Business
U.S. bank stocks shake off initial contagion fears after Silicon Valley Bank collapse
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A security guard stands outside of the entrance of the Silicon Valley Bank headquarters, in Santa Clara, Calif., on March 13.BRITTANY HOSEA-SMALL/Reuters
U.S. bank stocks jumped on Tuesday, recovering some ground after the failure of Silicon Valley Bank and Signature Bank triggered heavy selling by investors who were already anxious about the impact on lenders of rising interest rates.
Worries about potential contagion had also slammed bank shares in Asia and Europe as investors re-examined their risks, despite assurances from U.S. President Joe Biden and other global policy-makers that the financial system is safe.
An indicator of credit risk among euro zone banks hit its highest since mid-July, while ratings agency Moody’s cut its outlook on the U.S. banking system to negative from stable “to reflect the rapid deterioration in the operating environment”.
Although the VIX volatility index, Wall Street’s “fear gauge”, neared six-month highs overnight, U.S. regional bank shares bounced, with First Republic Bank up 52.7 per cent a day after hitting an intraday record low of $17.53.
Banking giants Citi C-N, Wells Fargo WFC-N and JP Morgan JPM-N were also higher.
“If we do not see any high-profile failures in the near future, then the fears would subside,” said Jack Ablin, chief investment officer at Cresset Capital.
In Europe, where some see lenders as less vulnerable, the banking index first fell then recovered to rise 2.7 per cent. It posted its biggest percentage loss for over a year on Monday.
“A critical difference between the European and U.S. systems, which will limit the impact across the Atlantic, is that European banks’ bond holdings are lower and their deposits more stable,” Moody’s said in a note.
Shares of embattled Credit Suisse slid as much as 4.5 per cent early on after it said customer “outflows stabilized to much lower levels but had not yet reversed” in its annual report, but were up 1.2 per cent in afternoon trading.
Asian banking stocks had extended their declines overnight, with Japanese banks hard-hit despite reassurances from the Bank of Japan said about their capital buffers.
The market gyrations showed that investor worries about potential contagion to lenders worldwide were not entirely dispelled by Biden’s assurances or emergency U.S. measures to shore up banks by giving them access to additional funding.
“This is part of the process of the knob being turned to tighten financial conditions to make sure that we are on our way to normalizing a higher interest rate world,” Morgan Stanley co-president Edward Pick said on Tuesday. “But there might well be surprises, there might well be reactions.”
A furious race to reprice interest rate expectations also buffeted markets as investors bet the U.S. Federal Reserve will be reluctant to hike next week.
Traders currently see a 50 per cent chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis point hike was fully priced in, with a 70 per cent chance seen of 50 basis points.
Short-end yields in the euro zone tumbled again as investors bet the European Central Bank would moderate its policy tightening at Thursday’s meeting, with chances of a Bank of England hike next week also seen receding.
The head of Italy’s banking association, Antonio Patuelli, told Il Corriere della Sera he hoped “the ECB will do more thinking than the already announced decision to raise rates further” following SVB’s collapse.
Yunosuke Ikeda, chief equity strategist at Nomura Securities, said the shift to much less aggressive Fed hike expectations had also tempered the outlook for an eventual pivot in Japan away from ultralow interest rates.
Analysts say uncertainty continues to dog the financial sector. Investors are worried about the health of smaller global banks, the prospect of tighter regulation and authorities’ preference for protecting depositors before shareholders.
A wave of customers have applied to shift their accounts to large U.S. banks such as JPMorgan Chase and Citigroup from smaller lenders after SVB’s demise, the Financial Times reported.
Biden said on Monday his administration’s emergency measures meant Americans could be confident the U.S. banking system is “safe”, while also promising stiffer regulation after the biggest U.S. bank failure since the 2008 financial crisis.
Regulator FDIC had moved swiftly to close New York’s Signature Bank as well as taking control of SVB.
The Republican head of the U.S. House Financial Services Committee also sought to shore up support for the banking system, saying on Tuesday that both the FDIC and the Fed had acted within the law. He said he still planned to hold a hearing and review documents, although no date was announced.
As markets adjusted to the impact of SVB’s collapse, the Wall Street Journal reported on Tuesday that the tech-focused lender was being investigated by the U.S. Department of Justice and the Securities and Exchange Commission (SEC).
Citing people familiar with the matter, the WSJ said the investigators are also examining stock sales that SVB Financial Group’s executives made days before SVB failed, adding that the Justice Department’s probe involves the department’s fraud prosecutors in Washington and San Francisco.
The SEC and a spokesperson for the Justice Department in Washington declined to comment. SVB did not immediately respond to a Reuters request for comment.
