Deposit-Based Bailout Is “Bad Policy” – Regional Banks Continue Slump After Ackman Warns Of “False Sense Of Confidence”
For a few brief hours yesterday, some market participants breathed a sigh of relief as the ‘big banks’ threw $30 billion of deposits to the ‘small banks’ (specifically First Republic Bank) and saved the world.
This morning, despite a surprise RRR cut from the Chinese, reality is setting in with FRC -20%, PacWest -10% and the rest of the sector sliding fast…
Goldman notes that retail is starting to participate in this: Obviously a massive uptick in volumes across the regional banks… but it’s also become a retail hunting ground this past week. FRC topped the “most actively traded names” on Fidelity today. Are these the new AMCs and GMEs?
The problem, that Pershing Square’s Bill Ackman highlighted in a tweet is simple: “spreading the risk of financial contagion to achieve “a false sense of confidence” in First Republic Bank is “bad policy”.
He has a point – if this ‘plan’ was working’ why are all the regional banks still down so hard post-SVB?
The $30 billion deposit infusion by the ‘big banks’ “raises more questions that it answers” he explained, adding that “I have said before that hours matter. We have allowed days to go by. Half measures don’t work when there is a crisis of confidence.”
While he claims he has no direct investment ‘skin in this game’ in the banking sector, he would clearly – like many of us, prefer the world didn’t implode:
“I am simply extremely concerned about financial contagion risk spiraling out of control and causing severe economic damage and hardship,” he said.
@SecYellen has apparently pushed the SIBs to recycle some of the deposits they received from @firstrepublic back into FRB for 120 days. The result is that FRB default risk is now being spread to our largest banks.
Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy. The SIBs would never have made this low return investment in deposits unless they were pressured to do so and without assurances that FRB deposits would be backstopped if it failed.
The market has responded to this fictional vote of confidence with a 35% after-market decline in FRB stock.
FRB is no SVB. It is a well-managed, well-capitalized, high-service bank with good assets that is beloved by its clients. It is caught up in a bank run due to no fault of its own. It does not deserve to fail.
We need a temporary systemwide deposit guarantee immediately until expanded and modernized @FDICgov insurance system is made widely available.
The press release announcing the $30B of deposits raised more questions than it answers. Lack of transparency causes market participants to assume the worst.
I have said before that hours matter. We have allowed days to go by. Half measures don’t work when there is a crisis of confidence.
Again, I have no investments long or short in the banking sector. I am simply extremely concerned about financial contagion risk spiraling out of control and causing severe economic damage and hardship.
We need to stop this now. We are beyond the point where the private sector can solve the problem and are in the hands of our government and regulators. Tick-tock.
One thing is for sure – this is far from over as Credit Suisse – a real SIFI and something everyone should be worried about – is tanking to fresh lows this morning despite over $50bn from the SNB.
Bonds. Bitcoin, and Bullion are seeing safe-haven bids.
As Deutsche Bank notes, the spillover from financial contagion fears is dramatic to say the least: “Only four times in the last 40 years have we seen movements in the bond market like we did this week”
For those wondering about the risk-off tone, including the fall in US yields, Mohamed El-Erian points that there is more chatter in markets about the Credit Suisse business model and, in the US, some more shaky confidence about The Fed’s ability to act as a crisis manager, especially after the NYTimes article.
“We’re gonna need a bigger boat!”
Fri, 03/17/2023 – 09:38