatory community and on Wall Street that Silicon Valley fallout was a special case and other mid-sized banks are better capitalized with a more diverse deposit base.
Similar deposit concentrations exist in the entire banking landscape across the U.S.
Regional banks in Texas, Colorado and Dakotas have deposits concentrated in the energy patch, banks in the Midwest have farming concentration and large city banks have commercial real estate exposure.
Oil and agriculture prices have been depressed for a long time in the past, but interest rates were not rising at a rapid pace.
When rates are on the rise and certain commodities or product prices plunge, the problem of deposit risks evolves rapidly with a lag of 12 months.
Signature Bank collapsed a year after the Bitcoin and cryptocurrencies boom went bust and Silicon Valley Bank disappeared after the bust of Pandemic-fueled venture funding boom.
If crude oil prices dropped and stayed below $55 a barrel for a year and wheat or corn prices collapsed 50% and stayed depressed for a year, a year later deposit risks could lead to insolvencies at many banks.
The size of the bank will not matter but the nature of allocation of bank's assets between Available-for-Sale and Held-to-Maturity will separate winners from losers.
None of these mini-busts would have mattered if rates were stable or falling, but rates are going higher and the Federal Reserve has managed this economy with negative rates for more than a decade.
Neither the Federal Reserve nor the U.S. Treasury is capable of preventing the deposit runs from happening, because they are equipped to clean up what happens after the bank run.
It is no surprise that all financial and bank regulators missed the problems at Silicon Valley Bank and Signature Bank, because they have no tools to detect or monitor these booms, busts and deposit concentration types.
Now that the decade long boom in the U.S. Treasuries came to an end in 2022, it is wishful thinking to expect the bust not to play on a grander scale in the banking and insurance industry.
Neither the Federal Reserve nor the U.S. Treasury is capable of preventing it from happening again.
Indexes & Yields
The S&P %00 index increased 1% to 3,930.08 and the Nasdaq Composite index advanced 1.6% to 11,618.64.
The yield on 2-year Treasury notes rose to 4.17%, 10-year Treasury notes inched lower to 3.48% and 30-year Treasury bonds inched lower to 3.62%.
Crude oil declined 12 cents to $67.55 a barrel and natural gas prices rose 7 cents to $2.55 a thermal unit.
U.S. Stock Movers
Regional banks continued their downward slide after the collapse of Silicon Valley Bank.
Comercia fell 1.5% and Zions Bancorp declined 3.5% but Western Alliance Bancorporation rose 1.4%.
First Republic Bank dropped 20.2% to $24.87 and 61 million shares changed hands, four times its average daily volume.
Investors are worried that the Los Angeles-based bank has a high percentage of uninsured deposits.
Credit Suisse AG jumped 3% to $2.23 after the Swiss bank said it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
Two days ago, Saudi National Bank, the largest shareholder in the bank said it would not inject additional liquidity in the embattled bank.
Occidental Petroleum Corporation increased 2.0% to $57.93 after Warren Buffett controlled Berkshire Hathaway purchased additional 7.9 million shares for $466.7 million.
Bank Sector Chaos Highlights Deeper Regulatory Shortfalls, Crude Oil at New 15-month Low
Barry Adams
15 Mar, 2023
New York City
Financial markets tumbled and investors sought safety in government bonds after banking woes spread to Europe, adding to market jitters.
Saudi National Bank, the largest investor in Credit Suisse, declined to inject additional liquidity to the troubled Swiss bank.
The news drove European banks down as much as 15% and raised the prospect of a government bailout of the Swiss bank.
Several bank stocks in Milan and Paris were halted after sellers overwhelmed buyers.
Bank stocks have been under pressure over the concern of interest rate risks leading to deposit risks and forcing many institutions to raise capital at the time when stock prices are falling.
The Federal Reserve has increased rates eight times over the last 12 months, upending the near zero-rate policy for more than a decade.
Treasury securities held by banks have declined in value following the sustained increase in interest rates, and total unrealized losses at the yearend 2022 were about $620 billion across all U.S. banks.
Rates are still rising in the U.S. and have a long way to go in the Euro Area, raising concerns that interest rate risks may lead to deposit risks or spark wider bank runs that could turn even well capitalized banks insolvent.
In New York, regional banks accelerated declines on Wednesday reversing the gains of the previous day as investors grappled to understand management actions separating capital held for the longer duration and the amount available to cover deposit outflows.
Investors are also worried about the widening deficit in regulatory capacity in detecting fast emerging stresses in the banking system.
Silicon Valley Bank would have passed the latest stress test conducted by the Federal Reserve that is required by the largest top tier banks.
Bank runs enabled by online banking and fueled by social media messaging can overwhelm any bank regardless of its size.
Silicon Valley Bank lost 25% of its deposit or $42 billion in less than 24 hours, the swift rate of deposit departure not possible in the pre-Internet and mobile banking era.
Wholesale Inflation Eased In February
Producer Price Index, a measure of wholesale inflation, seasonally adjusted declined 0.1% in February from the previous month, the U.S. Bureau of Labor Statistics said Wednesday.
The core wholesale inflation, less foods, energy, and trade services, increased 0.2% in February after rising 0.5% in January.
On an unadjusted basis, wholesale inflation rose 4.6% and core wholesale inflation increased 4.4% from a year ago.
Retail Sales In February Edged Lower
February retail and food services sales declined 0.4% from the previous month, the U.S. Census Bureau reported Wednesday.
Retail and food services in the month rose 5.4% from the year ago and January sales data were revised to 3.2% increase.
The monthly data are adjusted for seasonal variation and holiday and trading-day differences, but not for price changes.
