Raphael Stevens

Monitors display Coinbase signage during the company’s initial public offering (IPO) at the Nasdaq MarketSite in New York, on Wednesday, April 14, 2021.
Michael Nagle | Bloomberg | Getty Images

Check out the companies making headlines in premarket trading.
Coinbase — Shares of the cryptocurrency trading app dropped more than 11% in premarket trading after Coinbase received a Wells notice from the Securities and Exchange Commission. Oppenheimer also downgraded the stock to perform from outperform, citing the Wells notice and concerns over blockchain development in the U.S. The Biden administration also criticized the overall digital asset sector. Jefferies and Key Banc also raised concerns surrounding Coinbase.

First Republic, PacWest — The two regional banks traded higher coming off Wednesday’s selloff. First Republic advanced 5.6% after losing 15.5% in Wednesday’s session. PacWest added 4.7%, regaining some ground following Wednesday’s 17.1% drop.
Regions Financial — Shares of the regional bank edged 1.3% higher in premarket trading. Regions slid more than 6% on Wednesday after the Fed’s decision to increase benchmark interest rates by 25 basis points and on comments from Chair Jerome Powell that the banking system is well equipped and safe.
Chewy — Shares of the pet products e-commerce company fell more than 5% despite Chewy beating estimates on the top and bottom lines for the fourth quarter. The company reported earnings of 1 cent per share on $2.71 billion of revenue. Analysts surveyed by Refinitiv had penciled in a loss of 11 cents per share on $2.64 billion of revenue. However, the company’s active users metric was marginally lower year over year.
AMC — The movie theater giant gained 2.5%. The advance in AMC stock comes despite Citi resuming coverage of the company with a sell rating, citing an overvalued common equity. A day earlier, fellow meme stock GameStop soared.
Carvana — Carvana shares popped 4.5%, building on their 6.3% advance from the previous session. The company on Wednesday issued better-than-expected guidance for the first quarter. Carvana also plans to allow current bond holders to exchange unsecured notes at a premium price in exchange for new ones, CNBC previously reported.

Alibaba — The Chinese tech giant gained 4.3%, building on gains from a day earlier. To be sure, the stock has struggled this year, losing 5%.
Ford — Shares ticked up 1.3% in premarket trading. Ford is expected to start reporting by business unit instead of by region.
— CNBC’s Alexander Harring and Jesse Pound contributed reporting

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“The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a ‘viability event,’ in particular if extraordinary government support is granted,” FINMA said in a statement Thursday.
“As Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023, these contractual conditions were met for the AT1 instruments issued by the bank,” it added.

Axel Lehmann, chairman of Credit Suisse Group AG, Colm Kelleher, chairman of UBS Group AG, Karin Keller-Sutter, Switzerland’s finance minister, Alain Berset, Switzerland’s president, Thomas Jordan, president of the Swiss National Bank (SNB), Marlene Amstad, chairperson of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a news conference in Bern, Switzerland, on Sunday, March 19, 2023.
Pascal Mora | Bloomberg | Getty Images

Swiss regulator FINMA on Thursday defended its decision to instruct Credit Suisse to write down its AT1 bonds — a controversial part of the lender’s emergency sale to UBS — saying it was a “viability event.”
The regulator said the loan Credit Suisse received from the Swiss National Bank last week, backed by the federal government, meant the conditions for a writedown had been met.

The regulator instructed Credit Suisse to write down 16 billion Swiss francs of AT1 bonds, widely regarded as relatively risky investments, to zero, while equity shareholders will receive payouts at the stock’s takeover value.
This decision upended the usual European hierarchy of restitution in the event of a bank failure under the post-financial crisis Basel III framework, which ordinarily places AT1 bondholders above stock investors. Bondholders are exploring legal action over the contentious writedown.
“The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a ‘viability event,’ in particular if extraordinary government support is granted,” FINMA said in a statement Thursday.
“As Credit Suisse received extraordinary liquidity assistance loans secured by a federal default guarantee on 19 March 2023, these contractual conditions were met for the AT1 instruments issued by the bank.”
After its share price plunged to an all-time low last week, Credit Suisse announced that it had secured a loan of up to 50 billion Swiss francs from the Swiss National Bank, and provided substantial liquidity assistance to the lender as authorities scrambled to put together a rescue deal on Sunday.