Apollo Global Management Inc, Blackstone Inc, and KKR & Co Inc have expressed interest in a book of loans held by SVB, Bloomberg News reported on Tuesday, citing people familiar with the matter.
The portfolio is seen as an attractive buy and was not a contributing factor in run that caused SVB’s demise, it added.
UK consumer prices jumped by 10.4% in February compared with a year ago, as food inflation hit its highest level in more than 45 years, and as the cost of visiting restaurants and hotels increased, official data showed Wednesday.
Food prices soared 18.2% through the year to February, the sharpest rise since the late 1970s. The Office for National Statistics noted particular increases for some salad and vegetable items, partly caused by shortages, which led to rationing by supermarkets.
The surprise uptick in inflation in February follows months of deceleration since the pace of price rises reached a 41-year high of 11.1% in October.
The latest figures could make it more likely that the Bank of England hikes interest rates again when it meets Thursday.
Although recent turmoil in the banking sector is expected to weaken economic activity, as lending criteria are tightened, and so dampen inflation, “the Bank of England may well want to see hard evidence of that before it stops raising interest rates,” said Paul Dales, chief UK economist at Capital Economics.
“It’s still a very close call, but these figures give us a bit more confidence in our forecast that the Bank will raise interest rates from 4% to 4.25% tomorrow.”
But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said increases in food inflation and catering services inflation accounted for all of the rise in the headline rate and both were linked to the jump in the price of fresh food as a result of bad harvests.
“This boost should unwind over the coming months,” he said on Twitter. “It makes little sense to hike rates to counter a weather-related jump in food prices.”
Core inflation — which strips out volatile food and energy costs — also rose, coming in at 6.2% in the year to February, up from 5.8% in January.
The data complicates the central bank’s decision over whether it should raise rates for the 11th consecutive time Thursday — and makes it harder for the government to deliver on its January pledge to halve inflation this year.
And Britons are still getting poorer. Wages rose 6.5% in January compared with a year prior, far below the inflation rate both that month and in February.
U.S. stocks wavered early Wednesday as Wall Street awaits for the Federal Reserve’s latest interest rate decision amid of a fast-moving banking crisis.
The S&P 500 (^GSPC) ticked down near the flatline, and the Dow Jones Industrial Average (^DJI) edged higher. Contracts on the technology-heavy Nasdaq Composite (^IXIC) edged down by 0.1%.
U.S. government bond yields edged up. The benchmark 10-year Treasury yield increased to 3.6%, while on the front end of the yield curve, two-year yields rose 4.2%. Oil prices gained, with WTI crude up to $70 a barrel.
The Federal Reserve’s policy-making committee, headed by Chair Jerome Powell, will take center stage Wednesday. Market expectations have skewed firmly toward a 25-basis point rate hike or no move at all. The shift has been spurred by recent turmoil in the banking sector and the European Central Bank’s decision to hike rates by 50 basis points last Thursday.
Jim Reid and colleagues at Deutsche Bank believe that the “ECB’s decision last week offers a relevant blueprint for the Fed: Raise rates in line with expectations, drop forward guidance, but signal a continued tightening bias.”
This move came amid calls for central banks on both sides of the Atlantic to dial back on policy tightening in light of the banking crisis. Ahead of the U.S. policy meeting, markets are pricing in an 87% probability of a 25-basis point hike by the Fed – according to the CME FedWatch Tool.
The Fed releases its decision and economic projections at 2 p.m. ET, and Powell gives a statement and takes questions starting around 2:30 p.m. ET.
“Powell’s challenge in the press conference will be to maintain focus on fighting inflation while signaling flexibility in how they deal with the banking crisis,” Michael Feroli, Chief U.S. Economist at JPMorgan, wrote in a note to clients.
Regulators have taken pains to emphasize the banking system is stable. On Tuesday, Treasury Secretary Janet Yellen said the U.S. banking system is “sound” but additional rescue arrangements “could be warranted” if new failures pose risks to financial stability.
Bank sentiment slid on Wednesday after surging Tuesday amid Yellen’s comments. Regional bank stocks including First Republic Bank (FRC), PacWest Bancorp (PACW), Western Alliance Bancorporation (WAL),Regions Financial (RF), and Zions Bancorporation (ZION) all traded lower.
Separately, PacWest said it secured $1.4 billion in new cash from a firm backed by Apollo. The regional lender saw deposits drop 20% since the start of the new year.
Big bank stocks slipped, as Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) all traded down Wednesday morning.
Meanwhile, despite a $30 billion cash lifeline last week to First Republic, news reports are swirling that Wall Street executives and US officials are in talks over a new rescue plan to restore investor confidence and potentially ensure a buyer.
