Bank sell-off accelerates despite Biden reassurance that system ‘is safe’

Published

2 years ago

March 14, 2023

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Bank stocks have plunged sharply across the US and Europe again, despite the US president’s assurance that the system “is safe” in the wake of the failures of Silicon Valley Bank and Signature Bank.

News that the US government had effectively taken control of Silicon Valley Bank (SVB), and that its UK arm had been sold to HSBC, failed to stem sector-wide worries when the markets opened for business on Monday.

They focus on the extent to which certain, smaller, lenders have been damaged by US central bank moves against inflation through aggressive interest rate hikes.

Such moves have soured their bond holdings in the process because most were bought at rock bottom prices during the long era of cheap credit.

Short-dated US government bond yields rallied further as speculation grew that the Fed would have to support the banking sector by cancelling its next, widely expected, interest rate hike next week.

Banking shares were further pressured as yields (the premium demanded to hold US Treasuries) rose but the dollar fell sharply.

The FTSE 100 closed at 7,548 – down by 2.6% or 200 points – building on its losses last Friday when the SVB crisis was gathering pace.

Standard Chartered and Barclays led the fallers, down 6.9% and 6.4% respectively.

There was no benefit to be seen in HSBC’s decision to take on SVB UK for the token sum of £1.

Its London-listed shares ended the day 4% lower.

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French finance minister Bruno Le Maire called on investors to “calm down” after the pan-European STOXX banking index plunged by more than 5% following Friday’s 4% decline.

In the US, some smaller regional lenders saw their share prices fall by up to 70% at the open.

Big names, such as Wells Fargo, saw significant falls.

Its stock plunged by 7.5%.

Citigroup was down 6% and Bank of America down 7%.

Senor chairman at Goldman Sachs, Lloyd Blankfein, appeared to join calls for a measure of calm.

He tweeted: “A few banks may have issues like SVB, but only a few.

“Govt actions removed reasons for bank runs. Biggest banks have much tougher regulation and stress testing. Anxiety and volatility high, but sharply lower interest rates, fed likely on hold, are strong positives for markets.

Susannah Streeter, head of money and markets, at Hargreaves Lansdown said Mr Biden’s intervention had clearly failed to bolster confidence.

“His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules.

“So, even though the (SVB) collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading.

“The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.”

She added on the SVB UK deal: “HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.”

Customers of SVB UK number more than 3,000 and include businesses like Moonpig and Notonthehighstreet.

But a flurry of companies scrambled to distance themselves from SVB UK and reassure investors they were unaffected.

New York-based Signature Bank was also closed by US regulators on Sunday with more than $110bn (£90.8bn) in assets – the third-largest bank failure in US history.

Regional bank First Republic saw its shares tumble 66.9% after US markets opened, even after it said on Sunday its finances were strengthened with cash from the US central bank, Federal Reserve, and financial services company, JPMorgan Chase.

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UK economy grows by 0.1% between July and September – slower than expected

Published

15 hours ago

November 15, 2024

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UK economy grows by 0.1% between July and September - slower than expected

The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).

However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the quarter.

The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.

Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.

And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.

Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” she said in response to the figures.

“At my budget, I took the difficult choices to fix the foundations and stabilise our public finances.

“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” Ms Reeves added.

The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector

The UK’s GDP for the the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.

The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.

It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.

The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.

The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

Business

Chancellor’s Mansion House speech vows to rip up red tape – saying post-financial crash rules went ‘too far’

Published

1 day ago

November 14, 2024

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Chancellor's Mansion House speech vows to rip up red tape - saying post-financial crash rules went 'too far'

Chancellor Rachel Reeves has criticised post-financial crash regulation, saying it has “gone too far” – setting a course for cutting red tape in her first speech to Britain’s most important gathering of financiers and business leaders.

Increased rules on lenders that followed the 2008 crisis have had “unintended consequences”, Ms Reeves will say in her Mansion House address to industry and the City of London’s lord mayor.

“The UK has been regulating for risk, but not regulating for growth,” she will say.

It cannot be taken for granted that the UK will remain a global financial centre, she is expected to add.

