David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Banking Crisis Raises Concerns About Hidden Leverage in System

    This article from Bloomberg may be of interest. Here is a section: 

    Fund managers are also concerned. A systemic credit event poses the biggest threat to global markets, and the most likely source of one is US shadow banking, according to a survey of investors published last week by Bank of America Corp.

    The US government’s top financial regulators signaled in February that they would consider whether any nonbank firms merit tougher oversight as systemically important institutions. 

    The Financial Stability Oversight Council will put “nonbank financial intermediation” back on the table as a priority for 2023, according to a statement from the Treasury Department. The Federal Reserve, the Federal Deposit Insurance Corp. and the Financial Stability Board declined to comment for this story. 

    European Central Bank Vice President Luis de Guindos warned in an interview with Business Post published on the ECB website Sunday that nonbanks “took a lot of risks” during the era of low interest rates and potential vulnerabilities “can come to the surface” as monetary policy changes. 

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    Binance, CEO Sued by US Derivatives Watchdog for Violations

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    The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies. 

    In its complaint, the CFTC also said Binance’s own documents for the month of August 2020 showed that the platform earned $63 million in fees from derivatives transactions, and that about 16% of its accounts were identified as being held by US customers.

    The CFTC alleged that the company intentionally destroyed documents. At the same time, Binance makes frequent use of the encrypted messaging app Signal to communicate with US customers, at Zhao’s instruction, the agency said.

    Since at least 2021, the CFTC has been probing Binance over whether it failed to keep US residents from buying and selling crypto derivatives. CFTC rules generally require platforms to register with the agency if they let Americans trade those products.

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    EU Moves Toward Zero-Emissions Cars After German Deal on E-Fuels

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    E-fuels, made using renewable energy and carbon dioxide captured from the air, aren’t seen as a viable solution for the vast majority of cars, given their high cost and current lack of availability. Instead, the bulk of carmakers in the region are expected to remain focused on battery-powered vehicles.

    “We see e-fuels as a useful addition to the existing fleet of combustion engines and for special applications such as emergency vehicles or limited series, the Porsche 911 for example,” Volkswagen said in a statement. Europe’s biggest carmaker said that it remained committed to the electrification
    of its fleet.

    The deal, announced on Saturday, was enough for Germany to drop its opposition to the proposal.  A push by the country’s pro-business FDP party, the junior member of Chancellor Olaf Scholz’s governing alliance, for the commission to come forward with more assurances on e-fuel cars had delayed a vote earlier this month.


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    Yellen to chair financial stability council meeting as bank worries persist

    This note from MarketWatch may be of interest. Here is a section: 

    Treasury Secretary Janet Yellen will convene a meeting of the Financial Stability Oversight Council Friday.

    FSOC comprises the heads of the nation's top financial regulators, and was created in the wake of the 2008 financial crisis to enable the government to coordinate efforts at combating systemic risks to the U.S. economy.

    The announcement comes amid concerns over the health of the banking sector following the recent failures of Silicon Valley Bank and Signature Bank.

    The uncertainty is being felt overseas as well with shares of Germany's Deutsche Bank (DBK.XE) slumping as its credit default swaps widened.

    Financial sector equities (XLF) were under pressure Friday, ranking as the worst performing sector in the S&P 500 in morning trade.

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    Email of the day on getting the bad news out on a Friday

    Collapses of Large Banks on Fridays:

    - Friday, Mar. 14, 2008: Bear Stearns hit by liquidity crisis

    - Friday, Sept. 12, 2008: Last trading day before Lehman Brothers declares bankruptcy

    - Friday, Sept. 26, 2008: Washington Mutual seized by regulators marking largest bank collapse in US history

    - Friday, Mar. 10, 2023: SVB seized by regulators, marking 2nd biggest bank failure in US history

    - Friday, Mar. 10, 2023: Signature Bank sees $10 billion in withdrawals, seized by regulators 2 days later

    - Friday, Mar. 17, 2023: UBS bids for Credit Suisse, $CS, to avoid its collapse

    - Friday, Mar. 24, 2023: Deutsche Bank, $DB, credit default swaps hit 4-year high on contagion fears

    Just about every large bank failure in recent history has occurred on a Friday.

    This can't be a coincidence.

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    Short Sellers Step Up Bets Against Office Owners on Bank Turmoil

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    “What’s changed in the last few weeks is the credit markets,” said Rich Hill, chief of real estate strategy research at Cohen & Steers Capital Management Inc. “It went from a story of work-from-home and the impact on occupancy and the lack of rent growth to also the compounding of tighter financial conditions given everything happening with banks.”

    Fears of tighter credit are adding to risks for offices that have been building for some time, Green Street analysts wrote in a Tuesday report. Hedge fund manager Jim Chanos, Marathon Asset Management and Polpo Capital Management founder Daniel McNamara are among those who have been betting for months that landlords will struggle to lure staff back to workplaces. 

    “This regional banking crisis is just throwing fuel on the fire,” McNamara said in a telephone interview. “I just don’t see a way out of this without a lot of pain in the office sector.” 

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    Political moves heat up as Indonesian parties hunt for presidential, vice-presidential candidates

    This article from the Strait Times may be of interest to subscribers. Here is a section: 

    The PDI-P, which secured 22 per cent of parliamentary seats in 2019, is the only party that can nominate candidates without having to ally with other parties. Both Mr Widodo and Mr Ganjar are members of PDI-P.

    For Mr Ganjar, the main obstacle to being named PDI-P’s presidential candidate is his own party, said Padjadjaran University political communication expert Kunto Adi Wibowo.

    “If Ganjar wants the nomination, PDI-P should be the one to nominate him. He doesn’t want to quit his own party. But will Megawati (Sukarnoputri) give the ticket to Ganjar while she is grooming Puan (Maharani)?,” he said.

    Ms Megawati is PDI-P’s chief, while Ms Puan, her daughter, is the House of Representatives Speaker and ranks low in electability rating polls.

    Prof Firman noted that both PDI-P and Gerindra may finally have to strike a “tough deal” if they cannot come up with their nominees amid the constant rise in popularity of Dr Anies, given the solidity of his support. 

    “If they are forced by pressing circumstances, they will make a deal and resort to the most popular candidates,” he said.  

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