Aurelia Butler

(Reuters) – Startup-focused lender SVB Financial Group became the largest bank failure since the financial crisis on Friday, in a sudden collapse that roiled global markets and stranded billions of dollars belonging to companies and investors.California banking regulators closed the bank, which did business as Silicon Valley Bank, on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for later disposition of its assets.The main office and all branches of Silicon Valley Bank will reopen on March 13 and all insured depositors will have full access to their insured deposits no later than Monday morning, the FDIC said. But 89% of the bank’s $175 billion in deposits were uninsured as the end of 2022, according to the FDIC, and their fate remains to be determined. Companies such as video game maker Roblox Corp and streaming device maker Roku (NASDAQ:ROKU) Inc said they had hundreds of millions of deposits at the bank. Roku said its deposits with SVB were largely uninsured, sending its shares down 10% in extended trading.Technology workers whose paychecks relied on the bank were also worried about getting their wages on Friday. An SVB branch in San Francisco showed a note taped to the door telling clients to call a toll-free telephone number. The FDIC said it would seek to sell SVB’s assets and that future dividend payments may be made to uninsured depositors.At times in the past, the FDIC has moved quickly, even striking deals to sell major banks over the weekend. SVB did not respond to calls for comment. Graphic: Silicon Valley Bank’s failure is first since 2020 https://www.reuters.com/graphics/USA-BANKS/SILICONVALLEY/zdpxdxzlwpx/chart.png The collapse sent shockwaves through the startup community, which has come to view the lender as a source of reliable capital.The bank’s customers were met with locked doors on Friday. A client dashboard was down, a UK-based client of the bank told Reuters.Dean Nelson, CEO of Cato Digital, was on a line outside of SVB Santa Clara headquarters, hoping to get answers. Nelson said he was worried about the company’s ability to pay employees and cover expenses. “Access to the cash is the biggest problem for the majority of the companies here. If you’re a startup, cash is king. The cash and the workflow, to be able to have the runway is critical.”The problems at SVB, which quickly escalated after the bank said on Wednesday it would raise money, underscore how a campaign by the U.S. Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market. The worries walloped the banking sector. U.S. banks have lost over $100 billion in stock market value over the past two days, with European banks losing around another $50 billion in value, according to a Reuters calculation. Regional banks sold off on Friday.U.S. lenders First Republic Bank (NYSE:FRC) and Western Alliance (NYSE:WAL) said on Friday their liquidity and deposits remained strong, aiming to calm investors as their shares fell. Others such as Germany’s Commerzbank (ETR:CBKG) issued unusual statements to reassure investors. Some analysts forecast more pain for the sector as the episode spread concern about hidden risks in the banking sector and its vulnerability to the rising cost of money. “There could be a bloodbath next week as banks are in trouble, the short sellers are out there and they are going to attack every single bank, especially the smaller ones,” said Christopher Whalen, chairman of Whalen Global Advisors. U.S. Treasury Secretary Janet Yellen met with banking regulators on Friday expressed “full confidence” in their abilities to respond to the situation, Treasury said.The White House on Friday said it had faith and confidence in U.S. financial regulators, when asked about the failure of SVB. Cecilia Rouse, who chairs the Council of Economic Advisers, said the U.S. banking system was fundamentally stronger than it was during the 2008 financial crisis.”The first bank failure since 2020 is a wake-up call,” said Matthew Goldberg, an analyst at Bankrate. Graphic: SVB stock performance month-to-date https://www.reuters.com/graphics/SVB%20FINANCIAL%20GROUP-STOCK%20OFFERING/zdpxdxzkbpx/chart_eikon.jpg The genesis of SVB’s collapse lies in a rising interest rate environment. As higher interest rates caused the market for initial public offerings to shut down for many startups and made private fundraising more costly, some SVB clients started pulling money out.To fund the redemptions, SVB sold on Wednesday a $21 billion bond portfolio consisting mostly of U.S. Treasuries, and said it would sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole. Its stock collapsed and depositors started to panic. SVB scrambled this week to reassure its venture capital clients their money was safe. By Friday, the collapsing stock price had made its capital raise untenable and sources said the bank tried to look at other options, including a sale, until regulators stepped in and shut the bank down.After the FDIC announcement, employees received an email from the company saying they would be contacted by officials about employment and compensation, according to a source who declined be identified. As of Friday evening, there had not been any further communication from the company or the FDIC, the source said. The last FDIC-insured institution to close was Almena State Bank in Kansas, on October 23, 2020. (Writing By John O’Donnell, Noor Zainab Hussain, Paritosh Bansal; Additional reporting by Niket Nishant, Emma-Victoria Farr, Nathan Frandino, Anna Tong, Krystal Hu, Greg Bensinger, Pete Schroeder, Jo Mason, Marc Jones, Iain Withers, Elizabeth Howcroft, Noel Randewich, Yoruk Bahceli, Lananh Nguyen, Eva Matthews and Nupur Anand; Writing by Nick Zieminski; Editing by Toby Chopra and Anna Driver) More

