Morning Report: Trouble in the banking sector

Vital Statistics:

S&P futures3,909-9.75
Oil (WTI)74.98-0.74
10 year government bond yield 3.78%
30 year fixed rate mortgage 6.80%

Stocks are lower this morning on fallout from the Silicon Valley Bancorp situation. Bonds and MBS are up.

Bank stocks got slammed yesterday after SVB Financial announced it would take actions to “strengthen its financial position.” SVB will sell its available for sale securities portfolio and undertake an equity and convertible preferred stock offering to raise capital. This sent the stock down 60% and also hit troubled First Republic. Tech venture capitalist Peter Theil has recommended that people pull their money from the troubled bank. The entire banking sector was sold off, with the KBW Bank Index down 7.7% for the day. The contagion has spread to Europe (the financial sector correlates a lot), and it sounds like SVB’s capital raise found no takers.

Below is a chart of the KBW Bank Index.

An inverted yield curve is a major headache for banks, who borrow short and lend long. If you want to know why your local bank is paying depositors well below the Fed Funds rate, well, there you go. If a bank is only earning 3.8% on Treasuries, it isn’t going to pay 4.25% on a savings account.

If there is one thing that could get the Fed to halt its tightening regime, troubles in the banking sector is it. We have been seeing bankruptcies in the commercial mortgage space (especially office and mall paper), so this is something to watch. Banking crises have a tendency to spread into unanticipated spaces, like when the subprime crisis ended up making the commercial paper market freeze. Sovereign yields are down across the board so the bond market is paying close attention to this.

Of course for mortgage originators this means even tighter credit from warehouse banks and liquidity risk for non-QM products. This will also mean much lower rates and an even more inverted yield curve as investors flock to safe assets. If the playbook runs as usual, we could see a flight to MBS as well since those are more or less guaranteed by the government.

The economy added 311,000 jobs in February, according to the Employment Situation Report. The gains were primarily in leisure / hospitality, government, retail and health care. The unemployment rate ticked up to 3.6% from 3.4%, while the labor force participation rate inched up to 62.5% and the employment-population ratio was flat at 60.2%. Both numbers remain below pre-pandemic levels.

Average hourly earnings rose 0.2% month-over-month and 4.6% year-over-year, which was below the 0.3% / 4.7% Street estimates. The average workweek fell. Since the Fed is mainly concerned with wage growth right now this should be welcome news. That said the CPI report next week will be the big driver and it will come during the quiet period for the Fed ahead of the March FOMC meeting so we won’t get any sort of take from the Fed until the actual meeting.

The jobs report and the SIVB situation have the markets leaning towards a 25 basis point hike again.

The Federal Trade Commission has voted to officially block the merger of Black Knight and ICE. The FTC did mention the proposed remedy of selling Empower to Constellation Software: “Black Knight has proposed to remedy the competitive harm resulting from the proposed deal by selling its Empower LOS and some related services to a technology company, Constellation Web Solutions, Inc. According to the complaint, the proposal does not address the anticompetitive effects in the market for PPE software and would not replace the intense competition between ICE and Black Knight in the LOS market.”

Apparently there was internal documentation from ICE about how it could use price increases for Encompass as a “ever” to drive revenue increases. Bad move. As part of the deal, ICE had committed to litigate with the FTC to get the deal done, but this is a classic “Coke and Pepsi” merger.

35 Responses

  1. SIVB has failed. It will be interesting to see what the shrapnel hits.


  2. Funny on the square.


  3. This woman is a blithering idiot. And representative of the modern D party, I’m afraid


    • She’s Patty Murray dumb.


      • Listening to her and the Virgin Islands rep? back and forth reminded me of a Fresh and Fit podcast.


        • Brent:

          Listening to her and the Virgin Islands rep?…

          Speaking of the Virgin Islands rep, Plaskett, how can someone who can’t even vote on legislation be the ranking member on a committee? When she referred to Taibbi and Schellenberger as “so-called journalists”, I was thinking that Taibbi or Schellenberger should have retorted by addressing her as a “so-called House member”. That would have at least had some truth behind it.


    • Taibbi’s summation was pretty good:

      “Yesterday was memorable for other reasons, but a depressing eye-opener as well, forcing me to see up close the intellectual desert that’s spread all the way to the edges within the party I once supported. There are no more pockets of Wellstones and Kuciniches who were once tolerated and whose job it is to uphold a constitutionalist position within the larger whole. That crucial little pocket of principle is gone, and I don’t think it’s coming back.”


