2023-05-03 17:20:02
CRISIS – In the United States, will the recent bankruptcy of several regional or “niche” banks lead to a domino effect? These establishments are essential to the maintenance of the real economy across the Atlantic. Although their own assets are often less than a billion dollars, several thousand establishments carry out this investment support activity within companies. The fall of certain essential banks in the sector is for the moment cushioned by the American public regulator, which relies on the bank JP Morgan and the asset manager BlackRock to delegate and manage the consequences of recent bankruptcies. Which is far from being a bad deal for these finance behemoths.
On March 10, the Silicon Valley Bank (SVB) went bankrupt, before being placed by the local public regulator (California) under the aegis of the public regulator, the Federal Deposit Insurance Corporation (FDIC, Federal deposit insurance corporation), a national independent agency responsible for guaranteeing a maximum legal withdrawal for each client. In the case of the SVB, the clientele is mainly made up of start-ups and investors, not individuals.
Not unlike the subprime crisis
One of the main reasons for this debacle? An investment of the banking establishment based on mortgage loans which have lost all effective profitability at the time of an increase in interest rates by the American Federal Reserve in recent months.
This scheme, which then deprives the bank of its liquidity and pushes it mechanically into bankruptcy, in particular due to a consecutive panic of depositors, is then reminiscent of the 2008 crisis known as the subprime mortgages.
On March 12, it was the turn of the Signature bank of New York (SBNY) to fall. It specializes in real estate and yet enjoyed high esteem from investors.
Rebelotte, all the deposits of the bank are like those of the SVB guaranteed by public funds, after the announcement of the FED and the government. The FDIC supports the operation and indicates in a statement the various reasons for the bankruptcy of the SBNY including one “mismanagement”an abandonment of “good corporate governance practices”and the lack of implementation of recommendations already made by the FDIC in recent years to the banking establishment.
Are also singled out by this report a “frenzied growth” of the SBNY, accompanied by a risky use of deposits, for investments in cryptocurrencies which seem to be partly related to the lack of liquidity, which led to massive withdrawal requests from customers.
It should also be noted that a money laundering investigation was opened by the SEC (Securities and Exchange Commission) at the request of the US Department of Justice in mid-March 2023.
On May 1, it is the turn of the First Republic Bank, whose role is to manage fortunes in California, including that of Mark Zuckerberg, the CEO of Meta. This bankruptcy is even more important than that of the SVB and takes the place (2nd) of the latter on the list of the biggest bank failure in the history of the United States after that of the Washington Mutual bank (WaMu) at the time of The Subprime Crisis.
Again, the FDIC initially takes over the deposit guarantee and even part of the losses up to 13 billion dollars.
Who will pay in the end?
What can stop the onset of a major economic and financial crisis? Are these successive bailouts a lasting solution? These questions were already being asked at the time of the fall of the SVB. According to expert observers, as the Wall Street Journal, the risk of a stock market crash would be averted. But what is the exact extent of the fire?
The assets concerned by the bankruptcy of these three establishments are respectively around 200 billion for the SVB and the First Republic Bank and 100 billion for the signature, ie a total of 500 billion.
An astronomical amount, higher than that concerning the subprime crisis. Only difference: there is no mammoth of finance like Lehman Brothers to fall this time (for the moment), and to make fear with the public opinion, like with the American government, that no solution is findable before a major crash: this is what currently understates the balance sheet, including in real dollars.
Charlie Munger, the historical business partner of investor Warren Buffet, is however very pessimistic for the future, citing, in summary, the excessive presence of “rotten” mortgage loans in banks. A state of affairs that he clearly compares to the course of the subprime crisis of 2008.
But a different element appears compared to the current situation. Two entities even seem to be happy with the situation. The first is JP Morgan (3.2 trillion dollars in assets, ahead of the Bank of America), which had even experienced a rise in its share price during the bankruptcy of the SVB. The second is BlackRock, the now well-known American multinational specializing in asset management.
Crises can also be fertile…
These two gargantuan financial heavyweights have been chosen by the FDIC in order to resume the activities, or to manage the sale of securities, of the bankrupt establishments.
A press release from the public regulator specified this a few weeks ago with regard to BlackRock: “The FDIC has retained the services of BlackRock Financial Market Advisory to effect portfolio sales, which will be gradual and orderly, and will seek to minimize the potential for any adverse impact on market functioning taking into account daily liquidity and market conditions. negotiation.”
Nothing new. In such situations, either the taxpayer foots the bill or entities in the private sphere take care of it. In 2008, as previously indicated, no one had wanted, had been able, politically or economically, to pay the bill as salty as the ocean.
In the form of a bet, these behemoths with treasuries overflowing with cash can even consider profits linked to the invoicing of services. This is what perhaps pushes JP Morgan to be confident and to consider the end of this crisis by inviting “everyone just has to take a deep breath”said Jamie Dimon, CEO of the bank.
But JP Morgan also made a masterstroke: the takeover of First Republic Bank enabled it to become number 1 in the sector by concentrating even more power and wealth, thus being able to officially exempt itself from strict American rules. in terms of competition. Crises can often be fertile for certain players in the economy.
The JP Morgan does not lack air and business as usual for BlackRock
As for BlackRock, the skill of the asset manager to recover whole sections of sectors in order to make them flourish is no longer to be demonstrated. However, the latter’s subsidiaries may raise questions when the parent group is called upon by the public regulator to clean the Augean stables of rotten titles.
For example, BlackRock Solutions provides investment and risk management advice. What would happen if she had given advice (upstream or downstream for that matter) to large clients of the SVB or the SBNY? Same thing with the BlackRock Financial Management, which manages investment portfolios.
In search of “turnkey” solutions, the FDIC does not seem to have communicated on this type of element, above all executing the political will of the Biden administration not to make waves during the beginnings of the 2024 presidential elections in the United States. United.
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