The Swiss federal government enacted an emergency ordinance to guarantee the additional liquidity assistance from the SNB to Credit Suisse, in order to ensure the successful implementation of the UBS takeover.
The ordinance also authorized FINMA to “order the borrower and the financial group to write down Additional Tier 1 capital,” the regulator said Thursday.
“On Sunday, a solution could be found to protect clients, the financial centre and the markets,” said FINMA CEO Urban Angehrn.
“In this context, it is important that CS’s banking business continues to function smoothly and without interruption. That is now the case.”
Swiss National Bank Chairman Thomas Jordan acknowledged in a press conference on Thursday that the UBS absorption of Credit Suisse creates “a new situation for the advisory authority” in terms of the new entity’s scale and competition considerations.
“UBS will be a very big bank and competition issues will be relevant as well … we have to make sure in the future in Switzerland there will be enough competition for banking services,” Jordan said.
“The focus has to be on ensuring that we can maintain financial stability under all circumstances and that the closing of the deal will be smooth and fast.”
The deal creates a business with more than $5 trillion in invested assets, but UBS has said it will look to downsize some parts of the acquired Credit Suisse businesses.

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Over the past two weeks, a flurry of proposals to reshape Europe’s economic model has emerged from the Berlaymont, a cruciform building in Brussels, which is home to the European Commission. The commission usually fiercely guards the eu’s rules. But things are now in flux. The proposals contain ideas for how governments can help companies invest in green technology, cut reliance on dominant suppliers (read: China) and boost industry. On March 23rd, after we went to press, leaders from the eu’s 27 member states were due to come together to discuss the changes and set plans in motion. The discussions may reshape the bloc’s very core. The eu is in essence the deepest and most comprehensive free-trade agreement in the world. Restrictions on subsidies, along with common rules and regulations, some extremely stringent, ensure a level playing-field. This market-mindedness is reflected in the fact that the eu has long had a carbon-trading scheme for industry and electricity generation, which will in time be extended to heating and transport. The eu is relatively open to trade and investment from the outside world, too. Only agriculture remains subsidised and protected from competition. Yet the bloc’s leaders worry this openness has left Europe exposed. America’s protectionism and China’s rising assertiveness are seen as evidence that old certainties must now be reconsidered. In the eyes of many, the urgency of climate change, disruptions during the covid-19 pandemic and Russia’s invasion of Ukraine only underline the need for the eu to take a more interventionist role. The next generation of European subsidies will not be combined with the sort of protectionist “buy local” clauses favoured in America. These would violate wto rules which the eu, at least, still thinks are important. But the commission is determined to bolster the continent’s manufacturers and reduce dependence on China as it spends on the green transition. This will require big changes to the internal market, trade policy and state-aid rules. Dirigiste directionsThe most straightforward reforms relate to domestic policies. Countries in Europe are trying to shorten permitting times for green projects, lighten administrative burdens and train the workforce in the skills it needs to make heat pumps and install solar panels. The commission also wants them to introduce “regulatory sandboxes”, to allow for deviation from ordinary rules so that innovative firms can experiment. New eu rules would provide extra incentive to get going on this.The commission also wants to sign long-term agreements with countries that supply crucial raw materials, such as lithium and rare-earth metals. This could prove trickier, as Europe is not the only place in need of these minerals. If European politicians demand lots of green standards are met when sourcing the materials, countries might simply strike deals with other buyers. As painful as it will be for Europe, the continent’s leaders may have to make peace with dodgy practices. Forthcoming negotiations with America—about access to its markets for Europe’s raw materials—might help familiarise the continent’s leaders with uncomfortable trade-offs.The most significant rule changes involve experiments with protectionism. The commission wants national leaders to agree to domestic-production targets, something at odds with the bloc’s usual market-minded approach. At the moment these are mere ambitions. They state that, among things deemed “strategic technologies”, including heat pumps and solar panels, the eu should produce 40% of what it uses. They also state that the eu should mine 10% and refine 40% of the resources needed for the green transition. If formally adopted, the targets could end up shaping policy on state aid, subsidies and trade. The commission also plans to allow governments to subsidise green investment more freely. In early March, under pressure from national governments led by France, it relaxed strict state-aid rules, which had prevented governments from tilting the playing-field in favour of domestic firms. Now countries can more generously support companies that want to make factories greener or expand renewable-energy production. The new approach looks beyond Europe’s shores. It would allow governments to pay firms to invest in the bloc by matching subsidies they are offered by other countries, a move designed to counter America’s new regime.Plans to get governments to diversify when handing out subsidies and buying stuff are more nuanced. The commission wants governments to take the way a supplier might contribute to the bloc’s “resilience” into account when making decisions—code for moving away from China. If a supplier dominates the eu market, selling more than 65% of a particular good, it is considered a problem. Yet there is a carve-out. If the price difference between options is more than 10% firms would be allowed to plump for the cheaper (Chinese) one.Imagine the red tape. In the fight for Europe’s economic soul, Britain’s absence as a supporter of markets will be keenly felt by former allies. Germany will need to take a stand against intervention (and thus France). But its politicians are wavering. The country’s coalition government does not agree on many of the issues, and as the eu’s biggest industrial economy, with deep pockets to boot, Germany stands to benefit from inward-looking policy. Thus the continent’s rule-book is about to undergo sweeping changes. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