Retail trade sales were down 0.1% from January but increased 4.0% from a year ago. Food services and drinking places were up 15.3% while general merchandise stores were up 10.5% from last year.
Banks Dragged Stock Indexes Lower
The S&P 500 index fell 0.7% to 3,891.93 and the Nasdaq Composite index increased 5.90 points to 11,434.05.
Treasury Yields Inched Lower On Flight to Safety
The yield on 2-year Treasury notes declined 33 basis points to 3.89%, 10-year Treasury notes eased 17 basis points to 3.46% and 30-year Treasury bonds dropped 11 basis points to 3.64%.
U.S. Stock Movers
Regional banks led the decliners today after rebounding in the previous session.
PacWest Bancorp dropped 16% to $10.28, KeyCorp declined 2.8% to $11.82 and First Republic Bank fell 7.8% to $36.38 and Western Alliance Bancorporation increased 6.10% to $31.64.
Credit Suisse Group AG plunged 23.5% to $2.08 after its largest investors Saudi National Bank refused to provide additional support to the troubled Swiss bank.
Credit Suisse's woes added more pressure to already weak bank stocks and dragged down leading banks in Germany, France and Italy.
BNP Paribas, Soicete Generale, Deutsche Bank and UniCredit declined between 7% and 10%.
In New York, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup fell between 3% and 5%.
European Markets Dropped to One-year Lows
European markets sank after banks plunged on the interest rate risks worries.
The latest market selloff was sparked by a 25% plunge in Credit Suisse after its largest shareholder declined to inject more liquidity into the troubled bank.
A day ago the Swiss-bank confirmed "material weakness" in its financial reporting system and the bank is still struggling to complete its annual report.
Several banks in France and Italy were halted after the morning selloff knocked many banks down as much as 12%.
Deutsche Bank, UniCredit, BNP Paribas, Societe Generale and Banca Monte dei Paschi dropped between 8% and 11%.
Silicon Valley Bank, once the 16th largest bank in the U.S. with $175 billion in deposits, would have passed the U.S. Federal Reserve's stress test determining financial fitness for the largest banks.
“Our capital, our liquidity basis is very, very strong” and CEO Ulrich Koerner added in an interview with Reuters that “we fulfill and overshoot basically all regulatory requirements.”
Not knowing what is ailing banks and what risks are lurking in balance sheets is adding to market anxieties.
Woes of Credit Suisse are not new but the rising stress in bank stocks after the collapse of the Silicon Valley Bank and higher-rates-for-longer scenario is adding to the market anxieties.
Markets were not convinced and Credit Suisse plunged as much as 30%.
European Indexes Closed at One-year Lows
Stock market indexes dropped the most in a year as banking sector worries drove the market sentiment. After two hours of trading in Paris and Frankfurt benchmark indexes dropped to the low and struggled to rebound.
The European Central Bank is set to lift its lending rate by 25 basis points after the policy meeting on Thursday.
Higher rates are going to increase losses in government securities held by banks, stoking fears of the need to raise capital to bolster balance sheets.
The DAX index dropped 3.3% to 14,735.26, the CAC-40 index declined 3.6% to 6,885.71 and the FTSE 100 index fell 3.8% to 7,344.45.
European Government Bond Yields Turned Lower
European government bonds inched higher after investors sought safety of sovereign bonds on the rising risks of the banking crisis.
The yield on 10-year German Bunds declined to 2.2%, French bonds eased to 2.73%, the UK gilts to 3.33% and Italian bonds to 4.13%.
The euro declined 1.9% against the dollar, its worst one-day decline since March 19, 2020 when the currency fell 2.04%.
The euro edged lower to $1.0508, the British pound fell to $1.207 and the Swiss franc eased to 92.80 cents.
Crude Oil Traded at New 15-month Lows
Crude oil traded at a new 15-month low on rising stress in the banking sector and worries spilled over to Europe.
Prices fell despite OPEC and the International Energy Agency revised higher their estimates of demand growth from China.
Saudi Arabia energy minister Prince Abdulaziz bin Salman said OPEC would stick to its production cuts agreed in October till the yearend.
Brent crude oil prices declined 4.4% to $74.11 a barrel and the Dutch TTF natural gas spot price fell 3% to Є42.90 per MWh.
In New York, crude oil declined 4.1% to $68.25 a barrel and natural gas fell 10 cents to $2.46 a thermal unit.
Europe Movers
Ferrexpo Plc declined 7% to 122.0 pence after the Swiss commodities trading and mining company reported a decline in profit in 2022.
IG Group Holdings plc dropped 9.9% to 695.50 pence after the online trading company reported third quarter revenue fell 7% on lower market volatility.
Industria de Diseno Textil SA, parent of Zara, declined 5.1% to €27.68 despite the fashion and apparel retailer reporting record net income in 2022.
Burberry Group Plc declined 3.7% to 2,245.46 and the luxury fashion group appointed Kate Ferry as chief financial officer, replacing Julie Brown who had announced her decision to step down in September 2022.
Kate Ferry currently serves as chief financial officer of McLaren Group.
Lanxess AG plunged 11.3% to €34.85 after the German specialty chemical company swung to a loss in fourth quarter €21 million compared to a profit of €29 million a year ago.
E.ON increased 0.5% to €10.38 after the Germany-based utility company said sales and adjusted profit increased in full-year 2022.
BMW AG declined 1% to €94.69 and the vehicle maker estimated operating earnings margin between 8% and 10% in 2023.
The company also confirmed its 2022 results and said vehicle sales declined 4.8% to 2.4 million from 2.5 million a year ago.