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A year on
It's been exactly one year since the collapse of Silicon Valley Bank, and many are wondering if similar weaknesses that caused a regional crisis last March are still lingering. The most prominent of those worries have centered around New York Community Bancorp (NYCB), which scooped up the assets of Signature Bank, another commercial lender that failed during the crisis in 2023. The last time around, the FDIC stepped in to facilitate the sales of the failed banks and protect their insured deposits, but things would definitely be easier to handle ahead of time, especially if it meant trouble for the wider industry.
Snapshot: It's important to note that banks can fail for different reasons, and the appropriate rules and guidelines needed to combat certain failures might not necessarily do the job elsewhere. SVB didn't fail because it had bad loans, but rather because the supervision that was supposed to be in place didn't effectively address maturity mismatches and diversification. Elsewhere, New York Community Bank set off alarm bells in January with a surprise quarterly loss and provisions for credit losses, and while an investor group led by former Treasury Secretary Steven Mnuchin recently stepped in to offer a $1B lifeline, concerns remain over its ties to commercial real estate. According to the St. Louis Fed, two-thirds of CRE loans are held by community or regional banks, meaning if things go sour, the industry can fall under immense pressure.
"The high concentration of CRE exposures represents a serious risk to small and large banks amid economic uncertainty and higher interest rates, potentially declining property values, and asset quality deterioration," the IMF warned in a global financial stability note last week. "In the fourth quarter of 2023, a subset of banks remained with exceptionally high CRE concentration for which losses could compromise their safety and soundness... The turmoil also serves as a stark reminder of the impact that rapidly rising interest rates can have by interacting with underlying financial vulnerabilities."
Outlook: Regulators are tightening their scrutiny and attempting to stave off risk in the banking sector with things like "Basel III Endgame" and new rules that cover short-term liquidity and capital requirements. The question is if these will effectively target CRE risk or, on the flipside, if the whole matter with its dangers to the financial system is over-sensationalized. Remember the deep recession warnings of the past two years that never materialized despite the doom-and-gloom predictions from industry leaders like JPMorgan (JPM) CEO Jamie Dimon and Amazon (AMZN) founder Jeff Bezos? Take the WSB survey.
Indo-Pacific
As China spreads its economic influence across the region, Washington is looking to double down in the Indo-Pacific, especially after withdrawing from the Trans-Pacific Partnership in 2017. "We want the United States to be the economic partner of choice," Commerce Secretary Gina Raimondo declared. "For that to happen, we have to show up and show up in the country with money, with collaboration, and consistently show up." On that note, American firms will announce investments totaling over $1B in the Philippines, Raimondo revealed during a two-day visit to the country along with more than 20 executives - including from GreenFire Energy, Google (GOOGL, GOOG) and United Airlines (UAL).
Criminal probe
The U.S. Department of Justice has reportedly launched a criminal investigation into Alaska Airlines (ALK) Flight 1282, in which a piece of fuselage from a Boeing (BA) 737 MAX blew out mid-flight. The federal investigators have already contacted some passengers and crew aboard the ill-fated journey. The probe will inform the DOJ’s review of whether Boeing abided by a previous agreement that settled a federal investigation into two deadly 737 MAX crashes in 2018 and 2019. The news also follows a report of Boeing admitting that it could not find any records for work done on the blown door plug. (43 comments)
Property crisis
Chinese real estate firms that are "seriously insolvent and have lost their operating capabilities" must go bankrupt and reorganize. "Those who commit acts that harm the interests of the masses will be investigated and punished in accordance with the law," Ni Hong, minister of Housing and Urban-Rural Development, said on the sidelines of the National People's Congress. Chinese property developers have been grappling with liquidity issues, resulting in defaults and delayed payments. Although Beijing introduced a mechanism to raise funding for troubled projects, ING Economic and Financial Analysis expects the property sector to remain a prolonged drag on growth.
Today's Markets
In Asia, Japan -2.2%. Hong Kong +1.4%. China +0.7%. India -0.8%.
In Europe, at midday, London -0.5%. Paris -0.4%. Frankfurt -0.6%.
Futures at 7:00, Dow -0.2%. S&P -0.1%. Nasdaq flat. Crude -0.1% to $77.95. Gold flat at $2,184.70. Bitcoin +2.4% to $71,549.
Ten-year Treasury Yield unchanged at 4.08%.
Today's Economic Calendar
1:00 PM Results of $56B, 3-Year Note Auction
Companies reporting earnings today »
What else is happening...
3M (MMM) board clears healthcare spinoff, to start trading April 1.
China's consumer prices rise for the first time in six months.
Feds urge UnitedHealth to work with providers on payments.
FDA delays decision on Eli Lilly's (LLY) Alzheimer’s drug.
Potency concerns: Cannabis rescheduling opposed by DEA officials.
President Biden predicts Federal Reserve will cut interest rates.
Barclays: Stock mutual fund positioning hits post-COVID high.
Goldman analysts highlight top 25 stock picking opportunities.
RV market in tight spot: Rates drive uphill battle to recovery.
Delta (DAL) sees delay for Boeing 737 MAX deliveries until 2027.