UBS Group AG (UBS) has offered to buy back 2.75 billion euros ($3 billion) worth of bonds that were issued days before the weekend’s forced marriage between UBS and Credit Suisse, Bloomberg reported. At the same time, Credit Suisse (CS) was ordered by the Swiss government to temporarily suspend certain forms of variable bonuses for its employees.
Here are other trending tickers on Yahoo Finance:
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Nike (NKE): The sports apparel brand announced a dramatic fiscal third-quarter revenue beat of 8%, while earnings per share came in higher at 79 cents compared to expectations of 54 cents. Bloated inventory levels had been a concern for the company, but that appears to be reversing.
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GameStop (GME): The meme stock reported after hours Tuesday sales came in 2% ahead of estimates. The retailer posted a surprise adjusted earnings per share of 16 cents compared to analysts expectations of a loss of 15 cents per share.
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AMC Entertainment Holdings, Inc. (AMC): Shares are trading higher amid the strength posted by GameStop earnings. Both stocks often move in tandem, as this duo is popular among retail investors who tend to heavily short stocks.
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Coinbase (COIN): Bitcoin’s rally is fueling a bounce in shares of Coinbase amid reignited interest in digital assets.
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XRP USD (XRP-USD): The altcoin ripple has surged 13% in the past 24 hours to $0.45 amid ongoing case between XRP and the Securities and Exchange Commission (SEC) in the US.
On the earnings calendar, results from Chewy (CHWY) and KB Home (KBH) are set for release on Wednesday.
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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Shake Shack Inc. is expanding to Canada, with its first location planned for Toronto next year.
The New York-based restaurant chain made the announcement in a press release Wednesday, saying it will partner with two Toronto-based investment firms — Osmington Inc. and Harlo Entertainment Inc. — to open its first Canadian location in 2024.
The burger-and-fries chain first opened in New York in 2004 and has since expanded to have 290 locations across 32 U.S. states, and 150 international locations including London, Hong Kong, Shanghai, Singapore, Mexico City, Istanbul, Dubai, Tokyo and Seoul.
The Toronto location will be its first in Canada, but the chain says it plans to have up to 35 locations across the country by 2035.
“We have been eyeing this incredible opportunity in Canada for quite some time,” said Michael Kark, the chain’s global licensing officer.
Osmington is a privately held commercial real estate investment fund owned and controlled by David Thomson, chairman of Thomson Reuters. Osmington’s assets also include the Winnipeg Jets, which it acquired when the NHL franchise was relocated from Atlanta. Osmington also owns the retail concourse at Toronto’s newly refurbished transit hub, Union Station.
“Shake Shack has long been a brand that we admire,” Osmington CEO Lawrence Zucker said in the release. “Their emphasis on community building, enlightened hospitality and exceptional food quality aligns with our values and we are thrilled to be bringing them to Canada.”
Burger wars heating up
Shake Shack’s long-awaited entrance into the Canadian market comes amid a wave of U.S. fast food brands expanding to Canada over the last decade.
Five Guys, Carl’s Jr., Wahlburgers and Blaze Pizza all flocked to Canada before Chick-fil-A and Dave’s Hot Chicken headed north in recent years.
The newest entrants leaned heavily on chicken, a category that has increased in popularity as some consumers become more health-conscious and shift their diets away from red meat.
Chicken sandwiches were included in 7.3 per cent of all restaurant orders in Canada in 2020, data released by research firm NPD Group found. That amounts to 386.4 million servings.
Some 17.6 million BBQ chicken sandwiches were ordered in Canada in 2020, up 40 per cent from the year before, while 228 million breaded chicken sandwiches were gobbled up, down three per cent from the year before.
However, burgers, the star of Shake Shack’s menu, still reign supreme. They were included in 9.6 per cent of all Canadian restaurant orders in 2020, which translated to 739.3 million servings of burgers.
Canadian companies have coped with the onslaught of American counterparts by expanding their own fast-food offerings. Several added chicken sandwiches and all-day breakfast menus, while Tim Hortons partnered with pop superstar Justin Bieber to launch three new Timbit flavours — called Timbiebs — and experimented with flatbread pizza.
But drawing in customers has become even more challenging after inflation reached a near 40-year high last year, making the cost of dining out harder for consumers to stomach.
Statistics Canada’s latest data shows the cost of food purchased from takeout restaurants increased 8.6 per cent since last February.
Visits to fast food joints in Canada were up nine per cent in 2022, just shy of the 11 per cent gain they saw in 2021, NPD Group research shows.
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