Morning Coffee: 3am breakthrough for SVB rescuers working 48 sleepless hours. Morgan Stanley ECM MDs are disappearing
If the execution of the average deal in banking can be exhausting, the execution of a deal to rescue a failing bank is far, far worse.
Bank rescues usually occur over a sleepless weekend. When Lehman went down in September 2008, the great and good of American banking were summoned to a meeting when the market closed on Friday and told they had until Sunday night to devise a rescue package. They failed when the UK FCA refused to clear Barclays' acquisition of Lehman that weekend.
In the most recent bank rescue over the most recent weekend, the FCA was far more obliging. But the long and grueling hours were the same as ever and the hardest work seems to have fallen to bankers paid by the state.
Sky News reported that the Bank of England and British Treasury officials worked for 'two days and two nights' to orchestrate SVB's eventual rescue by HSBC, with many sleeping only for a few hours when possible. The Financial Times says Rothschild and law firm Slaughter and May were also engaged to find potential buyers for SVB. The situation was made more urgent by the fact that SVB's UK operation had acted as the banker for a number of fintech firms that had taken deposits from customers and kept them with SVB - the fintech customers would also have lost their money had SVB gone under.
Much as with Lehman Brothers, potential rescuers came and went. The FT says Sheikh Tahnoon bin Zayed al-Nahyan was interested, but pulled out on Sunday afternoon. OakNorth showed signs of enthusiasm. The Bank of England made overtures to HSBC, Barclays, Lloyds and NatWest. And eventually, by Sunday night there was only one viable suitor: HSBC, represented by Roby Warshaw (Sir Simon Robey and former British chancellor George Osborne were activated). The deal was signed at 3am.
The bankers concerned presumably spent yesterday asleep.
Separately, Kathy Bergsteinsson, Morgan Stanley's head of healthcare equity capital markets has quietly left the firm, possibly as a result of job cuts. Bloomberg reports that she's not the only exit - Ashley MacNeill and Lauren Cummings, Morgan Stanley's co-heads of technology equity capital markets in the Americas have disappeared too. The bank's ECM revenues fell 73% last year.
Meanwhile...
The FCA exempted HSBC from rules that do not allow complicated corporate customers to be housed within ring-fenced banks. (Bloomberg)
Ken Griffin of Citadel says capitalism is "breaking down before our eyes." “We’re at full employment, credit losses have been minimal, and bank balance sheets are at their strongest ever. We can address the issue of moral hazard from a position of strength.” (Financial Times)
SVB's funding and its assets were tied to the same risk. Higher interest rates encouraged tech companies with a negative cash flow to run down deposits because future profits are reduced relative to losses and fundraising becomes harder. A better hedge would have been to invest in CLOs. (The diff)
SVB spent 2022 cutting its hedges. At one point, $15.3bn of its bond holdings were hedged against interest rate risk; last year this was down to $563m. (WSJ)
Healthcare boutique, MTS Partners, has been thrust into the limelight by the Seagen deal. (Bloomberg)
A few banks may have issues like SVB, but only a few. Govt actions removed reasons for bank runs. Biggest banks have much tougher regulation and stress testing. Anxiety and volatility high, but sharply lower interest rates, fed likely on hold, are strong positives for markets.
— Lloyd Blankfein (@lloydblankfein) March 13, 2023
“The lesson from the last week is shareholders and bond holders lost everything. Your bond holders are going to be screaming at you, ‘don’t you dare turn me into Silicon Valley.’ You are going to have to run a much, much more conservative bank.” (Bloomberg)
The Federal Reserve announced a new lending facility, backstopped by the US Treasury department, that other banks can draw on to help them meet demands from depositors. (Financial Times)
Five year Credit Suisse CDS jumped to their highest level on record yesterday. (Bloomberg)
At Signature Bank (which also failed yesterday): “We had no indication of problems until we got a deposit run late Friday, which was purely contagion from SVB.” (CNBC)
Signature Bank staff gathered at the company's Manhattan headquarters for meetings on Sunday, ordering catering from Carmine's, an Italian restaurant, and Starbucks coffee. They trickled out of the building after the news of the closure was announced. (Reuters)
First Republic Bank slumped 67% before being halted. (Bloomberg)
Bitcoin was up 13% yesterday. (The Block)
If you want to be liked, be communal. If you want to be popular, be dominant. (BPS)
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