Economic Update:
- Global Banking sector engulfed in a crisis as three large US Banks Failed in March 2023. Silvergate Capital Corp, with dealing in crypto currency was the first bank to fail on 8th Shortly after Silicon Valley Bank (SVB) and Signature Bank collapsed which are second and third largest bank failures in the history of U.S.
- Prime reason for failure is hike in interest rates. Many banks like SVB had invested their reserves in US Treasury, which have been paying very low interest rates since Covid. As the Feds started raising their rates in 2022, the bond prices declined heavily, decreasing the market value of bank capital reserves, resulting into huge losses for banks.
- Banking failures led to turbulence in banking stocks and with number of regional banks like Western Alliance Bank Corporation saw almost 50% drop in share prices.
- Moody’s was quick to downgrade the outlook of US Banking System from stable to negative citing rapid deterioration of sector’s financial footing.
- To prevent banking crisis from deepening, FEDs, US Government, and Banking Regulators announced that extra ordinary measures will be taken to ensure honoring of failed banks deposits and to infuse liquidity in the banks.
- However, within a week, the crisis became more global as UBS agreed to acquire Credit Suisse in a Swiss Govt. brokered deal (analyzed in detail in M&A deals section).
- Deutsche bank’s stock also took a severe beating in March end along with Barclays, Standard Chartered and other European banks, forcing the US Fed and Other Central Banks to announce enhanced liquidity measures to calm the market turmoil.
- In India, RBI which was widely expected to increase Repo Rate yet again, kept it on a “hawkish” pause amid the global banking crisis and financial market volatility.
Timeline of Global Banking Crisis in March 2023: (Source: Reuters)
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Date |
Development |
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March 08 |
Crypto-friendly bank Silvergate Capital Corp says it would wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX, sending its shares down 35% in after-hours trade. |
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Silicon Valley Bank (SVB) says it intends to raise $2.25 billion in common equity and preferred convertible stock to fill its funding hole. |
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March 09 |
The S&P 500 bank index tumbles following SVB’s announcement and crypto bank Silvergate’s decision to wind down operations. SVB stock collapses by 60%, leading the company to scramble to reassure its clients their money was safe. |
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March 10 |
A California regulator shuts SVB and appoints the Federal Deposit Insurance Corporation (FDIC) as receiver. U.S. bank stocks extend losses with regional lenders hit the hardest. |
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March 12 |
Yellen says she is working closely with banking regulators to respond to the SVB collapse. U.S. officials later say SVB customers will have access to their deposits. |
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New York state’s Department of Financial Services takes possession of New York-based Signature Bank. |
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March 13 |
HSBC acquires the UK subsidiary of Silicon Valley Bank for 1 pound. |
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U.S. President Joe Biden says the administration’s actions should give Americans confidence that the banking system is safe. |
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March 14 |
Moody’s Investors Service revises its outlook on the U.S. banking system to “negative” from “stable”, citing heightened risks. |
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March 15 |
Troubled Swiss giant Credit Suisse says it will strengthen its liquidity by borrowing from the Swiss National Bank up to 50 billion Swiss francs ($54 billion). |
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March 17 |
SVB Financial Group files for Chapter 11 bankruptcy protection. |
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March 18 |
UBS is examining a takeover of Credit Suisse that could see the Swiss government offer a guarantee against the risks involved, say two people with knowledge of the matter. |
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March 19 |
UBS agrees to buy Credit Suisse for 3 billion Swiss francs in stock and agrees to assume up to 5 billion francs in losses. |
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March 21 |
U.S. Treasury Secretary Janet Yellen tells bankers that she is prepared to intervene to protect depositors in smaller U.S. banks. |
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March 22 |
Yellen tells lawmakers that she has not considered or discussed “blanket insurance” to U.S. banking deposits without approval by Congress, again stirring up investor worry. Federal Reserve Chair Jerome Powell says SVB’s failure is not indicative of wider weaknesses in the banking system. |
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March 24 |
Deutsche Bank shares drop 8.4% in Europe and the cost of insuring the company’s bonds against the risk of default spike. Other banking stocks also slump in Europe. |
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
Disclaimer:
This material has been prepared by the personnel in Vora Corporate Finance which is Investment Banking arm of Vora Management Consultancy Private Limited and looks after Mergers & Acquisitions (M&A), Private Equity (PE), Fund Raising, Debt syndication and Valuations and is based out of Ahmedabad, Gujarat, India. Any views or opinions expressed herein are solely that of individual authors and may differ from view of Vora Management Consultancy Private Limited. This material is proprietary to Vora Management Consultancy Private Limited and is for your personal use only. Any distribution, copy, reprints or forward to others is strictly prohibited.
This material captures the information based on information available in the public domain, public announcements and sources believed to be reliable. Analysis contained herein is based on publicly available information and appropriate assumptions. This material is intended merely to highlight market developments and is not intended to be comprehensive and does not constitute strategic, investment, legal or tax advice. In no event Vora Management Consultancy Private Limited be liable for any use by any party or for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you for evaluating any transaction.
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