Is Credit Suisse Another Bank Domino About to Fall?
Market Commentary
Jack Ablin
03.15.2023 As we approach the one-year anniversary of the Federal Reserve’s first move in its latest rate-hiking cycle, cracks are emerging. Powell & Company, followed by central banks worldwide, ratcheted up the federal funds rate from zero to 4.5 per cent, representing the steepest tightening program in over 40 years. While the situations surrounding Silicon Valley Bank and a handful of other banks were arguably unique to those institutions, the broad banking environment has certainly been challenged under the new rate regime.
After more than a decade of zero overnight rates, banks find themselves competing for deposits in an environment in which market rates have spiked with the fed funds rate.
That suggests that net interest margins, which are already under pressure, will likely continue to narrow as banks catch up.
A crisis of confidence swept Europe this morning when Credit Suisse (CS) made headlines: Saudi Arabia, the bank’s largest shareholder, disclosed it will no longer continue buying shares. Banking shares fell sharply worldwide. We highlight that the issue surrounding CS is related to earnings, not solvency. However, panicky investors and depositors could turn a profitability problem into a solvency problem in an instant.
Looking at the bigger picture, we’re beginning to see the financial impact of central bank tightening. Bond investors are signaling to Chairman Powell and his Federal Open Market Committee that they should pause. We agree.
This presents an opportunity for private credit, as unregulated lenders fill the void as banks pull back from extending credit. Keep in mind that the challenges facing banks aren’t credit related, as they were during the financial crisis. In fact, credit conditions remain robust. Unfortunately, mass psychology, by its nature, is mercurial.
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About Cresset
Cresset is an independent, award-winning multi-family office and private investment firm with more than $60 billion in assets under management (as of 11/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.
Is Credit Suisse Another Bank Domino About to Fall?
03.15.2023 As we approach the one-year anniversary of the Federal Reserve’s first move in its latest rate-hiking cycle, cracks are emerging. Powell & Company, followed by central banks worldwide, ratcheted up the federal funds rate from zero to 4.5 per cent, representing the steepest tightening program in over 40 years. While the situations surrounding Silicon Valley Bank and a handful of other banks were arguably unique to those institutions, the broad banking environment has certainly been challenged under the new rate regime.
After more than a decade of zero overnight rates, banks find themselves competing for deposits in an environment in which market rates have spiked with the fed funds rate.
That suggests that net interest margins, which are already under pressure, will likely continue to narrow as banks catch up.
A crisis of confidence swept Europe this morning when Credit Suisse (CS) made headlines: Saudi Arabia, the bank’s largest shareholder, disclosed it will no longer continue buying shares. Banking shares fell sharply worldwide. We highlight that the issue surrounding CS is related to earnings, not solvency. However, panicky investors and depositors could turn a profitability problem into a solvency problem in an instant.
Looking at the bigger picture, we’re beginning to see the financial impact of central bank tightening. Bond investors are signaling to Chairman Powell and his Federal Open Market Committee that they should pause. We agree.
This presents an opportunity for private credit, as unregulated lenders fill the void as banks pull back from extending credit. Keep in mind that the challenges facing banks aren’t credit related, as they were during the financial crisis. In fact, credit conditions remain robust. Unfortunately, mass psychology, by its nature, is mercurial.
About Cresset
Cresset is an independent, award-winning multi-family office and private investment firm with more than $60 billion in assets under management (as of 11/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.
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