SVB, the 16th largest bank in the US, was shut down by regulators after a "bank run", meaning a rush of cash withdrawals by customers, which destroyed the flagship institution of startups of all kinds, from digital to fintechs to biotechs. The bank was forced to raise capital after losing $1.8 billion selling its bond portfolio at a loss to meet demands for cash from depositors.

Investors now worry about the vulnerability of banks, fearing the same problems that led to the 2008 financial crisis. SVB was forced to materialize unrealized losses due to rising rates (you remember, when the yield on a bond goes up, its price goes down). Investors started to panic. The bank wanted to raise money to reassure the market. The investors panicked even more. Hence the "bank run", with withdrawal requests that reached $42 billion in a single day, i.e. a quarter of the bank's deposits. Unsustainable of course, hence the SVB's receivership.

The question quickly arose as to whether the failure of the SVB would create a chain reaction, especially since some of the deposits held by the bank were not secured. The FDIC's deposit guarantee operates up to USD 250,000 in the United States, which is high for an individual but low for a company. This means that customers have lost access to a large portion of their resources. However, they have a good chance of getting their money back, as the value of the SVB's assets is not zero. But that doesn't mean they will be able to meet their short-term obligations, even if it is just to pay salaries and bills. This is a big, big problem, as all banks have unrealized losses on their bond portfolios, even if the serious institutions have hedging products, which was clearly not the case for SVB.

In short, the U.S. financial authorities quickly took matters into their own hands. The specter of 2008 is still too present for them to have forgotten that the speed and vigor of the response is fundamental. To put it somewhat trivially, the FDIC, the Fed and the Treasury Department have amputated and cauterized. The trio will dismantle SVB (and another big, battered bank, Signature Bank) but guarantee all customers access to their deposits as of today, March 13. The aim is to avoid a panic and a wave of bankruptcies among corporate clients. Shareholders and certain unsecured creditors will not be protected, the executives have been removed from their positions and the Treasury Department claims that this will not cost the taxpayer a penny. Last but not least, the Fed will put the money on the table so that banks can meet the needs of their depositors. This sounds like a message to the markets to avoid another bank run. Don't panic good people, the Fed is here.

Still, the case leaves an unhealthy impression. From a cold and pragmatic point of view, three American banks have failed in two weeks. Silvergate, certainly a crypto bank, then SVB and Signature, two institutions with atypical profiles but with substantial deposits. And the authorities had to intervene to reassure everyone. The matter is serious enough that it is weighing on monetary policy. Bets of a 50-basis point rate hike at next week's Fed meeting have evaporated. The market is now only looking at a 25-basis point rate hike, and some economists already think the Fed will do nothing to avoid further BOS. This is the case at Goldman Sachs, which estimates in a paper published yesterday that the US central bank will be forced to pass its turn on March 22. More prosaically, I bet we will quickly see papers like "well, what's the point of the Fed punishing the economy with high rates if it's only to throw unlimited funds guarantees to people who take too much risk? And indeed, the question is worth asking.

Let's stop with this topic that will be omnipresent in the general media in the days and weeks to come, and move on to some trivialities. On the macro agenda of the week, two major events: on the one hand, the February inflation figures in the United States (Tuesday) and on the other hand, the ECB's monetary policy decision (Thursday).

Wall Street's main indexes opened lower on contagion fears in the banking sector. The Dow Jones Industrial Average was down 0.28%, the S&P 500 by 0.69% and the Nasdaq Composite by 0.87%.

 

Economic highlights of the day:

No major events are expected today.

The dollar is down 0.2% to EUR 0.9336 and GBP 0.8266. The ounce of gold rallies strongly to 1901 dollars. Oil is sharply down, with North Sea Brent at USD 79.45 a barrel and US WTI light crude at USD 73.38. The yield on 10-year US debt falls to 3.70%. Bitcoin is trading around 22,500 dollars.

 

In corporate news:

* First Republic Bank fell 56.6% in pre-market as concerns persist about the risk to regional banks following the risk to regional banks following the failure of SVB last week.

* JPMorgan and PNC Financial Service are in talks to acquire SVB Financial Group, a deal that would exclude its SVB division, Axios reported on Monday, citing sources.   

* Roku said Friday that it had about $487 million, or 26 percent of its cash and cash equivalents, in the form of cash equivalents, in deposits with SVB.

* Pfizer announced on Monday that it had acquired the company Seagen for approximately $43 billion to strengthen its cancer treatment portfolio.

* Qualtrics said Monday that a consortium of investors led by Silver Lake and the U.S. Canada Pension Plan Investment Board (CPPIB) has reached an agreement to acquire the data analytics company for $12.5 billion. The stock was up 6.2% in pre-market trading.

* Boeing - Taiwanese airline Eva Airways 2618.TW announced Monday the purchase of five Boeing 787 aircraft for a value of $1.78 billion at list prices.

* Caterpillar - The United Auto Workers announced that members of four locals have voted in favor of a new six-year contract with the company, preventing the company, preventing a strike at the world's largest manufacturer of largest manufacturer of construction and mining equipment.

* Illumina - Activist investor Carl Icahn is preparing a proxy fight at Illumina, arguing that the acquisition of cancer test maker Grail Inc by the biotech company in 2021 cost about $50 billion to its shareholders, the Wall Street Journal reported.

* Ford said Friday that it was on track to resume production Monday of its electric truck F-150 Lightning, for which it had recalled 18 vehicles due to a manufacturing due to a manufacturing defect in the battery's cells.

 

Analyst recommendations:

  • British American Tobacco: J.P. Morgan downgrades from Overweight to Neutral, targeting GBp 3100.
  • Bunzl: J.P. Morgan upgrades from neutral to overweight targeting GBp 3375.
  • Burberry: Jefferies maintains a Hold rating with a price target raised from £2,100 to £2,400.
  • Comerica: Odeon Capital Group cut the recommendation to hold from buy.
  • Flutter: Jefferies remains Buy with a price target raised from 15,000 to 18,000 GBp.
  • Glencore: J.P. Morgan remains Overweight with a price target reduced from 630 to 620 GBp.
  • JPMorgan: Wells Fargo Securities raised the recommendation to overweight from equal-weight. PT up 16% to $155.
  • KeyCorp: Odeon Capital Group downgrades to hold from buy.
  • PacWest: D.A. Davidson & Co upgrades to buy from neutral. PT up 135% to $29.
  • Prosperity Banc: D.A. Davidson & Co upgrades to buy from neutral. PT up 23% to $79.
  • Nikola: Morgan Stanley initiated coverage with a recommendation of equal-weight. PT up 81% to $3.
  • Tesla: Wolfe Research downgrades to peerperform from outperform.
  • Truist Financial: Baird upgrades to outperform from neutral. PT up 36% to $53.
  • Under Armour: J.P. Morgan cut the recommendation to neutral from overweight. PT up 12% to $10.
  • Wells Fargo: Cut to Hold at Odeon Capital.