  4. Finally getting explicit about the real goal of the climate movement:

    “The Climate Case for Rationing

    While current produce rationing in the U.K. is more likely the result of poor planning, rationing in general has a rich and positive history. It could point the way to a fairer future.

    Kate Aronoff/March 3, 2023”


    • Wage and price controls may have “worked” during WWII, but it was a disaster when Nixon tried it in the 70s.


    • In the end it’s always about power and all will bend the knee.


      • It is revealing the left forced Krugman to apologize for saying the idea that price controls are stupid.


        • Brent:

          It is revealing the left forced Krugman to apologize for saying the idea that price controls are stupid.

          I didn’t see that. When did that happen?!?


        • In the article linked:

          “The idea of modern price controls seemed outlandish when it was floated by economist Isabella Weber in late 2021. Her Guardian op-ed suggesting that policymakers consider price controls as a tool for dealing with inflation sparked a freak-out among some of the country’s highest-profile economists. New York Times columnist Paul Krugman called the idea “truly stupid,” before deleting the tweet and apologizing.”


  5. Judge is an idiot for agreeing to give the speech.


  6. I’m fascinated by the philosophy of wanting to stop others from being influenced. To believe that Universal Agreement through persuasion and coercion is somehow a good outcome.

    Other than forcing one’s will on others what is the long term advantage?


    • The left has always been like this.


    • McWing:

      I’m fascinated by the philosophy of wanting to stop others from being influenced.

      Speaking of which, how about this new UK law, which makes it illegal to engage in any activity “influencing any person’s decision to access, provide, or facilitate the provision of abortion services” within 150 meters of an abortion clinic. This includes simply engaging in silent prayer and consensual conversations.

      It is amazing to me that killing unborn human beings has become such a secular sacred rite. Can you imagine such a law being even proposed, much less passed, with regard to any other business activity? Imagine if eco-warriors and climate alarmists were disallowed from engaging in any act that might “influence” someone from accessing a petroleum-produced product within 150 meters of a business that provided them. Absurd.

      The Brits have lost the plot.


  7. Naomi Wolf gets red-pilled:

    Republicans, conservatives, I am sorry.

    I also believed wholesale so much else that has since turned out not to be as I was told it was by NPR, MSNBC and The New York Times.

    I believed that stories about Hunter Biden’s laptop were Russian propaganda. Dozens of former intel officials said so. Johns Hopkins University said so.

    “Trump specifically cited a “laptop” that contained emails allegedly belonging to Hunter Biden”, said ‘CNN Fact-Check’, with plenty of double quote marks.

    I believed this all — til it was debunked.

    I believed that President Trump’s campaign colluded with Russia — until that assertion was dropped.

    I believed that President Trump was a Russian asset, because the legacy media I read, said so.

    I believed in the entire Steele dossier, until I didn’t, because it all fell apart..

    Was there in fact an “infamous pee tape”? So many other bad things were being said about the man — why not?

    I believed that Pres Trump instigated the riot at the Capitol — because I did not know that his admonition to his supporters to assemble “peacefully and patriotically” had been deleted from all of the news coverage that I read.

    Because of lies such as these in legacy media — lies which I and millions of others believed — half of our nation’s electorate was smeared and delegitimized, and I myself was misled.

    It damages our nation when legacy media put words in the mouths of Presidents and former Presidents, and call them traitors or criminals without evidence.

    It damages our country when we cannot tell truth from lies. This is exactly what tyrants seek — an electorate that cannot know what is truth and what is falsehood.

    Through lies, half of the electorate was denied a fair run for its preferred candidate.

    I don’t like violence. I do believe our nation’s capitol must be treated as a sacred space.

    I don’t like President Trump (Do I not? Who knows? I have been lied to about him so much for so long, I can‘t tell whether my instinctive aversion is simply the habituated residue of years of being on the receiving end of lies).

    But I like the liars who are our current gatekeepers, even less.

    The gatekeepers who lie to the public about the most consequential events of our time — and who thus damage our nation, distort our history, and deprive half of our citizenry of their right to speak, champion and choose, without being tarred as would-be violent traitors – deserve our disgust.

    I am sorry the nation was damaged by so much untruth issued by those with whom I identified at the time.

    I am sorry my former “tribe” is angry at a journalist for engaging in —- journalism.

    I am sorry I believed so much nonsense.

    Though it is no doubt too little, too late —

    Conservatives, Republicans, MAGA:

    I am so sorry.

    This is just the conclusion. Read the whole thing.


Be kind, show respect, and all will be right with the world.

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