The 2022-23 Economic Crisis Megathread

[Tamas]

Allegedly thousands of London banking jobs will be at risk if the merger goes ahead.

[Tamas]

According to the Financial Times, Swiss authorities are looking to change laws so that the merger can go ahead without UBS shareholder voting.

Now, I was fairly firmly in the camp of these bank failures which have happened so far are ok and should be let to play out, after all the whole point of QT was to remove excess money/liquidity from the system which will make crappy zombie companies and such fail.

However with all this bruhaha, something more serious must be happening in the background. If nothing else, then the fact that investment firms and such are desperate for the Fed to turn on the liquidity taps again and that's why they are creating all this noise around just how bad it is with the banks.

[Tamas]

Seems like some frantic deal-making in Switzerland today. UBS has apparently made a 2 billion dollars bid for Credit Suisse and according to the WSJ, rumour is the Swiss national bank is going to give a a $100 billion (!!!? meowtf) liquidity line to UBS to sweeten the pot.

The Swiss National Bank has offered UBS UBS -5.50%decrease; red down pointing triangle Group AG around $100 billion in liquidity to help it take on the operations of Credit Suisse CS -6.94%decrease; red down pointing triangle Group AG, according to the people familiar with the matter. Details of the liquidity offer couldn't be learned but are part of the talks to engineer a takeover of Credit Suisse.

[Sheilbh]

On rates in small and regional banks in the US that will have its own impact on money supply. They will be turning off their own taps which will have a similar effect as rates rises unless the big banks decide to expand their loan books which seems unlikely. I imagine the same will be happening across Europe so there will be a large chunk of monetary tightening without any rate rises - part of why I think the central banks would be better pausing, having a detailed look at the sector and assessing again when they can stabilise things.

It seems particularly weird given that I've heard of loads of central bankers writing papers and presenting on the challenges of unwinding QE, its impact on liquidity, the risks etc - which seems to be exactly what's playing out. One thought I have that slightly worries me - what if the post-global financial crisis system of regulation that we built only really works in and addresses the risks of a low-interest rate environment?

There's two other things that slightly worry me with Credit Suisse - one is that the SNB standing behind them wasn't enough, which seems significant. It's now creating a bank that is, from the perspective of the Swiss state, absolutely too big to fail if the merger goes ahead (striking that Blackrock are playing a role in brokering that given that one the vice-chairs there is a former SNB central banker). UBS will be an absolute monster for the Swiss state.

The other which goes to my ECB replaying the Trichet playbook is a nagging worry that while this kicked off in the US but Europe might again be the most exposed/least prepared (though globally our banks are far less significant than they were in 2008). And on top of massive energy costs in Europe v the rest of the world, really feel like the last thing we need is a banking crisis.

Struck by Helen Thompson's line that since 2008 interest rates are too low for central banks or too high for banks. And that oil prices too high for consumers or too low for producers. And that the two are linked and coming at us with shortening interluds.

[mongers]

Six of the worlds major central banks act on dollar availability:

Central banks have moved globally to keep credit flowing after an unsettled period in the US banking sector and the Credit Suisse merger.

Six central banks, including the Bank of England, announced they would boost the flow of US dollars through the global financial system.

On Sunday the struggling Credit Suisse was taken over by UBS in a Swiss government-backed deal.

The US dollar liquidity "swap line" arrangement will run from Monday.

In a statement the Bank of England, Bank of Japan, Bank of Canada, the European Central Bank, US Federal Reserve and Swiss National Bank launched the co-ordinated action to "enhance the provision of liquidity".

Full article here:
BBC News Report

[The Larch]

A couple of "fun" banking pieces.

It Turns Out That JPMorgan Bought the Nickel That Turned Out to Be Stones

JPMorgan Chase owned bags of material kept in a Dutch warehouse that were supposed to contain nickel but turned out to be full of stones, people familiar with the matter said.

The London Metal Exchange said last week that sacks thought to hold 54 metric tons of nickel in an unnamed warehouse had failed to comply with its standards. The bags were in a shed in the Dutch port city of Rotterdam, The Wall Street Journal and other outlets reported. The problem: They contained stones instead of a silvery metal used in steel and electric-vehicle batteries.

The LME didn't disclose the name of the company that believed itself to be the owner of nickel briquettes valued at $1.3 million at current prices. The firm was JPMorgan, according to the people, some of whom said the bank first bought the material several years ago.

