Deutsche Bank stock plunges amid fears of banking contagion

Zachary Halaschak

March 24, 11:33 AM March 24, 11:33 AM

Deutsche Bank’s stock struggled on Friday after an increase in pricing for its credit default swaps, adding to anxiety surrounding the global banking system.

Shares of Deutsche Bank dropped by 11% on Friday. It was the third day in a row that the German-based megabank had its value decline, with shares losing more than a fifth of their total value so far this month alone.

GOVERNMENT COULD ‘TAKE ADDITIONAL ACTION’ TO PROTECT DEPOSITS, YELLEN SAYS

Credit default swaps, known as CDS, allow an investor to swap their credit risk with another investor, creating a form of insurance against default. CDSs typically go up as investors see the entity in question as being riskier.

On Friday, Deutsche Bank announced it will redeem a tier 2 subordinated bond ahead of schedule, which can be seen as a way to give investors confidence about the firm’s balance sheet, although because shares are slumping, investors might still have doubts.

“It is a clear case of the market selling first and asking questions later,” Paul de la Baume, senior market strategist at FlowBank SA, told Bloomberg. “There continues to be enormous concern that the banking crisis could merge into a heavier risk-off event in markets.”

Germany’s DAX, which is a basket of 40 German blue-chip companies, was down by 1.75% on Friday following the turmoil and uncertainty in the banking sector.

Friday marks two weeks from the day that United States-based Silicon Valley Bank collapsed. SVB’s sudden failure has triggered a series of related problems in not only the U.S. banking system but also the world.

Switzerland-based megabank Credit Suisse began tanking earlier this month after the chairman of Saudi National Bank, the bank’s biggest shareholder, announced it would not be increasing its stake, given regulatory constraints.

UBS then agreed to buy out fellow Swiss competitor Credit Suisse, with support from Swiss authorities, amid the latter’s turmoil following SVB’s collapse. Under the terms of the proposed purchase, UBS agreed to purchase Credit Suisse for just over $3 billion, just a fraction of the firm’s estimated value.

On Friday, the Dow Jones Industrial Average dropped more than 200 points on the worries in Europe.

The Federal Reserve on Thursday released an update on emergency borrowing. It showed borrowing from the Bank Term Funding Program that was created at the outset of the crisis has quickly ballooned to $53.7 billion, up from $34.6 billion the week before.

Borrowing is also high from the Fed's discount window, which is its permanent program for lending to banks that might be having liquidity problems. While discount window borrowing shrunk from last week and is now at about $110 billion, that figure is still right around the highest level it was at during the 2008 financial crisis

Lawmakers have raised the notion of increasing the cap on the Federal Deposit Insurance Corporation's $250,000 cap or even having the federal government temporarily insure all deposits in order to return stability to the banking system.

During a congressional hearing this week, Treasury Secretary Janet Yellen said that the government is prepared to take further steps to protect deposits if needed.

“As I have said, we have used important tools to act quickly to prevent contagion,” she said Thursday. “And they are tools we could use again. The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

Yellen convened a closed-press meeting of the Financial Stability Oversight Council on Friday morning to discuss the ongoing fracas in the banking sector.

SVB collapse: BlackRock reportedly warned of 'weak' risk controls last year

Emily Jacobs

March 18, 09:36 PM March 18, 09:36 PM

Silicon Valley Bank was reportedly warned by BlackRock's consulting arm early last year that its risk controls were "substantially below" other lenders.

More than two years before its ultimate collapse, SVB hired BlackRock's Financial Markets Advisory Group to analyze "the potential impact of various risks on its securities portfolio," according to a report published Saturday by the Financial Times. The outlet said that the consultants were also tasked with examining "the risk systems, processes and people in its treasury department, which managed the investments."

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BlackRock's final report, commissioned in October 2020 and submitted in January 2022, gave SVB a "gentleman's C," or a passing academic grade given to an otherwise failing student, according to the outlet. The bank was found to lag behind similar institutions on 11 of 11 factors, performing "substantially below" them on 10 out of 11.

The consultants also alleged that the bank was unable to generate real-time or even weekly updates about what was happening to its securities portfolio. SVB executives took in the criticism but turned down BlackRock's offer to do additional work, the outlet reports.