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It’s anticipated Ms Reeves will on Thursday announce “growth-focused remits” for financial regulators and next year publish the first strategy for financial services growth and competitiveness.

Bank governor to point out ‘consequences’ of Brexit

Also at the Mansion House dinner the governor of the Bank of England Andrew Bailey will say the UK economy is bigger than we think because we’re not measuring it properly.

A new measure to be used by the Office for National Statistics (ONS) – which will include the value of data – will probably be “worth a per cent or two on GDP”. GDP is a key way of tracking economic growth and counts the value of everything produced.

Brexit has reduced the level of goods coming into the UK, Mr Bailey will also say, and the government must be alert to and welcome opportunities to rebuild relations.

Mr Bailey will caveat he takes no position on “Brexit per se” but does have to point out its consequences.

In what appears to be a reference to the debate around UK immigration policy, Mr Bailey will also say the UK’s ageing population means there are fewer workers, which should be included in the discussion.

The greying labour force “makes the productivity and investment issue all the more important”.

“I will also say this: when we think about broad policy on labour supply, the economic arguments must feature in the debate,” he’s due to add.

The exact numbers of people at work are unknown in part due to fewer people answering the phone when the ONS call.

Mr Bailey described this as “a substantial problem”.

He will say: “I do struggle to explain when my fellow [central bank] governors ask me why the British are particularly bad at this. The Bank, alongside other users, including the Treasury, continue to engage with the ONS on efforts to tackle these problems and improve the quality of UK labour market data.”

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Reeves has welcome support from Bank’s governor as she goes for growth and seeks to woo City

Published

1 day ago

November 14, 2024

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Reeves has welcome support from Bank's governor as she goes for growth and seeks to woo City

When Gordon Brown delivered his first Mansion House speech as chancellor he caused a stir by doing so in a lounge suit, rather than the white tie and tails demanded by convention.

Some 27 years later Rachel Reeves is the first chancellor who would have not drawn a second glance had they addressed the City establishment in a dress.

As the first woman in the 800-year history of her office, Ms Reeves’s tenure will be littered with reminders of her significance, but few will be as symbolic as a dinner that is a fixture of the financial calendar.

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Her host at Mansion House, asset manager Alastair King, is the 694th man out of 696 Lord Mayors of London. The other guest speaker, Bank of England governor Andrew Bailey, leads an institution that is yet to be entrusted to a woman.

Ms Reeves’s speech indicates she wants to lean away from convention in policy as well as in person.

By committing to tilting financial regulation in favour of growth rather than risk aversion, she is going against the grain of the post-financial crash environment.

“This sector is the crown jewel in our economy,” she will tell her audience – many of whom will have been central players in the 2007-08 collapse.

Sending a message that they will be less tightly bound in future is not natural territory for a Labour chancellor.

Her motivation may be more practical than political. A tax-and-spend budget that hit business harder than forewarned has put her economic program on notice and she badly needs the growth elements to deliver.

Her plans to consolidate local authority pension schemes so they might match the investing power of their Canadian and Australian counterparts is part of the same theme.

Infrastructure investment is central to Reeves’s plan and these steps, universally welcomed, could unlock the private sector funding required to make it happen.

Bank governor frank on Brexit and growth

If the jury is out in a business financial community absorbing £25bn in tax rises, she has welcome support from Mr Bailey.

He is expected to deliver some home truths about the economic inheritance in plainer language than central bankers sometimes manage.

Britain’s growth potential, he says, “is not a good story”. He describes the labour market as “running against us” in the face of an ageing population.

With investment levels “particularly weak by G7 standards”, he will thank the chancellor for the pension reforms intended to unlock capital investment.

He is frank about Brexit too, more so than the chancellor has dared.

While studiously offering no view on the central issue, Mr Bailey says leaving the EU had slowed the UK’s potential for growth, and that the government should “welcome opportunities to rebuild relations”.

There is a more coded warning too about the risks of protectionism, which is perhaps more likely with Donald Trump in the White House.

“Amid threats to economic security, let’s please remember the importance of openness,” the Bank governor will say.