Aurelia Butler

Once was a bank, run by wokiesDidn’t hedge, now it’s brokiesA biased deposit base, ironic thatTime to pass around the hatWhat a week. This time it’s different, but it sure feels like déjà vu all over again. Big moves in markets. Discount windows. I’ve taken to poetry to keep sane. My funds are bloodied. Yours too, I’m guessing.The temptation “to do something” is overwhelming. Sell. No, buy! Put your cash in a suitcase. UK readers are also digesting a Budget unusually rammed with morsels. More on this next week.The best approach is to keep an investor view. Relate each event to moves in asset prices. Where are valuations now? What is discounted? Weigh up risk and reward. Stay calm and analyse the numbers.Let’s start with Silicon Valley Bank. Personally, I wouldn’t have given it a dime — preferring lenders with names such as Morgan or Rothschilds in them, or banks that sound like countries. A west coast bunch of start-up-loving bean bag sitters? No way.Like many, including European regulators, I’m surprised at the generosity of the US bailout, not to mention the irony of it. These were the disrupters. They boasted of breaking things. One small crack, however, and they ran to mummy. In the UK too.

For investors, though, SVB and subsequent spasms are helpful in my view. I wrote last week that policymakers would eventually “bottle it” when it came to raising rates — too painful. But how to do so without losing face? The European Central bank went 50 basis points on Thursday, but dropped its hawkish stance. Others may follow.Markets agree. For a brief while on Monday, futures were pricing in two 25 basis point cuts by the Federal Reserve this year. Only weeks ago, another increase was expected this month. No wonder bonds are flapping like geese in a gale. Ten-year Treasury yields have round-tripped by more than 100 basis points this week alone.Yields are now lower across the board, which when the dust settles will comfort equity owners (wrongly, but there you go). And with inflation still around, real interest rates may have peaked for now. This helps traditional bonds and their inflation-protected cousins.Meanwhile, bailouts, looser money and lifelines to the likes of Credit Suisse and First Republic will support bank shares in the short run. But lower net interest margins are ultimately bad for bank earnings. The sector is cheap, though, at 1.1 times book value.And there are quality banks with price-to-earnings ratios barely in double digits. A counter argument is that stronger regulations and capital requirements are surely coming. Maybe. No doubt Wall Street rushed to deposit $30bn with First Republic in order to show it can look after itself. As an investor I’d welcome a tad more intrusion — if not from regulators. To understand why, join me a dozen years ago sitting opposite Congressman Barney Frank at the White House Correspondents dinner. We were swapping financial crisis war stories while a senior banker showed us photos of his new yacht (clue: it’s probably rigged and ready to sail).

If you’d told Barney then what banks would look like now, he would have laughed. His Dodd-Frank Wall Street Reform and Consumer Protection Act had recently overhauled everything from consumer protection to derivatives trading. Change was coming. And yet banks are more or less the same today.We knew there would be more crises. But at least everyone hoped section 951 of the law would make a difference. It gave shareholders a “say on pay”. If banks were essentially underwritten by the state, we thought, surely over time excessive wages would be forced down.This hasn’t happened, either. If you take the 10 biggest US lenders, for example, average employee compensation as a percentage of revenues is four percentage points higher since the financial crisis than in the boom years preceding it, according to CapitalIQ data.Shameless. But it explains why banks have tried their darndest to have us forget we bailed them out. Yet bankers are still remunerated as if they are owners or entrepreneurs taking personal risk.Hopefully, the $300bn of Fed support this time round will remind everyone what nonsense this is. Especially shareholders, who have watched as employees at many banks line their pockets while suffering a below cost of equity return.But I see this as a glass half full. Earnings multiples for banks are already tempting, as I showed above. They would be even more attractive if bankers were paid salaries and bonuses more in line with other professions, such as accountancy and law.By my calculations — again for the US’s top 10 — reducing banker pay by just a third would increase net income margins and returns on equity by 10 and four percentage points respectively. For an industry with middle-office staff earning six-figure packages, a halving in compensation is more the ballpark I reckon. This not only suggests an upside for shares, it would help remove moral hazard. Lenders know they are paid like rock stars when times are good, while idiot taxpayers pick up the tab when the stage lights explode, setting everyone’s hair on fire.All of this means I’m very seriously looking at bank sector ETFs at the moment. I wrote about them briefly in January when shares were much higher than they are now. Anyone got any fund suggestions to share? If not, a poem?The author is a former portfolio manager. Email:[email protected]; Twitter:@stuartkirk__This article has been amended to correct the increase in ECB interest rates More