Banking regulators shut down SVB last Friday, two days after the nation's 16th-largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. Last Sunday, they also announced the closure of Signature Bank while revealing plans to make customers of both financial institutions whole. The SVB failure is the second-largest in U.S. banking history while Signature Bank is the third.

The collapses led to a week of uncertainty for several regional banks and some bigger lenders. First Republic Bank, a regional bank, and Credit Suisse, a Swiss lender, both accepted rescue packages from larger institutions to shore up their liquidity.

The White House has called on Congress to strengthen regulations to prevent an industry-wide collapse of smaller banks, though Democrats are split on the issue while Republicans are united against it. It has also maintained, especially

SVB collapse: Bank crisis becomes another Biden vs. Trump war ahead of 2024

Haisten Willis

March 14, 05:30 AM March 14, 05:30 AM

The partisan war of words over Silicon Valley Bank's collapse has already started, with President Joe Biden launching one of the first volleys himself.

Biden spoke Monday morning about the collapse of Silicon Valley Bank and Signature Bank, reassuring that "the banking system is safe." But he also strongly implied the collapses were the fault of Donald Trump.

WHITE HOUSE NONCOMMITTAL ON BILL THAT WOULD DECLASSIFY COVID-19 ORIGINS INTELLIGENCE

“During the Obama/Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law to make sure the crisis we saw in 2008 would not happen again," Biden said. "Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again, and to protect American jobs and small businesses.”

That set off a partisan fight even as details of the fledgling crisis are still unfolding.

Progressives echoed Biden's words, saying that the 45th president was to blame for signing a 2018 law that raised the asset threshold for banks to fall under Dodd-Frank from $50 billion to $250 billion.

“Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed,” Sen. Bernie Sanders (I-VT) said in a statement.

Republicans were ready for battle, rejecting new regulations and going after Biden's financial management.

"The Biden bank bailout is a result of Biden’s failed economic policies," said Club for Growth President David McIntosh. "The additional regulations being proposed by Biden would only make the situation worse and further consolidate power among the big banks and hurt regional banks that small businesses rely on.”

Sen. Tim Scott (R-SC), ranking member of the upper chamber's banking committee, also rejected the idea that regulation was the answer.

"SVB's failure is the result of mismanagement and failed supervision," a Scott spokesperson said. "Regulators failed to do their job with regard to SVB, and if regulators can't do their job with what the law gives them now, why is giving them more regulations the better route?"

House Financial Services Committee Chairman Patrick McHenry (R-NC) said he also has confidence in "the protections already in place" while calling Silicon Valley Bank "the first Twitter-fueled bank run."

Going on the attack, Republicans pointed at high inflation, which the Fed has been combating with aggressive interest rate hikes that played a role in Silicon Valley Bank's collapse. Republicans blamed Biden, and specifically the $1.9 trillion American Rescue Plan Act he signed soon after taking office, for pushing inflation from 1.4% the month he took office to a peak of 9.1% last summer.

"Even liberal economists blame his $1.9 trillion stimulus for fueling inflation," said Republican National Committee Spokesman Tommy Pigott. "Ironically, Biden spent this weekend bragging about the so-called ‘American Rescue Plan’ as banks were failing.”

In reality, there's a little bit of truth to both, argues University of Massachusetts economics professor Gerald Friedman.

"My first thought would be that the regulations that were relaxed in 2018 raised the bar for Dodd-Frank regulations so that Signature Bank and Silicon Valley Bank were no longer subject to its tight regulation," he said. "Doing that probably was a mistake."

At the same time, Friedman said "this is the steepest run-up in interest rates we've had in 15 years. Any time you do that, you risk having trouble," and added that he's not sure if Silicon Valley Bank would have behaved differently even if it fell under the Dodd-Frank law.

Biden will hope to avoid a full-blown recession and keep the economic heat on Republicans as the situation unfolds. His economic approval rating is just 37.5%, based on polls taken before the banks collapsed.

The failures of Silicon Valley Bank and Signature Bank are already being spun into campaign fodder for down-ballot candidates.

Rep. Katie Porter (D-CA), who is running for Senate in 2024, has said she's drafting legislation to reverse the 2018 law. Rep. Ruben Gallego (D-AZ), who hopes to defeat Sen. Kyrsten Sinema (I-AZ) next year, issued a statement Monday attacking her for supporting the Dodd-Frank rollback.

