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Shares in regional banks were up in premarket trading on Tuesday after suffering one of the industry\u2019s worst routs in years following the collapse of Silicon Valley Bank and Signature Bank.<\/p>\n
That reprieve suggests that a sweeping federal rescue of the industry may be working. But analysts and policymakers are worried that the industry still faces plenty of risks.<\/p>\n
Smaller lenders appear ready for a small rebound.<\/strong> Shares in First Republic, Western Alliance and PacWest were all up by double digits on Tuesday, while global banking stocks were down only slightly. Exceptions were Asian lenders, many of which fell sharply.<\/p>\n But that recovery comes after the erasure of nearly $500 billion worth of market value on Monday, as investors feared that measures to guarantee bank deposits wouldn\u2019t work. Those worries extended even to Charles Schwab, the longtime brokerage that also has a sizable bank: The company\u2019s shares fell 12 percent on Monday, wiping out billions from its eponymous founder\u2019s net worth, despite its insistence that it remains well capitalized.<\/p>\n Perhaps investors are now taking a deep breath, as federal officials and veteran bankers said the crisis appeared far more contained than in, say, 2008. \u201cAmericans can rest assured that our banking system is safe \u2014 your deposits are safe,\u201d President Biden said on Monday. Still, there\u2019s cause for concern as Moody\u2019s warned that it may downgrade the credit ratings of First Republic and five other lenders.<\/p>\n Worries about moral hazard have returned.<\/strong> Critics of the federal rescue plan warn that banks, emboldened by measures that essentially guarantee their deposits, may start taking on unnecessary risk. \u201cEvery time this happens, it increases the potential for moral hazard going forward,\u201d Patricia McCoy, a professor at Boston College Law School, told The Times.<\/p>\n And investors appear willing to wade into riskier assets again. Cryptocurrencies soared on Monday, with Bitcoin alone up 10 percent. (That may have been in part because depositors of Silicon Valley Bank and Signature Bank, many of which were crypto businesses and investors, were made whole.)<\/p>\n Regulators are also still mopping up the remains of S.V.B.<\/strong> A sales process for the lender resumed on Monday, DealBook hears, after a previous effort over the weekend failed. Officials from the Federal Deposit Insurance Corporation told lawmakers on Monday that the Fed\u2019s backstop may help reassure potential buyers this time around, according to The Wall Street Journal.<\/p>\n It\u2019s unclear whether the bank can be sold in one piece, though bidders have expressed interests in certain units. (Apollo, an investment firm, has been interested in some of the bank\u2019s debt holdings, while PNC and JPMorgan Chase had been interested in its nonbank divisions.)<\/p>\n In other news: Here are handy, and wonky, explainers of the collapse. (In summary: borrowing short while lending long went bad.) Policymakers are haunted by fallout from the 2008 financial crisis. Big banks are still being inundated with customers wanting to transfer funds from smaller lenders. Inside \u201cProject Yeti,\u201d the effort to sell SVB\u2019s British subsidiary. Related merchandise is up for sale on eBay. And Signature Bank failed \u2014 but not that one, or that one.<\/p>\n Credit Suisse warns of \u201cmaterial weakness\u201d in its financial reporting.<\/strong> In its annual report, the embattled Swiss bank said it had found problems with financial controls. Shares were down on Tuesday, despite the firm saying that it had taken steps to shore up its accounting.<\/p>\n Pfizer agrees to buy the cancer treatment specialist Seagen for $43 billion.<\/strong> The acquisition is the largest deal in the pharmaceutical sector since AbbVie agreed to buy Allergan for $63 billion in 2019. It\u2019s also a sign that drugmakers are willing to pursue megadeals despite closer scrutiny by antitrust regulators.<\/p>\n Uber and Lyft score a big win in a California court.<\/strong> A state appeals court upheld Proposition 22, which found that the ride-hailing businesses can classify drivers as independent contractors rather than as employees. But several drivers and a union are expected to appeal the matter to the California Supreme Court.<\/p>\n Volkswagen plans to increase investments in electric-vehicle production.<\/strong> The German auto giant announced a $193 billion spending plan over the next five years, a vast majority of which was earmarked for \u201celectrification and digitalization.\u201d It is hoping to capitalize on a 26 percent rise in electric vehicle deliveries last year.<\/p>\n The market\u2019s concerns about people pulling their money out of banks and <\/em>bank stocks have overtaken jitters about soaring inflation \u2014 and that could have a drastic effect on interest rate policy.<\/p>\n Wall Street now sees the Fed announcing a smaller interest rate rise next week<\/strong>. Most analysts predict a 0.25 percent increase; a week ago, the consensus had been for a jumbo 0.5 percent raise aimed at cooling off spending and slowing inflation. For the May rate-setting meeting, analysts see central bankers pausing on increases altogether, and cutting in June.<\/p>\n The fear of further instability to the banking sector now trumps inflation.<\/strong> Nomura\u2019s North America economists, led by Aichi Amemiya and Jacob Meyer, cut their prediction of a half-point rate increase to a 0.25 percent decrease. They see the Fed halting quantitative tightening, or the policy of selling off its stash of Treasury bonds and other securities. The moves, they say, are needed \u201cto reduce the risk of further bank runs.