More US banks under pressure as Fed faces rate hike backlash
Another US regional lender has revealed talks to shore up its finances and a further has had its share price was clobbered amid the crisis of confidence to hit the country’s banking sector.
Three lenders – Silicon Valley Bank, Signature Bank and First Republic – have failed this year on the back of balance sheet pressure caused by rising interest rates that have hit the value of their bondholdings.
Regional lenders have seen their share prices come under further pressure this week as investors seek out signs of any weakness.
First Republic was bought by Wall Street’s largest bank JPMorgan on Monday after it failed to recover from a $100bn deposit flight in March.
LA-based lender PacWest Bancorp saw its shares decline by more than 50% on Wednesday – taking its market value loss to 90% during the crisis to date.
They were down a further 30% in Thursday’s pre-market trading after it revealed talks with potential partners and investors about its “strategic options” despite a sizeable cash injection that was agreed at the start of the industry crisis.
Shares were down more than 40% when markets opened on Thursday morning in the US.
The bank said that while it had not experienced any unusual deposit outflows since the sale of First Republic, it was normal for the company and its board of directors to “continuously review” those options.
“Recently, the company has been approached by several potential partners and investors – discussions are ongoing,” its statement said.
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First Republic ‘taken down by $100bn deposit outflow’
“The company will continue to evaluate all options to maximise shareholder value.”
The options could include a sale or capital raising, the Reuters news agency reported citing a source.
Other regional lenders have seen their share prices hammered in recent days.
Arizona-based Western Alliance lost 23% of its market value on Wednesday despite insisting it had not experienced any unusual deposit outflows and had adequate liquidity.
Its losses deepened on Thursday as much as 62% with trading halted at multiple points through the morning.
There are fears the crisis of confidence will hurt the availability of credit in the US economy, already tipped by economists to enter recession this year.
Ten consecutive rate hikes imposed by the US Federal Reserve to keep a lid on inflation have been blamed for the banking sector’s woes.
The Fed raised its main rate by a further quarter point on Wednesday night despite the banking turmoil and economic slowdown.
It did, however, give a hint that the rise would be the last for a while as it digested the impact of its tightening cycle.
There is still a “growing concern that the rapid pace” of higher interest rates has undermined the foundations of some mid-sized US banks, the head of financial analysis at AJ Bell said.
“Hardly household names with global investors until the last few months, now every ear is straining to catch the sector’s next distress call.”
“Banking stocks have taken another beating today as markets worry that PacWest might be the next domino to fall.
“Even if [the PacWest] alarm proves to be a false one, the implications for the global economy could be huge,” Danni Hewson said.
“Reluctance to lend from a nervous sector which is battening down the hatches could mean that dreams of a softish landing become recession-filled nightmares.”
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One critic of the Fed response, the boss of financial advisory and asset management firm deVere Group, said the US central bank had failed at every hurdle since the inflation problem first surfaced.
Nigel Green said it had risked a longer-term recession through the latest rate hike.
“Clearly, this would not only be a huge issue for the US, but the global economy too,” he warned.
“First, the crisis within the US financial system is still not over. There remain serious and legitimate concerns that after a string of bank failures, there could be more to come.
“The turmoil from the banking crisis is leading to a drop in bank lending, tightening the credit conditions for households and businesses. In turn, this will inevitably lead to a slowdown in economic activity and hiring.
“Chair Powell himself has said at a news conference that the bank turmoil had the equivalent impact of at least one quarter-point rate increase.”
Four people have been arrested by police investigating cyber attacks targeting M&S, Co-op and Harrods.
A 20-year-old woman and two males, both aged 19, and a male aged 17, were detained in London and the West Midlands this morning as part of a National Crime Agency (NCA) operation.
They were arrested at their homes on suspicion of Computer Misuse Act offences, blackmail, money laundering and participating in the activities of an organised crime group.
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Electronic devices were seized from the suspects and are currently being analysed by forensic experts.
M&S halted online orders, and shelves were empty in shops after the cyber attack on the retailer earlier this year.
The initial hack into the retailer’s systems took place in April through “sophisticated impersonation” involving a third party.
