The liquidation sales at Nordstrom stores across Canada will begin Tuesday.
In a tersely worded press release this afternoon, Silvergate Capital, the holding company of crypto bank Silvergate Bank, announced that it would “wind down operations and voluntarily liquidate” Silvergate Bank “in an orderly manner and in accordance with applicable regulatory processes.”
This comes a day after Bloomberg News reported, based on its sources, that FDIC examiners were rummaging through the banks books and records at Silvergate Bank, and that FDIC officials have been in discussions with Silvergate management to figure out how to move forward.
So it seems, management has arrived at a decision on how to move forward.
On January 5, I’d said in a headline about Silvergate’s shocking filing that day, that “I’m waiting for the FDIC to show up.” I had to wait about two months.
In the announcement today, Silvergate said:
“In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward.
“The Bank’s wind down and liquidation plan includes full repayment of all deposits.
“The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.”
The announcement of the final act for the bank comes just days after Silvergate Capital issued a “going concern” warning, on March 1, along with a slew of other bone-chilling items – bone-chilling for Silvergate’s investors and any remaining depositors with balances above FDIC deposit-insurance limits. It said:
It would be restating its financial statements and would show an even bigger loss than the $1 billion loss it booked for Q4; it would not be able to file its annual report by the deadline due to “management’s evaluation of internal controls over financial reporting”; these losses would “negatively impact the regulatory capital ratios” and “could result in the Company and the Bank being less than well-capitalized”; and it was “reevaluating its businesses and strategies in light of the business and regulatory challenges it currently faces.”
“Oh dude,” I moaned after I put that list together on March 1.
And so it seems, management completed the reevaluation of its businesses and decided to shut down and liquidate the bank.
But it did pay back the loans from the Federal Home Loan Bank. Part of the additional losses disclosed on March 1 come from the sales of additional Treasury securities to raise the funds to repay the $4.3 billion in short-term advances it had received from the Federal Home Loan Bank of San Francisco (Silvergate Capital is headquartered in California). Silvergate had disclosed the advances as part of its filing on January 5. The fact that the FHLB was lending $4.3 billion to a crypto bank had caused quite a ruckus. On March 2, the FHLB confirmed that these advances have been “fully repaid.” So that’s off the table.
Silvergate also said that it shut down its real-time payment system into the crypto world, Silvergate Exchange Network (SEN).
Silvergate announced on January 5 that it had scuttled its efforts to develop its own stablecoin, based on the Diem technology that it had acquired from Facebook, and wrote off $196 million, which was part of the $1 billion loss in Q4.
Silvergate has been under fire from regulators and from inquiries in Congress. And according to Bloomberg earlier is being investigated by the Justice Department’s fraud section.
In terms of the stock, Silvergate Capital [SI] has attracted hordes of short sellers and hordes of dip buyers. It has been one of the most brilliant heroes in my pantheon of Imploded Stocks.
In after-hours trading today, the shares kathoomphed another 44%, I mean, not that it matters anymore, to $2.76, down 99% from its crypto-crazed consensual-hallucination peak in November 2021, of $239. But that’s one of the ground rules in the crypto world, and for companies that want to ride up the consensual-hallucination of crypto: easy come, easy go (price data via YCharts):
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The upscale department store chain has a store at the Rideau Centre mall as well as a Nordstrom Rack location at the Ottawa Train Yards shopping centre
The liquidation sales at Nordstrom stores across Canada will begin Tuesday.
A spokesperson for Nordstrom confirmed the impending sales period Monday in an email to The Canadian Press, just after the Ontario Superior Court of Justice gave the U.S. retailer’s Canadian branch permission to start selling off its merchandise.
The upscale department store chain that primarily sells designer apparel, shoes and accessories has six Canadian stores and seven discount Nordstrom Rack locations, including its Rideau Centre location and a Nordstrom Rack at the Ottawa Train Yards shopping centre, which sells merchandise at discounted prices.
When Nordstrom announced the move in early March, it said it expected the Canadian stores to close by late June and 2,500 workers to lose their jobs.
The company initiated the exit from the market because chief executive Erik Nordstrom said, “despite our best efforts, we do not see a realistic path to profitability for the Canadian business.”
Nordstrom opened its first Canadian store in Calgary in 2014, followed by the Ottawa store at the Rideau Centre, which occupied the second and third levels of a former Sears location.