What kind of story is unfolding in the banking system? At first glance it would appear to be a tragic drama. In the past fortnight, four banks have met their end: two crypto lenders, the dominant bank in Silicon Valley and most recently a global systemically important bank. There have been 11th-hour interventions to protect customers, the creation of emergency-lending facilities and a marriage between two giant rival firms. But look again and perhaps it is a science-fiction tale. Thomas Philippon, a professor of finance at New York University (nyu), is experiencing the vertigo of time travel. “It really feels like we are back in the 1980s,” he said at a recent talk. In that decade, high inflation prompted extreme monetary tightening, which was meted out with enthusiasm by Paul Volcker, chairman of the Federal Reserve. This undermined the health of “savings and loans” banks (s&ls), consumer-savings institutions also known as “thrifts”, which mostly lent long-term fixed-rate mortgages. They faced a cap on the rate they could pay on deposits, which led to flight. And they held fixed-rate assets. When interest rates rose, these mortgages lost a considerable amount of value—essentially wiping out the thrift industry’s net worth. The dynamic will sound familiar to anyone who has paid attention to Silicon Valley Bank (svb), where a rate shock slashed the value of its fixed-rate assets, prompting deposit flight and the institution’s collapse. The question now is whether what happened over the past fortnight was a brutal crunch or the start of a long, drawn-out process, as in the 1980s. The answer depends on the extent to which svb’s problems are found elsewhere. Start with the value of financial institutions’ assets. Banks regularly publish data on the losses they face on fixed-rate assets, such as bond portfolios. If these assets had to be liquidated tomorrow the industry would lose nearly a third of its capital base. Worryingly, one in ten institutions looks more poorly capitalised than svb. However, that is a big “if”. Such paper losses remain hypothetical so long as depositors stick around. A recent paper by Itamar Drechsler of the University of Pennsylvania and co-authors points out that bank deposits, which tend to be stable and interest-rate insensitive, are a natural hedge for the sort of long-term, fixed-rate lending that banks favour. The paper argues “banks closely match the interest-rate sensitivities of their interest income and expense”, which produces remarkably stable net-interest margins. This explains why bank share prices do not collapse every time rates rise, instead falling just as much as the broader market does.The clearest evidence of flight is from two California-based banks. First Republic has reportedly lost $70bn in deposits—around 40% of its total as of the end of 2022—since svb failed. Lots of the lender’s clients are wealthy individuals, who appear to be quickest to pull deposits. On March 17th First Republic arranged for 11 major banks to park $30bn-worth of deposits with it. It is now reported to be seeking additional support from financial institutions and possibly the government, too. On March 21st PacWest, another Californian lender, reported it had lost a fifth of its deposits since the start of 2023. Banks suffering from deposit flight, such as First Republic and PacWest, can turn to other financial institutions for liquidity—or they can turn to the Fed’s newly expanded lending facilities. Official data indicate that American banks borrowed $300bn from various Fed programmes in the week to March 15th. There are some indications that most of the borrowing that was not done by already failed banks—namely, svb and Signature—was done by west-coast banks, including First Republic and PacWest. Indeed, some $233bn of the total was lent by the San Francisco Fed, which covers banks west of Colorado. On March 21st PacWest revealed that it had so far borrowed a total of $16bn from various Fed facilities to shore up its liquidity. There was at most around $2bn-worth of borrowing from any of the Fed banks that support other regions of the country, indicating that banks in other states have yet to face debilitating deposit flight. Policymakers must now wait to see if more banks come forward. It will be an uncomfortable pause. Regional and community banks play an important role in the American economy, and do about half the country’s commercial lending. Smaller banks are particularly dominant in commercial property. They hold nearly 80% of commercial mortgages provided by banks. The temptation, which American officials have been vague about, is to ensure smaller banks do not lose their deposits by guaranteeing the lot of them. AaaaarrggggghhhhhThis could create a grim scenario: a zombie-horror flick. At least that is the argument made by Viral Acharya, also of nyu. Banks with flighty deposit bases and losses on their assets are exposed to real losses. The worst-possible outcome, reckons Mr Acharya, is that “you leave the banks undercapitalised but you say that all depositors of weak banks are safe”. This kind of intervention, he says, is common historically and “whenever this has been done—it happened in Japan, happened in Europe, routinely happens in China and India—you get zombie banks”. These have no capital, are backstopped by governments and “tend to do a tonne of bad lending”. He points to the Bank of Cyprus, which was undercapitalised in 2012: “They bet the entire house on Greek debt even when Greece was actually blowing up. Why did they do that? Well, they had stable deposits, no one was folding them up, they had no equity left—and then soon after you had a spectacular bank failure.” The thrift crisis in America in the 1980s was ultimately so costly because the initial response—when the thrifts faced losses of around $25bn—was one of forbearance. Many insolvent thrifts were allowed to stay open as part of an attempt to allow them to grow out of their losses. But their problems only worsened. They, too, came to be known as “zombies”. Just like the Bank of Cyprus, these zombies went for broke by investing in riskier and riskier projects, hoping that they would pay off in higher returns. By the time the returns did materialise, the zombies were insolvent. The eventual bail-out cost taxpayers $125bn, five times what it would have done if regulators had bitten the bullet earlier. Allowing that kind of zombie flick to play out again would be a real tragedy. