Top investors have warned against complacency following the second-biggest bank failure in US history.
Gathering for the opening day of the annual Milken Institute conference in Beverly Hills following the sale of First Republic to JPMorgan hours earlier, David Hunt, chief executive of $1.2tn asset manager PGIM, told delegates: “There is a little bit of a tendency to kind of breathe a sigh of relief on mornings like this,” as the dust settled on the latest US bank collapse.
“Actually, we’re just starting the implications for the US economy,” he added.
He went on to say there would be “a real ratcheting-up” of regulation on the banking system now, following the collapse of three banks in less than two months. He said the new rules would “hinder the supply of credit.”
Others focused on the challenge ahead for the Federal Reserve as it kicks off its latest rate-setting meeting.
Karen Karniol-Tambour, co-chief investment officer of hedge fund Bridgewater Associates, said any investor thinking the Fed would cut interest rates this year after implementing a final 25 basis point increase this week are “primed for disappointment”.
Meanwhile, Kristalina Georgieva, head of the IMF, blamed “complacency” for the recent bank failures.
“We know there was unnecessary deregulation . . . and now we saw the price to pay. We saw supervision has not been up to par.”
But some argued that the weekend deal brokered by the Federal Deposit Insurance Corporation and California regulators illustrated the resilience of the US banking system.
“When you take a step back and look at the structure of the US financial system, it’s incredibly sound,” said Citigroup chief executive Jane Fraser.
We have written a number of stories on the collapse of First Republic and what it means for the US banking system and the economy in the past 24 hours. Here are my recommendations:
Timeline: Here’s how JPMorgan’s Jamie Dimon turned from adviser to depositor to buyer of First Republic.
Analysis: US regulators took a markedly different approach to cleaning up the mess this time compared with other recent collapses.
Deposit insurance: The agency that manages US banking collapses has suggested raising the deposit insurance for business accounts to reduce the risk of bank runs.
Interest rates: Discussions from the Fed’s recent policy meeting suggest that the banking turmoil has injected uncertainty into its fight against inflation.
And here is what else I am keeping tabs on today:
Federal Reserve: The US central bank starts its two-day policy meeting that is expected to result in a 0.25 percentage point rate increase tomorrow.
Economic data: Job openings and factory orders for March are both expected today.
Results: Pfizer, Starbucks, Ford, Uber, Molson Coors and Restaurant Brands all report earnings.
Hollywood strikes: Screenwriters are expected to go on strike today for the first time in 15 years after talks with movie studios collapsed. Read the latest here.
Looking ahead to the FT Weekend Festival on May 20 and Edward Luce will be speaking to Hillary Rodham Clinton. Sign up to hear the former secretary of state in conversation with the FT’s US national editor. As a newsletter subscriber you can save $20 by using the promo code NewslettersxFestival at: ft.com/festival-us.
Five more top stories
1. Morgan Stanley is making plans to axe another 3,000 jobs or roughly 5 per cent of staff by the end of June, said people familiar with the discussions, who added the cuts would exclude customer-facing financial advisers in the bank’s prized wealth management unit. Here are the divisions expected to be hit.
In other banking news: HSBC is to buy back $2bn of its own shares to shore up support against its biggest shareholder Ping An after reporting a jump in profits.
2. The US government could run out of money as soon as June 1 if Congress does not raise or suspend the debt limit before then, Treasury secretary Janet Yellen warned yesterday. Read more from her letter to congressional leaders.
3. Exclusive: Jeb Bush’s private equity firm held talks with the owners of Israeli spyware company NSO Group over a deal that would have seen the former Florida governor sell its products, including Pegasus spyware, which infiltrates phones surreptitiously, in the US. Read the full story.
4. Deloitte and PwC are giving extra coaching to young UK staff whose education was disrupted by Covid-19 lockdowns after noticing they had weaker teamwork and communication skills. Partners said the recruits had less confidence doing basic tasks such as making presentations and speaking up in meetings.
5. More than 20,000 Russian forces have been killed since December in the fight for Bakhmut, the White House said. National Security Council spokesperson John Kirby said Russia’s losses fighting for the Ukrainian town exceeded US fatalities at the Battle of the Bulge in the second world war.
Opinion: China could play a crucial role in ending the conflict, writes Gideon Rachman, as a prolonged war has become a liability for Beijing.
The Big Read
The German-Polish relationship is particularly crucial as western powers try to display unity against Vladimir Putin. But in Berlin, there is deep disillusionment with the Polish government led by the conservative Law and Justice party and what is seen as its attempt to use Germany as a political punch bag ahead of Polish parliamentary elections in the autumn.
We’re also reading . . .
Interview: Noubar Afeyan, co-founder of vaccine maker Moderna, has called on US politicians to embrace science and stop questioning experts. Read the full interview.
Social media: A lookalike alternative to Twitter, backed by Jack Dorsey, has gained rapid traction among journalists and celebrities in search of an alternative platform.
Big numbers: People are numb to millions, billions and trillions, but that is perhaps exactly what politicians want, writes Sarah O’Connor.
Chart of the day
Chinese initial public offerings have raised more than five times as much money as those in the US this year as a crop of new listings in the world’s biggest economy failed to appear after a dire 2022.
Take a break from the news
Unhedged author Robert Armstrong shares his six favourite venues in midtown Manhattan to have a classic martini. Be sure to share your tips in the comments below this story.
Additional contributions by Tee Zhuo and Emily Goldberg
Source: Economy - ft.com