The company that controls the warehouse, sprawling logistics firm Access World Group, was owned by miner and trader Glencore PLC at the time. In a statement, Access World said it is inspecting "warranted bags of nickel briquettes at all locations" and that it believes the issue to be "an isolated case and specific to one warehouse in Rotterdam."

Access World, rather than JPMorgan, is likely to face pressure to foot the bill because it is responsible for checking metal on entry and keeping it safe while it is in the shed. The LME has said it is working with the operator to find out what went wrong.

Wall Street banks aren't as active in physical commodity markets as they were a decade ago, when companies such as Morgan Stanley and Goldman Sachs Group shipped oil on tankers, stuffed metal into warehouses and shuttled sugar between continents. New regulations brought in after the 2008 financial crisis and a stretch of calm markets encouraged banks to pull back from trading commodities.

Still, JPMorgan remains a big player in metals, trading copper, aluminum, zinc and others on the LME as well as precious metals like gold.

JPMorgan was a major trading partner of China's Tsingshan Holding Group, and led discussions with other banks after a blowup in the metal giant's nickel trades spawned a crisis on the LME last year.

And not to forget Credit Suisse...

[Tamas]

Apt:

[The Minsky Moment]

It seems particularly weird given that I've heard of loads of central bankers writing papers and presenting on the challenges of unwinding QE, its impact on liquidity, the risks etc - which seems to be exactly what's playing out.

Not really - the concern was that when the Fed stopped making markets in treasury securities, market liquidity would dry up.  That hasn't happened except for a few discrete episodes where the Fed intervened to keep the markets running smoothly.  SVB's issue wasn't that it couldn't trade the securities in its asset book, it was that the value of those securities declined.  And even that wouldn't have been fatal had it not been for the deadly combination of high uninsured deposits + viral social media fueled panic withdreawals.

Increases in interest rates generally speaking is typically considered to be a plus for the banking business because it usually allows them to increase the spread between the deposit rates and loan rates; deposits are sticky and banks can usually get away with lagging behind on paying market interest on them for quite a while.  On the flip side, rates on lines of credit or short term commercial loans can be hiked up more quickly.  SVB was a special cases because of its unusual combination of liabilities and assets.  And while the SVB collapse has caused people to focus on rates, the other big failures like Signature and CS appear to have other causes.

[Tamas]

UK CPI (which omits rise in inconsequential things like mortgage payments and such) came in somewhat higher than last month at 10.4%

So what gives? Blip on the road down or a sign that 4% base rates will not stop 10%+ inflation?

[HisMajestyBOB]

Well if everyone is on an adjustable rate mortgage, then the CPI needs to exclude mortgages otherwise every rate hike will result in higher CPI via higher mortgages, leading to higher interest rates, etc.
So maybe everyone should refinance to a 30 year fixed. 

[Tamas]

Well if everyone is on an adjustable rate mortgage, then the CPI needs to exclude mortgages otherwise every rate hike will result in higher CPI via higher mortgages, leading to higher interest rates, etc.
So maybe everyone should refinance to a 30 year fixed. 

We have a whole industry of mortgage advisors who would be hit by that.

[Sheilbh]

UK CPI (which omits rise in inconsequential things like mortgage payments and such) came in somewhat higher than last month at 10.4%

So what gives? Blip on the road down or a sign that 4% base rates will not stop 10%+ inflation?

CPIH which includes housing costs is also up but a little lower:


Useful thread on it:
https://twitter.com/JamesSmithRF/status/1638438081614290947

Some of it looks blip-y. Services inflation fell by more than expeted in January but has now bounced back to where it was expected to be in February. Some, less so - food inflation particularly.

[mongers]

Some of it looks blip-y. Services inflation fell by more than expeted in January but has now bounced back to where it was expected to be in February. Some, less so - food inflation particularly.

Some supermarkets are making a killing, perhaps even literally (via malnutrition and poor diet, due to prices).

I expect this theme of supermarket price gouging to become a redtop headline generator over the next few months?

[Josquius]

EVERYTHING IS FINE



https://www.therationalinvestor.com/blog/how-the-benner-cycle-predicts-100-years-of-market-movement

I'm not well versed enough in this stuff to comment whether theres any validity beyond rolling the mystic dice. But I did like the chart.

[Tamas]

Deutsche Bank is getting hammered, but I have no idea if it is just generic panic and "OMG give us back QE already" pressures or something genuinely crappy at the bank.