Banking crisis raises two new questions for investors

news7f03/20/2023

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Banking crisis raises two new questions for investors

This article first appeared in Morning Brief. Get the Morning Summary delivered directly to your inbox Monday through Friday by 6:30 a.m. ET. Ordered

Monday, March 20, 2023

Today’s news is from Brian Sozzi, executive editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and more LinkedIn. Got advice on SVB, First Republic, Credit Suisse, UBS or other banks? Send the secret to [email protected].

Welcome to your first (or second) banking crisis.

Ailing 167-year-old Credit Suisse will now find herself forced into marriage with a stronger opponent than UBSafter a weekend of behind-the-scenes drama between the executives of each bank and the Swiss authorities.

A former senior UBS executive familiar with the current negotiations told me that Credit Suisse’s struggling investment bank could be turned into a zombie bank run by Swiss regulators. Si runs from time to time.

The deal may help calm the broader financial system, but could worry UBS shareholders.

The source added: “You go from owning the best run Swiss bank in UBS with a clear strategy, to owning the worst.

UBS CEO Ralph Hamers did not respond to my request for this conversation over the weekend. When contacted by email, a person in charge of Credit Suisse president Axel Lehmann called and told me Lehmann didn’t have time. Schade.

However, the events taking place here, will fundamentally change the landscape of Wall Street once again and continue to concentrate power in the hands of a few famous players.

“The giants will continue to win,” senior banker Mike Mayo told me, an investment thesis he has advocated for a time when banks like Bank of America , JP Morgan, Goldman Sachs, Citigroup and Morgan Stanley continue to be stronger amid the struggles of others on the street.

Meanwhile, Berkshire Hathaway Warren Buffett reappeared – this time reported in chats about the banking crisis with senior officials in the Biden administration. The Oracle of Omaha is a leading investor in Bank of America, Bank of NY Mellon, and Citigroup, so it’s no surprise that he’s gathered all the information he can from within the Beltway.

Also, remember that the billionaire loaned Goldman Sachs $5 billion at the height of the last financial crisis and saved Solomon Brothers in the early 90s after a bond-trading scandal.

Buffett may be ready to strike again with some lucrative offer to a struggling bank, which could help stabilize the market a long way.

These are just some of the sights and sounds of this unfolding crisis with many things certain to happen.

In the course of all this high drama, I see two questions emerging for investors.

First, would you use this opportunity to add more risk to your portfolio because it’s clear that managers (and billionaires like Buffett) won’t let the financial system go to waste – similar to what they did in 2008/2009?

On this point, I think Goldman strategist Peter Oppenheimer gives a brief answer on how to think through this:

“Even if the market recovers from current levels in the short term, high uncertainty and lower confidence levels could mean a ‘Fat & Flat’ market is underway as valuations appear to In this regard, we see two potential problems. First, the US stock market, which has long outperformed significantly, remains historically expensive. and relative to real interest rates in any U.S.-led adjustment Even in the long-term comparison, which can be a useful barometer at times like these, the markets US stocks continue to look tense, after years of low interest rates and strong tech sector returns.”

Another question is what is the game for bank stocks? Is this a golden opportunity to buy big names like Bank of America and JP Morgan as they are seeing a large amount of deposits (as sources have told me), which has the effect of strengthening their foothold? long term?

Possibly, JP Morgan analyst Vivek Juneja thinks:

“We expect big bank stocks to continue to fluctuate in the short term but for mid-term holders the sector looks attractive given cheaper valuations and stable/growing deposits, despite despite some uncertainty around the possibility of regulatory regulation, major bank stocks have fallen 5-25% since March 8 as Silicon Valley Bank problems unfolded – hubs currencies are trading at an average of 7.7x the 2024 consensus EPS, well below the long-term average of 10.3x and the region at 6.6x the median long-term is 11.4 times.”

Happy trading! (hope)