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Credit Suisse and First Republic are the latest banks in peril. What’s happening?



A number of banks around the world are facing significant stock hits amid a crisis of confidence spreading from the collapse of Silicon Valley Bank.

Credit Suisse’s share price has whipsawed this week as fears about the Swiss bank’s future were swiftly met with an offer of liquidity from Switzerland’s central bank.

In a similar case on Thursday, First Republic Bank in the U.S. was given a capital injection from some of its fellow lenders amid growing fears it would join SVB and New York-based Signature Bank in going under.

Financial officials across the world are moving in lock-step to reassure consumers that the global banking environment is secure, as experts say that fear, if left unchecked, could be “catastrophic” for the financial system.


Here’s what to know.


What’s the latest?

Credit Suisse sought to shore up its liquidity and restore investor confidence on Thursday by borrowing up to US$54 billion from Switzerland’s central bank, marking the first major international bank to be thrown a lifeline since the 2008 financial crisis.

Credit Suisse, one of Switzerland’s largest banks, has already been in the spotlight over recent months amid a string of losses and management failures. But that scrutiny intensified this week when its largest shareholder, the Saudi National Bank, said it would not buy up more of the Swiss bank’s shares.

That sent Credit Suisse’s stock cratering by as much as 30 per cent this week, hitting a new low. The stock price recovered somewhat amid news it would accept the credit offer from the central bank.

Analysts said the latest measures will buy time for Credit Suisse to carry out its planned restructuring and possibly take further steps to pare back the Swiss lender.

Swiss authorities had already said this week that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks.”

In the United States, the spotlight moved to First Republic Bank, with several banks including JPMorgan Chase & Co and Morgan Stanley making deposits in the institution to shore up confidence in the financial system.

The deal involves a capital infusion of US$30 billion to bolster the troubled lender after the collapse of SVB last week triggered fears of a contagion.

“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes,” the lenders said in a joint statement.

“The banking system has strong credit, plenty of liquidity, strong capital and strong profitability. Recent events did nothing to change this.”

In Canada, while the big six banks all have seen their share prices edge lower over the past five days, each stock held relatively steady Thursday in trading on the Toronto Stock Exchange.


Why is this happening now?

The latest instability at First Republic Bank and Credit Suisse follows a shakeup in the U.S. banking sector that saw SVB collapse amid a bank run and Signature Bank, a crypto-friendly lender, fold a few days later.

While the causes for these banking woes might be distinct, they all serve to raise “financial market jitters,” which makes the general operating environment more precarious for other global financial institutions, notes Pedro Antunes, chief economist at the Conference Board of Canada.

“Because they were so different, who knows if there’s going to be more failures in the system,” he tells Global News, adding, “it’s possible that we would see another one of these confidence-induced (bank) runs.”

Antunes says that while most banks, especially in Canada, are in a fairly good position with more robust regulations than in the 2008 financial crisis, it’s very difficult to protect from a bank run once customers have it in their minds that their money is in danger.

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Ian Lee, a professor at Carleton University who has worked for decades in personal banking, says this hysteria, if left unchecked, is the ultimate threat to a financial system.

“When you have a fear of the entire system coming down, that’s in a completely different category. That’s catastrophic, that’s existential,” he says.

Lee says liquidity fears are a unique threat to the banking system. In a way, he says, all banks are systemically important because if one lender falls, the fear of underlying instability erasing consumer deposits can start a domino effect that hits the next bank showing signs of stress.

“That’s what drives the contagion. And then it can spread from one bank to another unbelievably rapidly — almost like a COVID pandemic, where the virus spreads at unbelievable speeds throughout the population,” he says.

Policymakers around the world have moved to get ahead of these worries in recent days in an effort to stabilize sentiment around the banking system.

U.S. Treasury Secretary Janet Yellen told Congress on Thursday that the financial system “remains sound” and Americans can “feel confident” about their deposits.

“The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system, Yellen said in testimony before the committee.

Her comments echo reassurances from Canada’s finance minister, Chrystia Freeland, who said through a spokesperson earlier this week that Canadians can be confident that the country’s financial institutions are “stable and resilient” with sufficient guardrails in place.

But Yellen also acknowledged to Congress that once a bank run starts, it can overrun even the world’s biggest institutions.

