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.”
The UK-US trade deal has been signed and is “done”, US President Donald Trump has said as he met Sir Keir Starmer at the G7 summit.
The US president told reporters: “We signed it, and it’s done. It’s a fair deal for both. It’ll produce a lot of jobs, a lot of income.”
As Mr Trump and his British counterpart exited a mountain lodge in the Canadian Rockies where the summit is being held, the US president held up a physical copy of the trade agreement to show reporters.
Several leaves of paper fell from the binding, and Mr Starmer quickly bent down to pick them up, saying: “A very important document.”
President Donald Trump drops papers as he meets with Britain’s Prime Minister Keir Starmer in Kananaskis, Canada. Pic: AP
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Sir Keir Starmer hastily collects the signed executive order documents from the ground and hands them back to the US president.
Sir Keir said the document “implements” the deal to cut tariffs on cars and aerospace, adding: “So this is a very good day for both of our countries – a real sign of strength.”
Mr Trump added that the UK was “very well protected” against any future tariffs, saying: “You know why? Because I like them”.
However, he did not say whether levies on British steel exports to the US would be set to 0%, saying “we’re gonna let you have that information in a little while”.
Sir Keir Starmer picks up paper from the UK-US trade deal after Donald Trump dropped it at the G7 summit. Pic: Reuters
Mr Trump also praised Sir Keir as a “great” prime minister, adding: “We’ve been talking about this deal for six years, and he’s done what they haven’t been able to do.”
He added: “We’re very longtime partners and allies and friends and we’ve become friends in a short period of time.
“He’s slightly more liberal than me to put it mildly… but we get along.”
Sir Keir added that “we make it work”.
The US president appeared to mistakenly refer to a “trade agreement with the European Union” at one point as he stood alongside the British prime minister.
Mr Trump announced his “Liberation Day” tariffs on countries in April. At the time, he announced 10% “reciprocal” rates on all UK exports – as well as separately announced 25% levies on cars and steel.
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In a joint televised phone call in May, Sir Keir and Mr Trump announced the UK and US had agreed on a trade deal – but added the details were being finalised.
Ahead of the G7 summit, the prime minister said he would meet Mr Trump for “one-on-one” talks, and added the agreement “really matters for the vital sectors that are safeguarded under our deal, and we’ve got to implement that”.
Poundland will halt rent payments at hundreds of its shops if a restructuring of the ailing discount retailer is approved by creditors later this summer.
Sky News has learnt that Poundland’s new owner, the investment firm Gordon Brothers, is proposing to halt all rent payments at so-called Category C shops across the country.
According to a letter sent to creditors in the last few days, roughly 250 shops have been classed as Category C sites, with rent payments “reduced to nil”.
Poundland will have the right to terminate leases with 30 days’ notice at roughly 70 of these loss-making stores – classed as C2 – after the restructuring plan is approved, and with 60 days’ notice at about 180 more C2 sites.
The plan also raises the prospect of landlords activating break clauses in their contracts at the earliest possible opportunity if they can secure alternative retail tenants.
In addition to the zero-rent proposal, hundreds of Poundland’s stores would see rent payments reduced by between 15% and 75% if the restructuring plan is approved.
The document leaves open the question of how many shops will ultimately close under its new owners.
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A convening hearing has been scheduled for next month, while a sanction hearing, at which creditors will vote on the plan, is due to occur on or around August 26, according to one source.
The discounter was sold last week for a nominal sum to Gordon Brothers, the former owner of Laura Ashley, amid mounting losses suffered by its Warsaw-listed owner, Pepco Group.
Poundland declined to comment.
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