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Federal Reserve announces emergency lending facility – deposits “guaranteed”
Federal Reserve and Treasury:
taking decisive actions to protect the US economy by strengthening public confidence in our banking system
boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank
no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer
we are also announcing a similar systemic risk exception for Signature Bank, NewYork, which was closed today by its state chartering authority
all depositors of this institution will be made whole
Signature shareholders and certain unsecured debt holders will not be protected
Signature senior management has been removed
The Federal Reserve board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors
Banking system remains resilient and on a solid foundation
Any Signature Bank losses to the deposit insurance fund to support uninsured depositors will be recovered by a special assessment on banks
Fed will make available additional funding to eligible depository institutions to help assure banks can meet depositors’ needs
To provide liquidity to US Depository institutions, each federal reserve bank would make advances to eligible borrowers, taking as collateral certain types of securities
Treasury department, using the exchange stabilization fund, would provide $25 billion as credit protection to the Federal Reserve banks in connection with bank term funding program
Today’s actions demonstrate US commitment to take ‘necessary steps’ to ensure that depositors’ savings remain safe
Eligible collateral includes any collateral eligible for purchase by the Federal Reserve banks in open market operations
Rate for term advances will be the one-year overnight index swap rate plus 10 basis points; the rate will be fixed for the term of the advance on the day the advance is made
Collateral valuation will be par value; margin will be 100% of par value
Advances can be requested under the program until at least March 11, 2024
Advances made under the program are made with recourse beyond the pledged collateral to the eligible borrowerAnother one today CI. Signature Bank in New York.
https://www.reuters.com/business/finance/new-york-state-regulators-close-signature-bank-2023-03-12/
—Equity Markets—
Japan’s Nikkei: -0.5%
Hong Kong’s Hang Seng: +2.0%
China’s Shanghai Composite: +1.2%
India’s Sensex: -1.5%
South Korea’s Kospi: +0.7%
Australia’s ASX All Ordinaries: -0.5%Concerns about the overall health of the regional banking sector remained in place after last week’s failure of Silicon Valley Bank.
Markets were able to climb off their worst levels after The Federal Reserve announced an Emergency Bank Term Funding Loan Program.
People’s Bank of China Governor Yi was reappointed to another five-year term.
South Korea’s exports through the first ten days of March were down 16.2% yr/yr with chip exports falling 41.2% yr/yr.
There are growing expectations that the Reserve Bank of Australia will not make any changes to its cash rate at the April meeting.
Japan’s Q1 BSI Large Manufacturing Conditions -10.5 (expected -4.2; last -3.6)
New Zealand’s February FPI 1.5% m/m (last 1.7%)
Major European indices trade lower across the board as defensive sentiment carries over from last week.
—Equity Markets—
STOXX Europe 600: -2.8%
Germany’s DAX: -2.9%
U.K.’s FTSE 100: -2.2%
France’s CAC 40: -2.8%
Italy’s FTSE MIB: -3.9%
Spain’s IBEX 35: -3.2%The British government is reportedly working on a rescue plan to guarantee loans to companies with money locked up in accounts at Silicon Valley Bank.
French Finance Minister Le Maire said that he is not seeing specific risks of contagion and that banks in France have ample liquidity.
Standard & Poor’s affirmed Portugal’s BBB+ rating with a Stable outlook.
First Republic Bank (FRC 37.43, -44.33, -54.2%),
PacWest Bancorp. (PACW 7.09, -5.26, -42.6%),
Western Alliance Bancorp. (WAL 18.47, -30.87, -62.6%) are down sharply this morning as concerns over the health of regional banks plagues investors.Dow +47.85 at 31957.40, Nasdaq +42.65 at 11181.53, S&P +2.66 at 3864.25
There is some underlying strength, but the banking sector remains a sticking point for investors. The S&P 500 financial sector (-4.1%) is buried is last place by a wide margin. The SPDR S&P 500 Regional Bank ETF (KRE) is down 16.4% and the SPDR S&P 500 Bank ETF (KBE) is down 13.0%.
Even Dow component JPMorgan Chase (JPM 132.92, -0.61, -0.5%) trades down today despite registering gains on Friday due to the viewpoint that the company is a financial fortress that stands to benefit from the fallout at SVB Financial. JPM was also upgraded today to Overweight from Equal Weight at Wells Fargo.
Health care (+1.5%), and consumer staples (+1.3%).
The health care sector is also responding to the news that Pfizer (PFE 40.24, +0.85, +2.1%) will acquire Seagen (SGEN 201.09, +28.48, +16.5%) for $43 billion or $229.00 per share in cash and Carl Icahn’s proxy battle with Illumina (ILMN 235.74, +41.65, +21.5%).
Mega-cap stocks relative strength as investors rotate capital into stocks that are seen as being removed from the fallout in the banking industry.
To that end, a lot of start-up companies are seen as being in the crosshairs of the Silicon Valley Bank failure, which is partly why mega-cap companies with solid balance sheets, like Apple (AAPL 152.39, +3.49, +2.6%) and Microsoft (MSFT 255.30, +6.72, +2.7%), are being favored today.
Some companies that had exposure to Silicon Valley Bank have been able to recover from earlier losses today.
Roku (ROKU 60.09, +0.07, +0.1%) is a standout in that regard.
Short-term inflation expectations have declined sharply, according to the Federal Reserve Bank of New York’s February Survey of Consumer Expectations.
The one-year ahead expectations dropped by 0.8% to 4.2%, while three-year ahead expectations remained unchanged at 2.7% and the five-year ahead expectations rose 0.1% to 2.6%.
The market continues to rethink the Fed’s rate hike decision at the March FOMC meeting.
According to the CME FedWatch Tool, the fed funds futures market is pricing in a 64.2% probability of a 25 basis points rate hike and a 35.8% probability of no rate hike.
Lots of CHOP & ICEBERGS in the market waters today, with some nervousness in markets
Small regional banks could be impacted in days ahead in a flight to safety
We do need to balance the FED budget, tame inflation, and address SSN/Medicare systemic risks
Hopefully we will stabilize, see no more major bank failures, and an end to our “economic winter” soon 🙂
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