Yellen met with officials from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on Friday to discuss developments with SVB, which does business as Silicon Valley Bank, Treasury said in a statement.”Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event,” it said.California banking regulators on Friday closed SVB, appointing the FDIC as receiver to protect depositors at the startup-focused lender. Cecilia Rouse, who chairs the Council of Economic Advisers, told reporters at the White House that the U.S. banking system was fundamentally different and stronger than it was during the 2008 financial crisis, and regulators were prepared to use the “better tools” they have developed to protect investments.    Rouse said the Federal Deposit Insurance Corp had stepped in very quickly to protect the deposits of up to $250,000.     “Our banking system is far more resilient than it was in 2008. We’ve learned a lot. We’ve got better tools,” she said.     She noted that banks now had to undergo stress tests and hold more capital than during the last crisis.     “We put in guardrails, and our regulators have much visibility into the banking sector than they did a decade ago.”     In testimony earlier on Friday before the U.S. House of Representatives Ways and Means Committee, Yellen was asked about SVB’s situation and said: “There are recent developments that concern a few banks that I’m monitoring very carefully. And when banks experience financial losses, it is and should be a matter of concern.” More

A top Federal Reserve official has said he is “open to any outcome” regarding the central bank’s conundrum over whether to revert to half-point interest rate rises in the face of unexpectedly strong economic data.Speaking with the Financial Times on Friday, Richmond Fed president Thomas Barkin, who has previously been an advocate of quarter-point rate rises, said he had not made a decision about the forthcoming increase.However, he said that “on any particular meeting, I’ve always said I’m open to any outcome”, noting that he would “never take something off the table”.“Last time we chose to move it up 25 [basis points]. Just because you’ve moved it 25 at one meeting doesn’t mean that is what you have to move at every meeting.”Barkin’s comments echo similar sentiments this week from Fed chair Jay Powell, who indicated his openness to reintroducing half-point rate rises if warranted by incoming data. Reports on inflation and spending are due to be released next week.They come as the Fed faces a particularly troublesome decision over whether to change course following a series of data releases showing that inflation remains stubbornly high despite the central bank’s historic monetary tightening campaign.Since last March, the Fed has raised its benchmark rate from near-zero to just below 4.75 per cent, repeatedly moving in half-point and three-quarter-point increments until shifting down to a more traditional quarter-point pace in February.Barkin’s comments come on the heels of the latest jobs report, which showed the US economy registering yet another month of robust gains. In February, payrolls swelled by more than 300,000, a step down from the roughly half a million positions added the previous month, but still well in excess of the level Fed officials deem to be in line with cooling economic activity.The stronger-than-expected jobs growth was tempered by figures showing slower wage growth and higher unemployment as more people entered the workforce.Barkin, who was speaking on the final day before the “blackout period” ahead of the March 21-22 meeting — when officials’ public communications are limited — said February’s jobs data provided a mixed picture.“It didn’t give much of a signal of demand deceleration, but it did give a stronger signal on the supply normalisation.”He said he would be watching closely for further evidence as to whether January’s data, which suggested renewed economic momentum and higher price pressures, was a one-off or the start of a more worrisome reacceleration.“Philosophically, you wouldn’t want to overreact to any one round of data. On the other hand, when you see it happening multiple times, maybe it is a trend.”He reiterated that he “like[s] the fact that we’re on a more deliberate path here than we were last year”, referring to the more measured pace of recent rate rises, saying such cautiousness gives the Fed time to understand how its actions are impacting the economy.According to CME Group, the odds of a half-point rate rise have fallen rapidly over the past day, against the backdrop of the implosion of tech lender Silicon Valley Bank, which was shuttered by banking regulators on Friday in the second-largest bank failure in US history.