If the Silicon Valley Bank failure significantly affects the wider economy, those attacks are likely to play out in the 2024 presidential election as well.

SVB collapse: Senate GOP gets second briefing on bank failure after being 'excluded' from first

Emily Jacobs

March 13, 06:21 PM March 13, 06:21 PM

Senate Republicans received an additional briefing on the Silicon Valley Bank collapse Monday after the Treasury Department neglected to invite or inform a number of GOP lawmakers and staff of a hastily scheduled Sunday session.

Treasury officials briefing lawmakers during the Sunday night session admitted on the call that their invitations did not get out to every lawmaker, an aide to Sen. Tim Scott (R-SC) told the Washington Examiner on Monday. Scott, who serves as the top Republican on the Senate Banking Committee, was one of the many GOP lawmakers who did not receive an invite. GOP Banking Committee staffers were also not told of the Sunday briefing.

SVB COLLAPSE: WHITE HOUSE PROMISES 'THIS IS NOT 2008'

"It is unacceptable that Senate Republicans were excluded from Treasury's briefing to Congress this evening," Senate Banking Republicans tweeted from their minority party account after missing out on the first call. "The lack of transparency & responsiveness from the Biden administration has been galling. The administration has the responsibility to keep ALL members updated in real time."

Sen. John Kennedy (R-LA), who serves with Scott on the panel, was one of the other Republicans not told of the call beforehand, WHD News reported Monday. His representatives did not respond to an inquiry from the Washington Examiner on the matter.

Sen. Katie Britt (R-AL), another Senate Banking Republican, lambasted the Biden administration in a statement to WHD News after the Sunday mishap, telling the network, "The public deserves full transparency and accountability without regards to partisanship, and it is unacceptable that this administration excluded Senate Republicans, including those on the Senate Banking Committee, from Sunday night’s bicameral member briefing."

A number of Republicans were present on the call, however, including Reps. Thomas Massie (R-KY) and Marc Molinaro (R-NY) and Sen. Mitt Romney (R-UT).

The Scott aide said the Treasury Department agreed to another briefing at noon on Monday in an effort to reach those who were missed.

The Treasury Department did not respond to the Washington Examiner's request for comment, though an agency official rejected the accusation that Republicans were purposely excluded to WHD News on Monday, noting that invitations for the call had been sent to GOP leadership in the House and Senate.

Officials on both calls briefed lawmakers on the federal regulatory efforts taking place to prevent the Silicon Valley Bank collapse from tanking other financial institutions. Banking regulators shut down SVB on Friday, two days after the nation's 16th-largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours.

On Sunday evening, they also announced the closure of Signature Bank while revealing plans to make customers of both financial institutions whole. The SVB failure is the second-largest in U.S. banking history, while Signature Bank is the third.

SVB collapse: Joe Biden to address nation on banking system after shock collapse

Liam Quinn

March 13, 08:10 AM March 13, 08:21 AM

President Joe Biden will address the nation Monday morning on the Silicon Valley Bank collapse and the country's banking system.

The president will speak from the White House at 9 a.m.

SILICON VALLEY BANK COLLAPSE: BIDEN VOWS TO 'STRENGTHEN OVERSIGHT AND REGULATION'

On Sunday, Biden promised to punish those responsible for the collapse of Silicon Valley Bank as his administration seeks to make the financial institution's customers whole.

"Over the weekend, and at my direction, the Treasury Secretary and my National Economic Council Director worked diligently with the banking regulators to address problems at Silicon Valley Bank and Signature Bank," the statement read. "I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe."

"I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again."

Earlier Sunday, the Biden administration guaranteed Silicon Valley Bank deposits, including uninsured amounts, so customers will have access to their money as soon as Monday after the tech-focused institution collapsed last week. The intervention, along with the decision to unwind similar Signature Bank, is aimed at avoiding additional bank runs and helping business clients remain operational.

Regulators will not protect shareholders and unsecured creditors, and there will be no bailouts, according to Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and Federal Deposit Insurance Corporation Chairman Martin Gruenberg on Sunday evening.

Silicon Valley Bank collapse: US regulators announce plan to bail out customers

Emily Jacobs

March 12, 07:21 PM March 12, 07:58 PM

Federal bank regulators said Sunday that the Federal Deposit Insurance Corporation will employ emergency measures to back Silicon Valley Bank deposits in full.