The Rideau Centre store has an alterations and tailoring shop and an energy drinks bar. Merchandise ranges from brand name to designer apparel, housewares, furnishings and beauty products, including brands such as Geox shoes, Gucci, Adidas and Adidas by Stella McCartney.
Later on came Nordstrom Rack, which made its Canadian debut in 2018 at Vaughan Mills, a mall north of Toronto. At the time, Nordstrom said as many as 15 more Rack locations could follow.
Nordstrom promised each Rack store would deliver savings of up to 70 per cent on apparel, accessories, home, beauty and travel items from 38 of the top 50 brands sold in its Canadian department stores.
Nordstrom had trouble with profitability because of its selection of products and the COVID-19 pandemic, said Tamara Szames, executive director and industry adviser of Canadian retail at the NPD Group research firm, a day after Nordstrom announced its exit.
“You would hear a lot of Canadian saying that the assortment wasn’t the same in Canada that it was in the U.S.,” she said.
She noticed Nordstrom started to shift its product mix away from some luxury brands around 2018 and saw it as a sign that the retailer was struggling to maintain its original vision and integrity.
The pandemic made matters worse because many stores were forced to temporarily close their doors to quell the virus and shoppers were less likely to need some of the items Nordstrom sells like dressy apparel because events had been cancelled.
Despite stores reopening and many sectors rebounding, Szames said the apparel business is the only industry NPD Group tracks that has yet to recover from the health crisis.
“The consumer has really been holding back in terms of spendâ¦within that industry.”
At a hearing at Osgoode Hall in Toronto, lawyer Jeremy Dacks, who represented Nordstrom, said the company has “worked hard to achieve a consensual path forward” with landlords, suppliers and a court-appointed monitor to find an orderly way to wind down the business.
The monitor, Alvarez & Marsal Canada, suggested five potential third-party liquidators and Nordstrom was approached by another five. The company decided to go with a joint venture comprised of Hilco Merchant Retail Solutions ULC and Gordon Brothers Canada, which were involved in the liquidation of Target, Sears and Forever 21 in Canada, Dacks said.
They will oversee the sale of merchandise, furniture, fixtures and equipment, but not goods from third parties, which removed products this past weekend, Dacks said. He added that all sales will be final and no returns will be allowed.
Lawyers for Nordstrom landlords Cadillac Fairview, Ivanhoe Cambridge, Oxford Properties Ltd. and First Capital Realty testified Monday that they were pleased with how “smoothly” and “organized” the process has gone so far.
In approving Dacks’ liquidation request, Chief Justice Geoffrey Morawetz agreed, saying Nordstrom is facing a “difficult time, but this process is unfolding in a very cooperative manner.”
Nordstrom required court approval to begin the liquidation because it is winding down its Canadian operations under the Companies’ Creditors Arrangement Act, which helps insolvent businesses restructure or end operations in an orderly fashion.
With files from Joanne Laucius
Canadian financial institutions’ regulator moved to reassure investors as the country’s riskiest bank debt joined a global selloff after the value of some Credit Suisse Group AG bonds was wiped out in the bank’s takeover by UBS Group AG.
Canada’s “capital regime preserves creditor hierarchy which helps to maintain financial stability,” the Office of the Superintendent of Financial Institutions said in statement on its website.
Prices of Canadian limited recourse capital notes, known as LRCNs, fell between 2 cents and 5 cents on the dollar Monday before OSFI’s announcement, according to people familiar with the matter who asked not to be named. That has widened the spread on the notes by over 60 basis points compared with Friday’s levels, the people said. Specific levels vary depending on the security.
The bonds are another form of so-called additional tier 1 securities, issued by financial institutions and designed to act as a shock absorber in the system. They can be converted to equity to bolster a bank’s capital if it runs into trouble.
Over the weekend, Swiss regulators triggered a complete writedown of 16 billion francs (US$17.2 billion) of Credit Suisse’s AT1 bonds as part of the rescue plan for the venerable bank. While it wasn’t a surprise that the bonds were likely to take a loss, some investors in the instruments were shocked to be wiped out when Credit Suisse’s shareholders were not.
Under Canada’s capital regime “additional tier 1 and tier 2 capital instruments to be converted into common shares in a manner that respects the hierarchy of claims in liquidation,” said OSFI, referring to a situation in which a bank would reach non-viability status. “Such a conversion ensures that additional tier 1 and tier 2 holders are entitled to a more favorable economic outcome than existing common shareholders who would be the first to suffer losses.”