LONDON (Reuters) – Credit Suisse (S:CSGN) saw more than $450 million in net outflows from its U.S. and European managed funds from March 13 to 15, Morningstar Direct said on Friday, as retail and institutional counterparties pulled money out of funds managed by the embattled Swiss lender. The more than 300 European funds managed by the bank had an estimated net inflow of just over $14 million on March 13. By March 14 that had flipped to net outflows of $205 million, data provider Morningstar said. On March 15 there were net outflows of just over $211 million, it said.More than 20 U.S. funds tracked showed a $22,000 net outflow on March 13 which widened to $20 million the next day and to $29 million on March 15, Morningstar said. (Graphic: Credit Suisse outflow – https://www.reuters.com/graphics/CREDITSUISSEGROUPAG-FUNDS/byprlmrqkpe/chart.png) Data after March 15 was yet to be collected and not all funds report daily, Morningstar said. The data included open-end funds and exchange traded products, it said. Credit Suisse shares hit record lows on Wednesday after its main shareholder, the Saudi National Bank, said it could not invest more money for regulatory reasons. On Thursday, the bank tapped the option of a $54 billion loan from the Swiss National Bank, helping the shares to recover.Yet sentiment remained fragile and on Friday Credit Suisse shares were last down more than 10%. The lender confirmed last month that clients had pulled out 110 billion Swiss francs ($118.71 billion) of funds in the fourth quarter while the bank reported an annual loss of 7.29 billion Swiss francs ($7.87 billion), its largest since the 2007-08 financial crisis. Credit Suisse Group’s average liquidity coverage ratio, a measure of how much cash-like assets the bank has, did not change between March 8 and March 14, it said on Thursday.($1 = 0.9266 Swiss francs) More

WASHINGTON (Reuters) -A Republican proposal to cancel unspent COVID-19 relief money could undercut healthcare for military veterans and pensions for blue-collar workers while doing little to improve the U.S. fiscal picture, a Reuters review of federal spending figures found.The flood of COVID-relief aid — $5.2 trillion in all — that Congress approved in 2020 and 2021 under Republican President Donald Trump and his Democratic successor Joe Biden has emerged as an early target for House of Representatives Republicans as they search for ways to rein in federal spending.House Republicans, who hold the majority in that chamber, have said the will not vote to raise the federal government’s $31.4 trillion debt limit without a deal to cut spending. Failure to raise the limit would lead to a default that would shake the economy.But unspent COVID aid is a small target, with less than $80 billion unspent as of January, White House budget figures show. Medical programs to combat the virus have run through most of their funding and the expanded safety-net programs that helped Americans weather the disruption have largely run their course.That total — 1.5% of the amount authorized by Congress — will decline further in coming months as federal agencies continue to push money out the door. Federal spending on health care and food stamps is also due to decline when Biden allows the government’s public-health emergency to expire in May.”At this point we are so late in the game that we are just not going to recover much,” said Marc Goldwein, a policy director at the Center for a Responsible Federal Budget, a nonpartisan watchdog group.Republicans say that’s no reason to ignore the remaining money as they assemble a spending-cut proposal.”Clawing back any unspent funds from the trillions that Washington flooded the economy with during the pandemic is an obvious starting place for any debt ceiling discussion,” said Tim Reitz, executive director of the House Freedom Caucus, one of several Republican groups that has said the remaining aid should be canceled.Democrats and Republicans have largely agreed not to trim the Social Security and Medicare programs, which account for about one-third of the nation’s $6.2 trillion budget, leaving lawmakers to look for smaller targets for cuts. CARPENTERS, VETERANS AND MEDICAL RESEARCHReclaiming unspent COVID funds would have real-world repercussions. The largest chunk, $47 billion, is earmarked for financially troubled union pension funds that have asked the federal Pension Benefit Guaranty Corporation for help. The agency prioritized the most troubled pension funds first and is now working with those that are less in need of immediate aid, a White House official said.If Congress reclaimed that money, fishermen in Massachusetts and carpenters in Ohio, would be among the roughly 1 million union workers that would not receive their full retirement benefits. A clawback could also affect veterans’ healthcare, as the Department of Veterans Affairs has yet to spend $4.6 billion of the money it received for COVID-19 related care. The health system is currently treating 4,500 patients for the disease, according to an agency dashboard.Another $6.8 billion remains to fight the virus itself by developing improved vaccines and tests and researching topics like long COVID, according to the White House.Other remaining pots of money include $3.2 billion for small business aid and $2.5 billion for bus and subway systems that have struggled with declining fare revenue. Much of that money has been designated for specific recipients, according to the White House.”Some people want to create a false sense that there’s some big stack of money that nobody has gotten around to that can be painlessly clawed back,” White House adviser Gene Sperling said in an interview. “But when you look at the facts, you see that nearly all of the funds have been obligated and that even the percent or two that haven’t been are going out as they were designed to by law.”SOME MONEY WON’T BE SPENTSome funding that remains on the books will never be spent, and thus offers no potential budget savings. The Transportation Department handed out less than $700 million from a $3 billion fund that aimed to preserve airplane-manufacturing jobs after several major firms declined to participate, for example.Businesses also claimed less than Congress anticipated in tax breaks to keep employees on the payroll and provide COVID-related sick leave, according to the U.S. Government Accountability Office.RED STATES REJECT SOME MONEYSome Republican-led states opted out of expanded unemployment and food-stamp benefits, saying they discouraged work. That led the federal government to spend less than it would have otherwise.Republican governors of Nebraska and Arkansas last year rejected a second round of aid for people behind on their rent. Those dollars were then given to other states.But Republican and Democratic-led states alike accepted $350 billion in 2021 and 2022. They have until the end of 2024 to decide how to spend it and until the end of 2026 to actually do so. That money sits in state and local government coffers, beyond the reach of Congress. Republican Senator Rick Scott in January urged governors and mayors to voluntarily return that money to help pay down federal debt. The Treasury Department said it had not seen many state and local governments return funds, though it did not provide a specific dollar amount. More