News of the U.S. decision to guarantee deposits beyond the federally insured ceiling of $250,000 came in a much-anticipated joint statement from the Federal Reserve, Treasury Department, and FDIC two days after SVB's sudden collapse, which has sparked fears of a possible banking crisis. The Treasury also said that SVB's senior management team would be removed.

SILICON VALLEY BANK COLLAPSE: CEO CASHED OUT MILLIONS WHILE EMPLOYEES GOT BONUSES

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the president, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, Calif., in a manner that fully protects all depositors,” the statement read. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

The agencies also plan to enact a similar plan for Signature Bank, which was closed on Sunday by New York's state chartering authority.

SVB achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms increased its deposits from $60 billion in the first quarter of 2020 to over $200 billion in December 2022, the Wall Street Journal reported. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to grow, as the securities could only be sold at a loss.

The FDIC moved SVB's remaining assets on Friday to the newly created Deposit Insurance National Bank of Santa Clara, leaving customers to spend the weekend unsure if they would be able to secure their capital on Monday morning.

Treasury Secretary Janet Yellen said in an interview with CBS's Face the Nation on Sunday morning that while the federal government did not intend to bail out the collapsed bank itself, regulators were looking at solutions for depositors.

"From the standpoint of depositors, many of which may be small businesses, they rely on access to their funds, to be able to pay the bills that they have, and they employ tens of thousands of people across the country. We've been hearing from those depositors and other concerned people this weekend," she told the network. "So let me say that I've been working all weekend with our banking regulators to design appropriate policies to address this situation. I can't really provide further details at this time. But what I do want to do is emphasize that the American banking system is really safe and well-capitalized, it's resilient."

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking,” Yellen replied when pressed about a bank bail out. “And the reforms that have been put in place means that we’re not going to do that again.”

Silicon Valley Bank collapse: CEO cashed out millions while employees got bonuses

Emily Jacobs

March 11, 08:39 PM March 11, 08:39 PM

Silicon Valley Bank CEO Greg Becker cashed out stock and options in the weeks leading up to Friday's collapse, netting him a $2.27 million profit, public filings reveal.

The state of California shuttered SVB on Friday, just two days after the nation's 16th largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. The Federal Deposit Insurance Corporation took the embattled bank into receivership in what is being described the worst U.S. bank failure since the Great Recession of 2007-2009.

SILICON VALLEY BANK SHUT DOWN BY REGULATORS IN MOST NOTABLE FAILURE SINCE 2008 CRISIS

Becker exercised his stock options before immediately selling them on Feb. 27 as part of a prearranged executive stock sale plan, according to Securities and Exchange Commission filings. He had filed sales as part of that plan as recently as Jan. 26. He also sold stock on Jan. 31 for an additional $1.1 million, though the SEC filing for this sale states that the transaction was conducted to cover a tax liability.

News of Becker's recent profits comes amid multiple reports that the bank, which mostly served technology workers and venture capital-backed companies, paid out bonuses to employees just hours before the FDIC takeover on Friday. Multiple sources told Axios that the bonuses had been previously scheduled to be disbursed on Friday for work done in 2022. Bonuses for employees working abroad were scheduled for later this month and have yet to be paid out.

SVB achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms increased its deposits from $60 billion in the first quarter of 2020 to over $200 billion in December 2022, the Wall Street Journal reported. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to grow, as the securities could only be sold at a loss.

The FDIC moved SVB's remaining assets on Friday to the newly created Deposit Insurance National Bank of Santa Clara. Prior to the collapse, SVB had 17 branches located across California and Massachusetts. At the close of last year, the bank had roughly $209 billion in total assets and approximately $175.4 billion in total deposits.

Reacting to the shocking collapse in a WHD News interview Saturday, billionaire Home Depot co-founder Bernie Marcus said that blame should be placed on the "woke" bank and the Biden administration for its persistent push for financial institutions to prioritize "global warming" over shareholder returns.

"I think that the system, that the administration has pushed many of these banks into [being] more concerned about global warming than they do about shareholder return," Marcus told host Neil Cavuto. "And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is, shareholder returns."

"Instead of protecting the shareholders and their employees, they are more concerned about the social policies," he continued. "And I think it's probably a badly run bank. They've been there for a lot of years. It's pathetic that so many people lost money that won't get it back."