“Our view is that we don’t expect LRCNs would be wiped out before common equity,” said Furaz Ahmad, a Toronto-based corporate debt strategist at BMO Capital Markets. “OSFI has said that they would convert to common equity, since that is more consistent with traditional insolvency norms and respects the expectations of all stakeholders.”
Earlier Monday, European authorities sought to restore investor confidence in banks’ AT1s by publicly stating that they should only face losses after shareholders are fully written down. AT1s from UBS Group and Deutsche Bank AG fell by more than 10 cents earlier on Monday.
Last week, oil prices booked their worst week since the start of the year, dropping off a cliff on renewed fears about the global economy after the collapse of two big U.S. banks and the near-collapse of Credit Suisse. While most price forecasts for the short term have been bullish because of pro-bullish oil fundamentals, now things are beginning to change. Tight supply, cited by virtually all forecasters as the main reason for oil price rise predictions, is giving way to fears of an economic slowdown that would dent demand and push prices lower.
Goldman Sachs has already revised its oil price forecast for the rest of the year. Previously expecting Brent to hit $100 in the second half, now the investment bank expects the international benchmark to only rise to $94 per barrel in the coming 12 months. For 2024, Goldman analysts see Brent crude at $97 per barrel.
“Oil prices have plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows,” Goldman said in a note last week, as quoted by Bloomberg. “Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.”
Indeed, as far as events go, this one left a serious scar. Brent crude went from over $80 per barrel to less than $75 per barrel, and West Texas Intermediate slipped down close to $65 per barrel. And this happened while authoritative forecasters such as the IEA and OPEC recently said they expect stronger demand growth than supply growth.
Related: Humanity On Thin Ice, Says Latest UN Climate Report
According to a recent CNBC report, 41 percent of Americans are preparing for a recession and with a good reason. Despite seemingly endless media debates about whether the world’s largest economy is in a recession already, about to enter a recession, or will manage to avoid a recession, forecasts are not looking optimistic.
“What you’re really seeing is a significant tightening of financial conditions. What the markets are saying is this increases risks of a recession and rightfully so,” Jim Caron, head of macro strategy for global fixed income at Morgan Stanley Investment Management, told CNBC earlier this month.
“Equities are down. Bond yields are down. I think another question is: it looks like we’re pricing in three rate cuts, does that happen? You can’t rule it out,” Caron said.
Reuters’s market analyst John Kemp went further in January when he forecast that one way or another, there will be a global recession, and debates are basically pointless.
Citing the cyclical nature of economic growth, Kemp foresaw two likely scenarios: one, in which recession begins earlier in the year as a natural consequence of events from the last couple of years, and another, in which central bank-pumped growth leads to even higher inflation, which then leads to a slowdown amid lower consumption.
Whichever scenario pans out, if any, it will lead to lower oil demand as recessions normally do. And lower demand will naturally depress oil prices, albeit temporarily. Because lower prices tend to stimulate demand, even amid a recession.
But there is one important detail here. The recession forecasts focus on the UK, the EU, the U.S., and Canada, as well as Australia. There is zero talk about a recession in China or India. Because China and India are going to grow this year, and as they grow, they will consume more oil. Meanwhile, the supply of crude is not going anywhere much further, it seems.
Be that as it may, just because oil demand from China and India, but most notably China, is seen higher this year, it does not mean higher oil prices are all but guaranteed. That’s because China’s economy is very export-oriented, and when consumer countries are in a recession or anything resembling it, these exports will suffer.
Forecasts for Chinese oil demand are still at record highs this year. OPEC said it expected demand from the world’s biggest importer to add more than 700,000 bpd this year for a total of 15.56 million bpd. The IEA, for its part, forecast that demand growth from China will push the oil market into a deficit in the second half of the year. Yet if a recession here or there dampens demand for everything coming out of China, all bets are off.
Because of oil’s fundamentals, all price forecasts are for higher prices towards the end of the year. But the basis for these forecasts came before the bank failures and the bailout of Credit Suisse.
Perhaps the baking panic will let go soon enough, and everything, including oil demand outlooks, will return to normal. Or perhaps the banking panic is a harbinger of worse things to come—things that will affect demand for everything, from crude oil to iPhones. Collectively known as a recession, these things may well prompt some very different oil price forecasts later in the year.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
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