The UK public’s expectations of inflation have eased to a 16-month low, according to data published on Friday that could add to the case for the Bank of England to leave interest rates at 4 per cent next week. The central bank’s latest quarterly survey found that, in February, households’ average expectation of the rate of inflation in the year ahead was 3.9 per cent, down from 4.8 per cent in November last year and the lowest since November 2021.Asked about expected inflation in the 12 months beyond February 2024, respondents on average said it would be 3 per cent, down from 3.4 per cent in the previous survey and also the lowest figure in more than a year.Coming ahead of Thursday’s meeting of the BoE’s Monetary Policy Committee, which sets interest rate policy, the fall will be welcomed by policymakers, who feared that high price growth expectations could result in longer-lasting inflation.If people believe that prices will rise rapidly in future they are more likely to push for larger pay increases, with businesses responding by putting their prices up.Expectations of long-term inflation also declined to 3 per cent, down from a peak of 3.5 per cent in May last year, according to the survey. In a push to curb high inflation, the MPC has increased rates from 0.1 per cent in November 2021 to a 15-year high of 4 per cent now, over 11 consecutive meetings. But as the impact of rising borrowing costs has become more visible, economists and markets are divided over what the committee will do on Thursday. Markets are pricing in an almost equally split probability of a 25 percentage point increase or no change. Martin Beck, chief economic adviser to the EY Item Club, a forecasting house, said the “significant” fall in inflation expectations offered “the MPC another reason to keep interest rates unchanged” at its next meeting.

“Combined with an unexpected easing in service sector inflation and pay growth in the latest numbers, further falls in energy prices, and market turmoil following banking sector issues abroad, the findings of the BoE’s latest survey mean the case for raising interest rates again is looking increasingly weak,” he said. However, Paul Dales, chief UK economist at Capital Economics, a consultancy, said he expected the MPC to lift rates again to 4.25 per cent. With inflation proving stickier than expected in other countries, including the US and eurozone, “there is an appeal in erring on the side of caution to make sure the job is done”, he said.Compared with the last quarterly survey, fewer respondents expected interest rates to continue rising, and more thought they would stay unchanged over the coming year.Public dissatisfaction with the BoE’s approach to tackling inflation also eased to 30 per cent, down from an all-time peak of 35 per cent in November last year but still higher than the long-term average. More