Things weren’t supposed to move that fast. Just hours after First Republic was dissected, two other big banks are in deep trouble. Will the dominoes start falling faster than we expected? After his bank gobbled up First Republic, Jamie Dimon told the world that “this part of the crisis is over,” and many in the corporate media believed him. Unfortunately, Wall Street isn’t buying it. On Tuesday, “Fears about contagion in the regional banking sector” pushed stock prices significantly lower…
Stocks fell on Tuesday as trader fears of contagion in the regional banking sector returned ahead of the Federal Reserve’s rate decision.
The Dow Jones Industrial Average fell 367.17 points, or 1.08%, to close at 33,684.53. The S&P 500 fell 1.16% to close at 4,119.58. The Nasdaq Composite fell 1.08%, ending the session at 12,080.51. The three main averages fell for the second session in a row.
Shares of regional banks fell sharply on Tuesday as the fallout from the third major bank failure this year continued to put pressure on the sector.
PacWest shares fell nearly 28% on Tuesday and were heading for their fourth straight negative session. The stock was halted on volatility several times.
The California-based bank wasn’t the only regional lender under pressure. Western Alliance shares fell 15%.
If they have to stop trading a particular stock several times in a single day, it is a very bad sign.
Like First Republic, PacWest and Western Alliance both experienced huge deposit outflows as a result of the bank runs that occurred during the first quarter…
PacWest and Western Alliance were also among the financial institutions, along with First Republic, that came under intense scrutiny following the March 10 and 12 bankruptcies of Silicon Valley Bank and Signature Bank.
Both lenders, like First Republic, lost a significant number of deposits in the first quarter as clients sought the perceived safety of larger banks or the higher returns offered by money market funds. PacWest, a Beverly Hills, California-based lender, lost 17% of its deposits and Phoenix-based Western Alliance lost 11%, while First Republic lost 41%.
Both institutions are now highly vulnerable, and as Dick Bove has rightly pointed outThose who have made huge amounts of money from recent bank failures are looking for their next victim…
“People made a lot of money,” he said. “Those people who put SVB out of business, who profited from the failure of Signature, who profited from the slow death of the First Republic, made a lot of money.
“They are looking around to find another target.”
Of course, PacWest and the Western Alliance aren’t the only potential targets.
In fact, one news source claims that “Half of US banks are potentially insolvent” in this point.
We really are in the early stages of the next big financial crisis.
And could it be that even some of our largest financial institutions are beginning to show signs of trouble?
Earlier today, I was quite alarmed to learn that Morgan Stanley is planning to remove approximately 3,000 jobs…
Morgan Stanley is preparing a new round of job cuts amid a renewed focus on spending as recession fears delay a rebound in trading.
Top managers are discussing plans to cut about 3,000 jobs from the global workforce by the end of this quarter, according to people with knowledge of the matter. That would equate to about 5% of staff, excluding financial advisors and the staff who support them within the wealth management division.
The health of the banking industry is of great concern to all of us, because banks are at the heart of our economic system.
Right now, banks are starting to get very strict with their lending, and that will mean less money will be available to consumers and businesses. In this point, even the washington post He’s talking about how strict lending standards have become…
Janna Rodriguez has big goals for her family child care center. She wants to grow Innovative Daycare to serve more low-income families in Freeport, New York, but first she needs a bank that will lend her $2 million to $4 million to help her move into a larger space and expand her hours.
Until now, keep hearing “no.” Midsize banks near her on Long Island don’t want to bet on the child care industry, which has been hit hard by the pandemic, Rodriguez said. She has felt lenders back off even further since the March shock to the banking system. If she can’t expand, she’s going to have to consider closing the business because otherwise she won’t see anything going for it.
And this is not only happening in the United States.
According at zero coverageglobal lending standards haven’t been as stringent since the collapse of Lehman Brothers…
A composite measure of DM banks’ credit standards shows that they are the strictest since 2009. Tighter credit conditions will deter central banks’ preference to keep rates “higher for longer”.
The ECB’s bank lending survey was released this morning, with banks further tightening their lending standards.
This has it pushed an aggregate measure of bank lending credit standards to levels not seen since the Lehman crisis.
When banks get into trouble, they don’t want to take risks.
Unfortunately, banks are likely to be very hesitant to lend for the foreseeable future.
So this will greatly depress economic activity.
In such an environment, it would be crazy to raise interest rates, but that’s what Fed officials have decided to do anyway.
What this means is that more dominoes will fall, and the crisis we have entered it will get much worse.
Let’s keep a close eye on PacWest and Western Alliance.
But they will not be the only institutions that will struggle to survive in the coming days.
There is blood in the water and the sharks are circling.