“No matter how strong capital and liquidity supervision, if a bank has an overwhelming run that’s spurred by social media or, whatever, so that it’s seeing deposits flee at that pace, banks can be put in danger of failing,” she said Thursday.

“One of the reasons we intervened and declared a systemic risk exception is because of the recognition there can be contagion in situations like this and other banks can then fall prey to the same kinds of runs which we certainly want to avoid.”


What does this mean for Canada?

The questions of confidence in the global banking system come as the world economy braces for an economic slowdown, fuelled in part by rising interest rates in many jurisdictions.

Some market watchers had expected the European Central Bank to rein in its telegraphed interest rate increase on Thursday amid the recent uncertainty. But the ECB followed through on its 50-basis-point rate hike aimed at tamping down inflation in Europe.

The U.S. Federal Reserve faces similar pressures at its decision on Wednesday of next week, with the Bank of Canada’s next interest rate meeting scheduled for April 12.

Antunes says the financial system uncertainty adds another wrinkle to central bank decision-making.

If the global economy slows further amid continued banking turmoil, or if consumers and businesses rein in their spending simply because they’re wary of steeper downturns, that could serve to slow the pace of inflation more sharply than forecasts are currently expecting.

“In a way, perhaps this is what the central banks are looking for,” Antunes says. “Perhaps we will see central banks easing up, … not increasing rates too much going forward.”

In the past week, money markets have flipped their expectations for the Bank of Canada’s rate path and are now pricing in higher odds of a rate cut before the summer rather than an additional hike.

Stephen Brown, deputy chief North America economist at Capital Economics, told Global News in an email Thursday that unless the global banking turmoil “escalates dramatically,” he thinks rate cuts coming that early would be “very unlikely” given the relatively low risk to deposits in Canada compared to the U.S.

He said Capital Economics is maintaining its call for a moderate recession hitting Canada in 2023 with rate cuts coming before the end of the year.

Bank of Montreal economists also said in a revised rates scenario Thursday that unless the U.S. banking situation worsens and spreads into Canada, the central bank is likely to keep its interest rate on hold.

The existing rate pause, combined with lower bond yields driving down some fixed-rate mortgages, could restimulate the housing market in the months ahead and drive up economic activity again, according to BMO’s Michael Gregory and Jennifer Lee.

As a result, BMO expects the Bank of Canada will hold its rate steady for the rest of the year as increases to date take hold in the economy, with cuts beginning in early 2024.

— with files from Global News’ Anne Gaviola, Reuters and The Canadian Press



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Windsor-Essex brewers lament impact of looming 6.3% alcohol tax



Chapter Two Brewing Company in Windsor is celebrating a milestone this weekend.

“Five years! We’re pretty pumped that we got this far and we’re still going strong,” said brewery co-owner and general manager, Cheryl Watson. “It’s good news, I mean, we’ve gone through a lot.”

From the impact of lockdowns during the pandemic to recent inflationary pressures and wage increases, Watson notes the cost of doing business has been steep.

And that anniversary celebration will clouded by a looming alcohol excise tax increase on all alcohol producers.


“I think everything is just, it’s been unpredictable for suppliers and buyers alike,” Watson said. “We have to look at and figure out what part of it you’re going to cover and what part of it you’re going to ask your customer to cover.”

That question will get harder on April 1 when the 6.3 per cent federal excise tax goes into effect on beer, wine and spirits producers.

Taxes already make up 50 per cent of the cost of beer, 65 per cent of the cost of wine and 75 per cent spirits, according to the Canadian Taxpayers Federation.

“The screws are tightening and we don’t have as many places to play anymore,” said Watson.

The increase on the table is triple the usual jump — a number tied directly to inflation — and has alcohol manufacturers wondering who is going to pick up the tab.

“You’re going to see probably a six to 10 per cent increase on the price of your beer,” said Shane Meloche, the owner of Frank Brewing Company in Windsor. He’s weathered the storm that is the past few years in the hospitality industry and doesn’t want to raise prices but worries this time, he may have no choice.

“We’re here to make money. We’ve got 20 to 30 people that work here. We need to stay in business,” Meloche said. “We want to keep everybody employed. So the only way to do that is to pass along that price to the consumer.”

Restaurants who sell alcohol will also feel the effects. A recent Restaurants Canada survey found about half of Canadian restaurants are operating just at or below profitability levels, noting the tax increase will cost Canada’s food-service industry about $750 million a year.

