"Intelligent Insight"
In the final part of our Australian Property Rant series with property insider Edwin Almeida we look at the latest numbers and emerging trends.
After a short break though we will be back with the International Property Rant weekly, so stay subscribed to catch the first in the new series.
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The latest from our surveys shows that the number and proportion of first-time buyers seeking help from parents – via the Bank of Mum and Dad is falling fast.
Not only are new volumes down, but we know that BOMD loans are at greater risk in a rising rate environment.
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Are we in the foothills of the next banking crisis? Quite possibly. Investor sentiment remained fragile on Friday despite massive rescue for the banking sector, leaving global equities under pressure while gold prices were poised for their largest one-week rally since March 2020.
The U.S. banking crisis began after two mid-sized lenders — Silicon Valley Bank and Signature Bank— were rescued by the Federal Deposit Insurance Corp last week as depositors yanked billions of dollars from them after fearing about their solvency. Silicon Valley eventually filed for bankruptcy protection over the past 24 hours. A third bank, First Republic, is also in trouble despite receiving a $30 billion cash infusion from a consortium of banks.
SVB Financial Group announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank which sparked fears of contagion throughout the global banking system.
On Friday, investors lost confidence in U.S. regional banks and Credit Suisse in Europe. Risk appetite waned after showing signs of recovery on Thursday. Credit Suisse’s chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time. Credit Suisse shares resumed their decline.
Fed data on Thursday showed banks sought record amounts of emergency liquidity in recent days, which helped undo months of central bank effort to shrink the size of its balance sheet. Its latest discount window borrowing has further seen banks take $150 billion, which makes for a new record even topping the 2008 GFC.
“Last week the Fed’s balance sheet swelled by $300 billion, wiping out 4 months of QT in one week,” gold bug Peter Schiff wrote in part of a Twitter reaction. “By the end of the month the balance sheet could reach a new high. Rate hikes don’t matter. Inflation is headed much higher, thanks to bank bailouts.”
Markets are pricing in a 25 bps increase by the U.S. Federal Reserve when it meets next week, down from previous expectations for a 50 bps increase. At last glance, financial markets have priced in a 60.5% likelihood that the central bank will raise its key target rate by 25 basis points, and a 39.5% probability that it will let the current rate stand.
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Earlier in the week I was a guest on TNT Radio, and we discussed the emerging banking crisis, and what lays behind it. Events since reconfirms our view this is a serious structural issue triggered by Central Bank’s reversal on rates, which have put many financial services players under stress.
Significantly, Central Banks are now trying to prop the system up. More finger in the dyke stuff?
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For the final time in Australia, I caught up with Robbie Barwick from the Citizens Party. We looked at the progress towards the establishment of a Public Bank in the light of recent failures, and the inquiry into Regional Banking.
Importantly, there are just two more weeks to get your submission to the Inquiry. Have your say! and support the transformational policy.
Make a submission to regional bank closures inquiry
Submissions to the inquiry are due by 31 March. All communities, organisations, businesses, and individuals impacted by the banks’ war on cash are strongly urged to make a submission, including to support a government post office bank.
A submission can be a formal representation from an organisation, or as simple as a letter or email, which explains to the Committee your experience and views.
Elderly and vulnerable regional bank customers, who are disproportionately affected, are especially encouraged to hand-write or type physical letters and mail them to the Committee through the post.
Mail your submission to the Committee at this address:
Committee Secretary
Senate Standing Committees on Rural and Regional Affairs and Transport
PO Box 6100
Parliament House
Canberra ACT 2600
Email your submission to the Committee at rrat.sen@aph.gov.au
Upload your submission, and get more information, at the inquiry website
For more information, phone the Committee on 02 6277 3511.
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The latest inflation data for the US underscored the ongoing inflation problem the FED has, and while the markets are hoping for a pause, or cut, on the latest numbers this is unlikely. The battle to control inflation is far from won.
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So once again the banks get a helping hand from the FED, and depositors in the US are guaranteed to an unlimited extent. But what of moral hazard?
And the markets now do not expect further rate rises, despite the inflation pressures in play. Yet perhaps there is a bifurcation between liquidity and rates, so perhaps the markets are not reading things right.
And once again the FED and Treasury proved Free Market Capitalism is dead!
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A chat with Edwin, as I continue to demolish the studio…. meantime, who is demolishing the financial system?????
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Last Thursday the S&P 500’s bank index finished down 6.6% after hitting its lowest level since mid-October, its biggest one-day drop in over two years as Investors fled the sector after tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding and following crypto bank Silvergate’s decision to wind down operations.
Shares of SVB, whose operating segments include Silicon Valley Bank, slumped over 50% in their deepest one-day drop on record after the company announced a $1.75 billion share sale late on Wednesday. SVB is battling cash burn due to declining deposits from startups struggling with a venture capital funding drought.
Unlike most banks, which are helped by rising rates, SVB Financial is “generally hurt by them,” Oppenheimer says, as its deposit base is “generally made up of commercial customers who are rate-sensitive.”
The slump in SVB Financial further soured the sentiment on banking stocks, which have been pressured by a deeper inversion in the Treasury yield curve – a harbinger for a recession.
Morgan Stanley analysts said lower 2023 NII guidance at SVB is driven by cash burn among private companies that bank with SVB. This, according to the analysts, will cause SIVB to bring more higher-cost sweep accounts onto its balance sheet, paying roughly the Fed funds rate to do so.
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The S&P 500 slumped Friday, amid fears of contagion that swept through banking stocks as regulators closed SVB Financial to protect customer funds after the beleaguered bank’s effort to secure funding failed.
The S&P 500 fell 1.4%, the Dow Jones Industrial Average fell 1%, or 333 points, the Nasdaq Composite was down 1.8%.
SVB Financial Group was closed by regulators and its deposits placed under control of regulators to protect depositors following a run on deposits, after its parent company’s share price crashed a record 60% on Thursday.
In the latest update regarding the rapidly moving SVB Financial Group saga, the Federal Deposit Insurance Corporation (FDIC) said Friday that SVB has been shut down by the California Department of Financial Protection and Innovation.
The regulator, which appointed the Federal Deposit Insurance Corporation as receiver, revealed that the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors. (250k)
“The FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” the FDIC said in a statement.
They added that all insured depositors will have access to their insured deposits no later than Monday, March 13.
The FDIC said it will pay uninsured depositors an advance dividend within the next week. For any remaining uninsured funds, depositors will receive a receivership certificate. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to certificate holders.
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