Disruption is expected to continue at the retailer until the end of this month.
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Mickey Carroll in May answered why M&S cyber attack was so bad.
The Co-op and Harrods were also subsequently targeted by hackers.
Paul Foster, head of the NCA’s National cybercrime unit described the arrests as a “significant step” in their investigation, which remains “one of the Agency’s highest priorities”.
He added: “…our work continues, alongside partners in the UK and overseas, to ensure those responsible are identified and brought to justice.”
The National Crime Agency is keen to “signal” to “future victims” the “importance of seeking support and engaging with law enforcement”, stating that “the NCA and policing are here to help”.
The NCA has also thanked M&S, Co-op and Harrods for their support in their investigations.
The arrests, which took place early on Thursday morning, were supported by officers from the West Midlands Regional Organised Crime Unit and the East Midlands Special Operations Unit.
Earlier this week, the chairman of M&S told MPs that the hack had been “traumatic” and like an “out-of-body experience”.
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Archie Norman, however, refused to be drawn on whether the retailer had paid any ransom.
“We are not discussing any of the details of our interaction with the threat actor, including this subject, but that subject is fully shared with the NCA,” he said.
It is estimated that the cyber attack will cost M&S up to £300m this year.
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Days after M&S was attacked, the Co-op was targeted and forced to shut down some internal systems.
Harrods was then hacked, and also had to shut some systems despite its website and shops continuing to operate.
Of those arrested, a 17-year-old British male and a 19-year-old Latvian male were from the West Midlands.
A 19-year-old man was from London and a 20-year-old woman from Staffordshire.
Royal Mail is to be allowed to scrap Saturday second-class stamp deliveries, under a series of reforms proposed by the communications regulator.
From 28 July, Royal Mail will also be allowed to deliver second-class letters on alternate weekdays, Ofcom said.
The post will still be delivered within three working days of collection from Monday to Friday.
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The proposals had already been raised by Ofcom after a consultation was announced in 2024, and the scale back was proposed early this year.
Royal Mail had repeatedly failed to meet the so-called universal service obligation to deliver post within set periods of time.
Those delivery targets are now being revised downwards.
Rather than having to have 93% of first-class mail delivered the next day, 90% will be legally allowed.
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The target for second-class mail deliveries will be lowered from 98.5% to arrive within three working days to 95%.
A review of stamp prices has also been announced by Ofcom amid concerns over affordability, with a consultation set to be launched next year.
It’s good news for Royal Mail and its new owner, the Czech billionaire Daniel Kretinsky. Ofcom estimates the changes will bring savings of between £250m and £425m.
A welcome change?
Unsurprisingly, the company welcomed the announcement.
“It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable universal service,” said Martin Seidenberg, the group chief executive of Royal Mail’s parent company, International Distribution Services.
“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”
Citizens Advice, however, doubted whether services would improve as a result of the changes.
“Today, Ofcom missed a major opportunity to bring about meaningful change,” said Tom MacInnes, the director of policy at Citizens Advice.
“Pushing ahead with plans to slash services and relax delivery targets in the name of savings won’t automatically make letter deliveries more reliable or improve standards.”
Acknowledging long delays “where letters have taken weeks to arrive”, Ofcom said it set Royal Mail new enforceable targets so 99% of mail has to be delivered no more than two days late.
Changing habits
Less than a third of letters are sent now than 20 years ago, and it is forecast to fall to about a fifth of the letters previously sent.
According to Ofcom research, people want reliability and affordability more than speedy delivery.
Royal Mail has been loss-making in recent years as revenues fell.
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In response to Ofcom’s changes, a government spokesperson said: “The public expects a well-run postal service, with letters arriving on time across the country without it costing the earth. With the way people use postal services having changed, it’s right the regulator has looked at this.
“We now need Royal Mail to work with unions and posties to deliver a service that people expect, and this includes maintaining the principle of one price to send a letter anywhere in the UK”.
Ofcom said it has told Royal Mail to hold regular meetings with consumer bodies and industry groups to hear their experiences implementing the changes.
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