“Their profit margins are very slim. And then when you have a six per cent increase, it’s slimmer,” said Paul Boots, who along with business partner John Conlon launched Suds Runner just a few months back.

It’s a licensed manufacturing representative retailer for nine different Breweries in Ontario where customers can go online and order flights of beer from them that you can’t get at the LCBO or Beer Store — and they bring it to your door.

They started the venture to support local breweries and give their less popular brews more exposure for customers who can’t make it out to craft breweries as often as they’d like.

They hope the increase doesn’t crush their suppliers, customers, or them.

“It’s important, I think, for people to understand that if the price is going up a little bit, it’s not because they’re making more money,” said Conlon.

“They’re just trying to work, trying to make it work.”


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Shares in Deutsche Bank drop as global banking worries persist – Al Jazeera English



Tumbling stocks dragged down other major banks across Europe, fuelling fears about a banking sector crisis.

Shares in Deutsche Bank have fallen sharply, dragging down other major European banks and reigniting fears about a widening banking sector crisis.

Germany’s biggest lender dropped more than 14 percent on the Frankfurt Stock Exchange in Friday morning trading before clawing back ground in the afternoon to trade 9.5 percent lower, at 8.43 euros ($9.07) a share.


Tumbling bank stocks dragged down markets across Europe on Friday with Germany’s Commerzbank down 7.5 percent, France’s Societe Generale off 5.9 percent and Austria’s Raiffaisen down 5.9 percent.

Deutsche Bank is one of 30 banks considered globally significant financial institutions, so international rules require it to hold higher levels of capital reserves because its failure could cause widespread losses.

The long-troubled bank has become the focus of investor concerns after the collapse of three regional US lenders and the Swiss government-brokered takeover of Credit Suisse by rival UBS triggered market turmoil this month.

Olaf Scholz
German Chancellor Olaf Scholz says there is ‘no reason to be concerned’ about the health of Deutsche Bank [Johanna Geron/Reuters]

The cost of insuring the bank’s debt against a risk of defaulting, known as credit default swaps, has surged as investors fret about the banking sector’s health.

Rising costs on insuring debt were a prelude to Credit Suisse‘s rescue by UBS. That hastily arranged takeover on Sunday and jitters about Credit Suisse’s long-running troubles led its shares to tank and customers to pull out their money.

Asked whether Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said, “There is no reason to be concerned.”

Scholz expressed confidence in Deutsche Bank, saying it had “modernised and organised the way it works. It’s a very profitable bank.”

Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable” with strict rules and regulations.

Deutsche Bank said on Friday that it would redeem $1.5bn in tier 2 bonds early. Such a move is normally aimed at boosting confidence in a bank although its shares plunged regardless.

The bank was hit by a string of problems linked to its attempts before the 2008 global financial crisis to compete with Wall Street investment banking giants.

But it launched a major restructuring, which involved thousands of job cuts and a greater focus on Europe, and has returned to financial health. Last year, it booked its highest annual profit since 2007.

European officials said banks in the European Union’s regulatory system, which does not include Credit Suisse, are resilient and have no direct exposure to the failed California-based Silicon Valley Bank and little to Credit Suisse.

Efforts to strengthen banking regulation in recent years “puts us all in a position to say that European banking supervision and the financial system are robust and stable and that we have resilient capitalisation of European banks”, Scholz said.

European leaders, who played down any risk of a possible banking crisis at their summit on Friday, said the financial system is in good shape because they require broad adherence to tougher requirements to keep ready cash on hand to cover deposits.

International negotiators agreed to those rules after the 2008 financial crisis, triggered by the failure of US investment bank Lehman Brothers. US regulators exempted midsized banks, including Silicon Valley Bank, from those safeguards.

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Restaurants and bars across Canada brace for biggest alcohol tax jump in 40 years



Canada’s restaurant industry is bracing for the biggest jump in the country’s alcohol excise duty in more than 40 years, spurring warnings the tax hike could force some bars and restaurants out of business.

“Any increase at this very vulnerable time for our industry is just another blow while we’re down,” said Brenda O’Reilly, the owner of multiple restaurants and a brewery in St. John’s, N.L.

“It’s like death by a thousand cuts.”

Bar and eatery operators across Canada have endured lockdowns, labour shortages, supply chain mayhem and soaring costs for everything from payroll to cooking oil. Rising inflation has also softened demand as some consumers stay home to save money.