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Collateral is usually a boring affair. Valuing assets and extending credit against them is the preoccupation of the mortgage banker and the repo trader, who arranges trillions of dollars a day in repurchase agreements for very short-term government bonds. This activity is called financial plumbing for a reason: it is crucial but unsexy. And like ordinary plumbing, you hear about it only when something has gone wrong.Now is one of those times. On March 16th the Swiss National Bank extended $54bn to Credit Suisse, backed by the bank’s collateral, in a move that turned out to be insufficient to save the 167-year-old institution. On March 19th America’s Federal Reserve announced it would reactivate daily dollar swap lines with Britain, Canada, the euro area, Japan and Switzerland. The central banks of these economies can now borrow dollars from the Fed at a fixed exchange rate for short periods, backed by their own currencies, and lend them on to local financial firms. In normal times assets that are exposed to little risk, and thought unlikely to swing much in value, underpin lots of market activity. Government bonds and property are typical examples of collateral. Commodities, corporate credit and stocks are riskier but also sometimes employed. Both sorts of collateral are at the root of many financial crises.The perception of safety is the reason why risks eventually emerge. The safer assets are thought to be, the more comfortable a lender is extending credit against them. Sometimes the assets are themselves safe, but the lending they enable (and the use of the money) is not. This tension between safety and risk can prompt financial panics. At other times, the problem is simple misjudgment. The activities of Silicon Valley Bank (svb) were in essence a leveraged bet on assets its bankers believed to be solid: long-dated mortgage and Treasury bonds. The firm’s management believed it could safely borrow money—namely, that owed to depositors in the bank—against these reliable assets. The subsequent rapid drop in price of the assets was ultimately the cause of the bank’s downfall.During the global financial crisis of 2007-09, the belief in the unimpeachable safety of the American mortgage market led to an explosion in collateralised lending. The blow-up did not even require actual defaults in mortgage-backed securities. The mere shift in the probability of default raised the value of credit-default swaps, and the liabilities of firms that sold the products, which was sufficient to sink institutions that had sold enormous volumes of the swaps. In Japan in the early 1990s a collapse in land prices, the preferred collateral of domestic banks, led to a slow-burning series of financial crises that lasted for longer than a decade.Crises do not only reveal where collateral has been wrongly judged to be safe. They are also the source of innovations that upend how collateral works. In response to the panic of 1866, caused by the collapse of Overend, Gurney & Company, a wholesale bank in London, Walter Bagehot, a former editor of this newspaper, popularised the idea of central banks operating as lenders of last resort to private financial institutions, against sound collateral. The daily swap lines recently reactivated by the Fed were introduced in the financial crisis and reopened in the early period of covid-19.The Fed’s “Bank Term Funding Programme”, introduced after the collapse of svb, is the first innovation in collateral policy during the present financial wobble. The programme’s generosity is both new and shocking. A 30-year Treasury bond issued in 2016 is worth around a quarter less than its face value in the market today, but is valued at face value by the Fed if an institution pledges it as collateral. In the programme’s first week, banks borrowed nearly $12bn, as well as a record $153bn from the central bank’s ordinary discount window, at which banks can now borrow without the usual haircut on their collateral.The programme could change the understanding of collateral that has built up over the past 150 years. If investors expect the facility to become part of the regular panic-fighting toolkit, as swap lines have, then long-maturity bonds would enjoy a new and very valuable backstop. This would mean that financial institutions benefit when interest rates fall and their bonds rise in value; and when rates rise and the bonds slump in value, the Fed comes to the rescue. In an attempt to remove the risk of sudden collapses, and make the financial system safer, policymakers may in the long run have done just the opposite.Read more from Buttonwood, our columnist on financial markets:Why commodities shine in a time of stagflation (Mar 9th)The anti-ESG industry is taking investors for a ride (Mar 2nd)Despite the bullish talk, Wall Street has China reservations (Feb 23rd)Also: How the Buttonwood column got its name More