More US banks under pressure as Fed faces rate hike backlash

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2 years ago

May 4, 2023

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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.

“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.”

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.”

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Tesla approves $29bn share award to Elon Musk

Published

21 hours ago

August 4, 2025

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Tesla approves bn share award to Elon Musk

Tesla’s board has signed off a $29bn (£21.8bn) share award to Elon Musk after a court blocked an earlier package worth almost double that sum.

The new award, which amounts to 96 million new shares, is not just about keeping the electric vehicle (EV) firm’s founder in the driving seat as chief executive.

The new stock will also bolster his voting power from a current level of 13%.

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He and other shareholders have long argued that boosting his interest in the company is key to maintaining his focus after a foray into the trappings of political power at Donald Trump‘s side – a relationship that has now turned sour.

Musk is angry at the president’s tax cut and spending plans, known as the big beautiful bill. Tesla has also suffered a sales backlash as a result of Musk’s past association with Mr Trump and role in cutting federal government spending.

The company is currently focused on the roll out of a new cheaper model in a bid to boost flagging sales and challenge steep competition, particularly from China.

The headwinds have been made stronger as the Trump administration has cut support for EVs, with Musk admitting last month that it could lead to a “few rough quarters” for the company.

Tesla is currently running trials of its self-driving software and revenues are not set to reflect the anticipated rollout until late next year.

Musk had been in line for a share award worth over $50bn back in 2018 – the biggest compensation package ever seen globally.

But the board’s decision was voided by a judge in Delaware following a protracted legal fight. There is still a continuing appeal process.

Earlier this year, Tesla said its board had formed a special committee to consider some compensation matters involving Musk, without disclosing details.

The special committee said in the filing on Monday: “While we recognize Elon’s business ventures, interests and other potential demands on his time and attention are extensive and wide-ranging… we are confident that this award will incentivize Elon to remain at Tesla”.

It added that if the Delaware courts fully reinstate the 2018 “performance award”, the new interim grant would either be forfeited or offset to ensure no “double dip”.

The new compensation package is subject to shareholder approval.

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Motor finance operators can breathe big sigh of relief

Published

21 hours ago

August 4, 2025

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Motor finance operators can breathe big sigh of relief

Bank stocks have enjoyed a boost as traders digest the Supreme Court’s ruling on the car finance scandal.

Some of the country’s most exposed lenders, including Lloyds and Close Brothers, saw their share prices jump by 7.55% and 21.62% respectively.

It came after the court delivered a reprieve from a possible £44bn compensation bill.

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Banks will still most likely have to fork out over discretionary commissions – a type of commission for dealers that was linked to how high an interest rate they could get from customers.

The FCA, which banned the practice in 2021, is currently consulting on a redress scheme but the final bill is unlikely to exceed £18bn. Overall, the result has been better than expected for the banks.

Lloyds, which owns the country’s largest car finance provider Black Horse, had set aside £1.2bn to cover compensation payouts.

Following the judgment, the bank said it “currently believes that if there is any change to the provision, it is unlikely to be material in the context of the group”.

The judgment released some of the anxiety that has been weighing over the Bank’s share price.

Jonathan Pierce, banking analyst at Jefferies, said the FCA’s prediction was “consistent with our estimates, and most importantly, we think it largely de-risks Lloyds’ shares from the ‘motor issue'”.

Bank stocks have responded robustly to each twist and turn in this tale, sinking after the Court of Appeal turned against them and jumping (as much as 8% in the case of Close Brothers) when the Supreme Court allowed the appeal hearing.

Concerns about this volatility motivated the Supreme Court to deliver its judgment late in the afternoon so that traders would have time to absorb the news.

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FCA considering compensation scheme over car finance scandal – raising hopes of payouts for motorists

Published

2 days ago

August 3, 2025

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FCA considering compensation scheme over car finance scandal - raising hopes of payouts for motorists

Thousands of motorists who bought cars on finance before 2021 could be set for payouts as the Financial Conduct Authority (FCA) has said it will consult on a compensation scheme.

In a statement released on Sunday, the FCA said its review of the past use of motor finance “has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers”.

“Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way,” the statement continued.

The FCA said it estimates the cost of any scheme, including compensation and administrative costs, to be no lower than £9bn – adding that a total cost of £13.5bn is “more plausible”.

It is unclear how many people could be eligible for a pay-out. The authority estimates most individuals will probably receive less than £950 in compensation.

The consultation will be published by early October and any scheme will be finalised in time for people to start receiving compensation next year.

What motorists should do next

The FCA says you may be affected if you bought a car under a finance scheme, including hire purchase agreements, before 28 January 2021.

Anyone who has already complained does not need to do anything.

The authority added: “Consumers concerned that they were not told about commission, and who think they may have paid too much for the finance, should complain now.”

Its website advises drivers to complain to their finance provider first.

If you’re unhappy with the response, you can then contact the Financial Ombudsman.

The FCA has said any compensation scheme will be easy to participate in, without drivers needing to use a claims management company or law firm.

It has warned motorists that doing so could end up costing you 30% of any compensation in fees.

The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.

The court overturned a ruling that would have meant millions of motorists could have been due compensation over “secret” commission payments made to car dealers as part of finance arrangements.

The FCA’s case concerns discretionary commission arrangements (DCAs) – a practice banned in 2021.

Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.

In light of the Supreme Court’s judgment, any compensation scheme could also cover non-discretionary commission arrangements, the FCA has said. These arrangements are ones where the buyer’s interest rate did not impact the dealer’s commission.

This is because part of the court’s ruling “makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair,” it said.

It was previously estimated that about 40% of car finance deals included DCAs while 99% involved a commission payment to a broker.

Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.

“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”