“Many of us haven’t recovered from the pandemic and now they want to raise this tax,” she said. “It’s hard to get blood out of a turnip. We’ll see more restaurant closures if this goes ahead.”

The federal beverage alcohol duty is set to increase 6.3 per cent on April 1.

Alcohol excise duties are imposed at the manufacturing level and adjusted annually based on inflation.

While the duty is separate from provincial liquor board fees and sales taxes, it ultimately filters down to higher prices for consumers, said CJ Helie, the president of Beer Canada.

“It’s imposed at the point of production and paid by the manufacturer, which means it’s built into the price of the product and magnified as it goes through the supply chain from the distributor to the retailer,” he said.

The automatic annual tax increase is a long-standing irritant for the beverage industry, but was “digestible” when inflation was around two per cent, Helie said.

But this year’s adjustment is more than triple the usual increase and should be reconsidered given the state of the industry, he said.

“When inflation is through the roof, we need to rethink this automatic formula,” Helie said. “The industry is already in dire straits. Using a rigid formula in a time like this is unacceptable.”

Some brewers may try to absorb the higher cost by delaying investment plans like new hiring but he said there’s only so much they can do before passing the tax hike along.

“They’ll try to recoup what they can through the wholesale price but it could impact demand and end up costing them in lower sales volumes anyway,” Helie said.

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Alcohol excise duty rates are adjusted by law on an annual basis to account for inflation, Adrienne Vaupshas, press secretary of Finance Minister Chrystia Freeland, said in an email.

The increase next month works out to less than a penny on a can of beer, she added.

On a litre of wine, the excise duty rate is increasing to $0.731 from $0.688, or a little over four cents, according to figures provided by the Canada Revenue Agency. For a 750 ml bottle of wine, the increase would be closer to three cents.

But industry group Restaurants Canada said it will cost Canada’s food-service industry about $750 million a year, with the average casual dining restaurant expected to pay an extra $30,000 towards alcohol.

At the retail level, the impact may be more subtle. Though added on top of other price increases, consumers may notice higher prices.

The Liquor Control Board of Ontario said customers may experience a price increase on select products by the end of April if manufacturers pass along the federal excise tax increase.

For example, a 750ml bottle of wine or an imported six-pack of beer may increase by five to 10 cents, while a 750ml spirit of 40 per cent alcohol may increase by 70 cents, the LCBO said in an email.

A spokeswoman for the Nova Scotia Liquor Corp. said beverage alcohol prices are increasing by just over three per cent overall next month.

But these increases are due to a number of factors, including higher excise taxes and the rising cost of raw goods such as bottles, cans, barley, and labels, NSLC spokeswoman Allison Himmelman said in an email.

In British Columbia, a spokesperson for the BC Liquor Distribution Branch said it’s not possible to confirm what level of price increase consumers may or may not see.

“Each liquor supplier will decide whether or not to increase its wholesale price to account for the increase it must pay in excise duty,” Robin Fraser said in an email.

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“Then retailers will make the decision on whether to adjust the prices for consumers for those products,” Fraser said. “It is up to each retailer to determine if, and by how much, to raise its prices.”

Alcohol beverage prices rose 5.7 per cent in February compared with a year before, according to Statistics Canada.

While that’s only slightly higher than the overall inflation rate of 5.2 per cent last month, the tax hike in April along with other increases could see the alcohol inflation rate rise faster than general inflation later this spring.

“Our industry is struggling and we can’t absorb more increases,” said Olivier Bourbeau, vice-president of federal affairs with Restaurants Canada. “Restaurant margins are always thin but right now they’re around two to three per cent.”

A recent Restaurants Canada survey found about half of Canadian licensed restaurants are operating just at or below profitability levels.

This is in part because restaurants are absorbing some of the higher costs due to inflation, Bourbeau said.

Indeed, while grocery prices recorded a 10.6 per cent year-over-year increase in February, restaurant food prices only rose 7.7 per cent, Statistics Canada figures show.

Also, alcohol beverages purchased from stores rose 6.0 per cent in February, while alcoholic beverages served in licensed establishments increased only 4.3 per cent, the agency said.

“Restaurants can’t absorb any more price increases,” Bourbeau said. “But if they pass those costs to customers it could hurt their business.”

“At the end of the day, consumers will only pay so much before they start to cut back.”



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