Asked about the potential implications of SVB’s collapse for the Fed’s monetary campaign, Barkin said he is chiefly focused on economic demand, on which financial stability “may or may not have an impact”.Barkin, who will not be a voting member on the Federal Open Market Committee until next year, pushed back against the notion that there was an “upward limit” on how high the Fed’s policy rate may need to rise this tightening campaign.“I would continue to respond until we get inflation under control,” he said, adding that he would not be “surprised” if officials’ projections due to be published later this month will be revised higher than the 5.1 per cent level forecast in December. More

NEW YORK (Reuters) – A critical inflation report next week will test a U.S. stock market already consumed by worries over Federal Reserve hawkishness and potential fallout from the largest bank failure since the financial crisis.Friday’s mixed U.S. jobs report eased some worries about big rate hikes, days after Fed Chair Jerome Powell warned that policymakers may raise rates higher than expected if upcoming data showed the economy remains hot after nearly a year of tightening.A hotter-than-expected consumer price report on Tuesday, however, could reignite fears of jumbo-sized Fed rate hikes like those that rocked markets last year. That would be unwelcome to a market on tenterhooks following this week’s failure of SVB Financial Group, which does business as Silicon Valley Bank.“There is uncertainty revolving around the inflation report and there is a lot of confusion caused by SVB’s failure and worry that it might be a bigger problem,” said Robert Pavlik, senior portfolio manager at Dakota Wealth. “The market is dealing with confusion and uncertainty in a very short time frame.”The S&P 500 sank on Friday, bringing the weekly loss to 4.5%. After a big rebound in January, the benchmark index is now clinging to a 0.6% gain for 2023.Investors are growing nervous that the Fed’s campaign to fight inflation by ending the era of cheap money has exposed cracks in the economy that could widen if it ratchets up its rate hikes.Traders were on guard for signs of contagion in the financial sector and beyond in the wake of troubles for SVB and crypto-focused Silvergate, which this week disclosed plans to wind down operations and voluntarily liquidate.”The concerns emanating from the financial sector are rippling across the market in general,” said Michael James, managing director of equity trading at Wedbush Securities. “When you combine the debacle of Silvergate with the collapse of Silicon Valley Bank … that’s creating a ripple effect of concern for the overall market stability.”On Friday, markets appeared to be dialing down their expectations for Fed hawkishness, pricing in a 40% chance that the central bank will raise rates by 50 basis points at their March 21-22 meeting, according to CME’s Fedwatch tool. Those odds stood at around 70% as recently as Thursday, but abated on Friday after investors saw the employment data and gained more clarity on the extent of SVB’s troubles. Late on Friday, yields on two-year U.S. Treasuries, which closely follow Fed policy expectations, were on track for their biggest two-day basis-point drop since September 2008.“The Fed now has very clear evidence that they are having an impact on the financial system and the economy — rate hikes are starting to bite – and while that’s not enough to give them pause, it is something they will take into consideration,” wrote Mark Haefele, Chief Investment Officer at UBS Global Wealth Management in a Friday report.Rate expectations could again change dramatically if the CPI report for February comes in above the year-over-year increase of 6% expected by analysts polled by Reuters. The consumer price report is followed the next day by more inflation data, on producer prices.While moderation of annual inflation from a peak of 9% last year to current levels was the “easy move”, going from 6% to 3% will be more difficult, said John Lynch, chief investment officer for Comerica (NYSE:CMA) Wealth Management.FOCUS ON INFLATIONMarkets have been more volatile on average on CPI days over the past year, with the S&P 500 moving an average of 1.8% in either direction on those days against an average 1.2% daily move overall in that time frame. Midday on Friday, S&P 500 Index options implied that the CPI print would move the index 1.8% in either direction in the hour following the data release, according to Optiver data. Volatility surged on Friday, with the Cboe Volatility Index, known as Wall Street’s fear gauge, hitting its highest level since late October amid a broad equities selloff.Besides signs of falling inflation, reassurance for investors could come if it became clearer that SVB’s issues were unlikely to spread. “If banks are saying that their finances are in good shape and they are not seeing the same issues to that extent, then that would go to stabilizing the market a bit,” said James Ragan, director of wealth management research at D.A. Davidson. More

The government has briefed U.S. companies about the plan and told them it expects to announce the restrictions as early as next month, the report said.The Biden administration plans to coordinate with the Netherlands and Japan, according to the report. This week, Dutch government said it plans new restrictions on semiconductor technology exports to China to protect national security.Chinese foreign ministry spokesperson Mao Ning said on Thursday that China was firmly opposed to the restrictions as a means “to intervene and limit normal economic and trade exchanges between Chinese and Dutch companies.”The U.S. had imposed a slew of export restrictions late last year including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment. More