\u201d<\/p>\n Analysts and economists at RBC Capital Markets, Goldman Sachs and Deutsche Bank also view a rate increase as harmful to those banks with stretched balance sheets. Increases, they say, would set off further market volatility.<\/p>\n The big caveat is Tuesday\u2019s consumer price inflation data.<\/strong> If the number comes in well above expectations \u2014 core inflation is forecast to have risen by 5.5 percent on an annual basis \u2014 the Fed may have little choice but to continue raising interest rates this month and in May.<\/p>\n Practically everyone in Washington wants to know what happened at Silicon Valley Bank, but they don\u2019t all agree on who is to blame. Many Republicans, like Tim Scott of South Carolina, a top Senate Banking Committee member, say that regulators missed the risks and want to question officials at the Fed and at the Federal Deposit Insurance Corporation. (The Fed itself on Monday announced a review into its oversight of the bank) But Senator Elizabeth Warren, Democrat of Massachusetts, wants answers from Greg Becker, the bank\u2019s former C.E.O.<\/p>\n Becker pushed Congress to ease Dodd-Frank. <\/strong>In 2015, S.V.B. was set to have $50 billion in assets, a threshold that would have made it a systemically important financial institution and subject to stricter regulations under the Consumer Protection Act.<\/p>\n Becker argued for the threshold to be lifted, telling lawmakers that his bank would have to divert resources \u201cfrom providing financing to job-creating companies in the innovation economy,\u201d reports The Times\u2019s David Enrich. The rules were amended three years later. <\/p>\n Warren wants to know whom Becker met in Washington and when. <\/strong>She has followed up a call for tighter regulations by demanding that Becker detail his efforts to \u201croll back regulations,\u201d according to a new letter first shared with DealBook. \u201cYou lobbied for weaker rules, got what you wanted, and used this opportunity to abdicate your basic responsibilities to your clients and the public \u2014 facilitating a near-economic disaster,\u201d she writes.<\/p>\n Warren wrote that she wanted to know how much time and money was spent on their lobbying effort and who approved the moves inside the bank.<\/p>\n Will Becker have to pay?<\/strong> He was awarded over $9.9 million last year, including a $1.5 million bonus, according to Warren\u2019s letter. The bank paid out bonuses just hours before it was taken over by federal regulators on Friday, and Becker sold about $3.6 million in shares late February. Warren has demanded that he reveal his stock sales in the past year, and all compensation and bonuses he received in the past decade \u2014 and asked if he would agree to return what he received in the last five years.<\/p>\n \u2014 <\/em>Ken Griffin<\/em>, the billionaire hedge fund mogul, on the Biden administration\u2019s sweeping banking rescue plan.<\/em><\/p>\n Regulators (and, no doubt, lawsuits) will seek to dive into why Silicon Valley Bank collapsed. But sources have given DealBook more insight into the lender\u2019s final weeks \u2014 and how its effort to save itself fell short.<\/p>\n The lender had been worried about a potential downgrade of its credit rating.<\/strong> This month, it learned that Moody\u2019s was worried about how rising interest rates were erasing the value of its bond holdings. If the bank were forced to sell those assets earlier than expected, it would have to take big losses.<\/p>\n The lender asked Goldman Sachs for help. Goldman advised raising more capital to reassure Moody\u2019s and investors, with David Ludwig, its global head of capital markets, spearheading the initiative.<\/p>\n But Silicon Valley had little time to pull off the offering.<\/strong> The bank didn\u2019t get its numbers together for Goldman until early last week; Silicon Valley also asked Moody\u2019s, which was prepared to downgrade the tech lender\u2019s rating last Tuesday, for more time.<\/p>\n But Goldman only had time to properly give material nonpublic information to the investment firm General Atlantic, as well as to one other investor who required more time for due diligence than the schedule allowed.<\/p>\n Silicon Valley Bank ultimately announced its capital raise efforts on Wednesday. But investors also spotted an alarming disclosure in the announcement: It had sold $21 billion worth of bonds that led to a $1.8 billion loss. That warning, coupled with the bank needing to raise money, spooked markets.<\/p>\n The fund-raising effort never closed. <\/strong>Customers quickly began to withdraw their money, kicking off a run on the bank. Despite Goldman having privately told potential investors that there was strong interest in the offering as of Thursday, it and Silicon Valley Bank were suspiciously quiet about how the effort was going heading into that evening.<\/p>\n By Friday morning, it was clear the deal had failed. Hours later, regulators seized control of the bank.<\/p>\n Deals<\/strong><\/p>\n The Transportation Department will wait to decide whether to challenge JetBlue\u2019s $3.8 billion takeover of Spirit Airlines after the resolution of the Justice Department\u2019s lawsuit to block the deal. (Bloomberg)<\/p>\n The embattled Indian tycoon Gautam Adani and his family have reportedly paid back $2.15 billion in share-backed loans. (Reuters)<\/p>\n Policy<\/strong><\/p>\n Gov. Ron DeSantis of Florida said protecting Ukraine was not a key U.S. interest, breaking with fellow Republicans. (NYT)<\/p>\n The Justice Department sued Rite Aid, accusing the pharmacy chain of filling opioid prescriptions that lacked a legitimate medical purpose. (Reuters)<\/p>\nHERE\u2019S WHAT\u2019S HAPPENING <\/span><\/h3>\n
Is the higher-for-longer rates cycle coming to an end? <\/h2>\n
Who\u2019s to blame? <\/h2>\n
\u201cThe U.S. is supposed to be a capitalist economy, and that\u2019s breaking down before our eyes.\u201d <\/h2>\n
How S.V.B.\u2019s emergency rescue plan failed <\/h2>\n
THE SPEED READ <\/span><\/h3>\n