March 22 (Reuters) – U.S. authorities will consider steps to further enhance financial stability on Wednesday, as well as scenarios to address problems still facing regional First Republic Bank.
While the recent market turmoil has abated, the Federal Reserve meeting is now the main focus, with traders divided on whether the US central bank will have to pause the hiking cycle.
Continuous interest rate increases by the Federal Reserve to rein in inflation have been partly blamed for triggering the biggest collapse in the banking sector since the 2008 financial crisis.
Three people familiar with the matter said First Republic, which has lost 80% of its market value this month, is looking for ways to shrink if its attempts to raise new capital fail.
Shares of the First Republic fell 9 percent in extended trading on Tuesday, after surging as much as 60 percent at one point.
People familiar with the matter said the bank’s scenarios were being discussed as the bank’s top executives gathered in Washington for a meeting scheduled to last two days starting on Tuesday.
JPMorgan Chase has helped the San Francisco-based bank search for fresh capital after a $30 billion infusion of deposits from major banks failed to allay concerns about its viability.
The sudden collapse of Silicon Valley Bank (SVB), sinking under the weight of bond-related losses due to rising interest rates, led to 10 turbulent days for banks leading to the CHF3 billion ($3.2 billion) Swiss regulator-engineered takeover of Credit Suisse by UPS rival.
head in the sand
Citigroup said on Wednesday that the wiping out of Credit Suisse’s Additional Tier 1 (AT1) bondholders has sent shock waves through bank debt markets, and some Asian lenders may find it difficult to renew their capital by issuing such bonds.
But one of Credit Suisse’s largest investors wiped out in the UBS takeover (UBSG.S) still believes in the value of the debt class and the “bailout” system designed to bail out banks seen as too big to fail.
Spectrum Asset Management Inc said on Monday it had liquidated all of its positions in Credit Suisse in late Saturday trading before emergency convertible debt, which traders call CoCos, was reduced to zero in the UBS deal.
“Anyone who bought CoCos and didn’t think ‘bail’ had their head in the sand. No one likes it when it happens, but that’s the whole idea behind CoCos,” Philip Jacoby, Spectrum’s chief investment officer, told Reuters.
UBS said on Wednesday it would buy back 2.75 billion euros ($2.96 billion) of debt it issued less than a week ago, in an effort to boost confidence among investors rocked by rival Credit Suisse’s $3 billion bailout at the weekend.
For now, the Swiss bank bailout appears to have allayed the worst fears of systemic contagion, boosting stocks of European banks (.SX7P) and US regional lenders.
The S&P 500 Banking Index (.SPXBK) rose 3.6%, its biggest one-day gain since November, on Tuesday and stocks in European banks were largely flat on Wednesday.
Policymakers from Washington to Tokyo stressed that the turmoil is different from the crisis 15 years ago, saying banks are better capitalized and money is more readily available.
However, Australia’s prudential regulator has begun requiring banks in the country to declare exposure to cryptocurrency-focused startups and projects in the wake of the Silicon Valley bank collapse, according to the Australian Financial Review.
After Treasury Secretary Janet Yellen said on Tuesday that the US banking system is sound despite recent pressures, Deputy Treasury Secretary Wally Adeyou said a review of the failures of SVB Bank and rival Signature Bank is in order.
“Importantly… by the American Hispanic Chamber of Commerce,” Adeyimo said at an event hosted by him.
“We of course continue to monitor the current situation and consider steps that can be taken to further enhance America’s financial stability,” he said, without elaborating.
Political pressure continued to grow in the United States to hold bank executives accountable. The chairman of the Senate Banking Committee said the committee will hold “the first of many hearings” on the collapse of SVB Bank and Signature on March 28.
The Fed said its review of SVB supervision will be completed by May 1 and released to the public.
However, turmoil in financial markets and the banking system will likely feature prominently in Federal Reserve Chairman Jerome Powell’s press conference after the meeting on Wednesday.
($1 = 0.9280 Swiss francs)
Additional reporting by Sumit Chaterjee, Tatiana Pautzer, Saeed Azhar, Scott Murdoch, Tom Westbrook, Shubham Batra, Amruta Khandekar, Anika Biswas, Noel Randwich, Francesco Kanepa, Akriti Sharma and Amanda Cooper: Writing by Lincoln Feast and Alexander Smith; Editing by Sam Holmes and Kathryn Evans
Our standards: Thomson Reuters Trust Principles.
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”