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  • Deutsche Bank shares slump in latest sign of bank worries

    Deutsche Bank shares slump in latest sign of bank worries

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    Deutsche Bank shares slumped on Friday, putting the health of another globally systemic important bank in the spotlight heading into the weekend.

    The German lender’s shares
    DBK,
    -8.53%
    fell 10% in Frankfurt trade, and the Euro Stoxx bank index
    SX7E,
    -4.61%
    fell 5%.

    Deutsche Bank’s 5-year credit-default swaps widened on Thursday, in what Reuters reported was the largest one-day rise in its history. And on Friday, they widened again.

    It should be noted that Deutsche Bank’s 5-year credit-default swap, which was 215 on Friday, is nowhere near the peak for Credit Suisse, which was 1,194, according to S&P Global data. The higher the value of the CDS, the more likely the market sees the issuer defaulting.

    Deutsche Bank’s AT1 bonds have tumbled in value after Switzerland wiped out Credit Suisse’s
    CSGN,
    -5.19%
    securities in the deal for it to be taken over by UBS
    UBSG,
    -3.55%    .

    The Invesco AT1 Capital Bond UCITS ETF
    AT1,
    -1.97%    ,
    which invests in these convertible bonds, has dropped 18% this month as investors lose faith in the securities. European and other banking regulators across the globe have insisted they will not follow Switzerland’s precedent, and first let bank equity fall to zero before wiping out the convertible securities in the event of a failure.

    “It is doubtful that banks will be able to issue new AT1 anytime soon, increasing the likelihood of outstanding AT1 notes being extended. We consider that the recent events in the banking sector have resulted in substantially increased uncertainty, which is likely to continue to be reflected as substantial short-term volatility in credit markets,” said analysts at ING.

    UBS
    UBS,
    -0.94%
    also is feeling the stress in a deal that the banks say might not complete this year. UBS shares dropped 6%.

    Related: Analysts say UBS will face revenue pressure before it can cut Credit Suisse costs.

    Analysts also noted that a foreign institution tapped a Fed facility for $60 billion, according to data released by the U.S. central bank on Thursday. The Fed does not identify the counterparties. Major central banks do have access to swap lines for dollar borrowing from the Fed, meaning that either it was an institution that does not have that capability, or it was one that wanted to do so anonymously.

    Furthermore, Bloomberg News reported the U.S. government was investigating banks including Credit Suisse and UBS for allegedly helping Russians evade U.S. sanctions.

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  • Dow, S&P 500 post modest gains Thursday as investor focus returns to banking risks

    Dow, S&P 500 post modest gains Thursday as investor focus returns to banking risks

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    U.S. stocks ended modestly higher Thursday in choppy trade as worries about potential weakness in the banking system resurfaced a day after the Federal Reserve increased hikes by 25 basis points. The Dow Jones Industrial Average
    DJIA,
    +0.23%
    rose about 73 points, or 0.2%, ending near 32,103, down about 400 points from the session’s high. The S&P 500 index
    SPX,
    +0.30%
    gained 0.3% and the Nasdaq Composite Index
    COMP,
    +1.01%
    closed up 1%, according to preliminary figures from FactSet. Stocks closed off the session’s highs, but gained ground after Treasury Secretary Janet Yellen told a Senate committee that the federal government would take extra steps to stabilize the U.S. banking system, if necessary. Stocks closed sharply lower Wednesday after the Fed raised its policy rate to a range of 4.75% to 5%, up a year ago from close to zero. But some analysts said a catalyst of the selloff was comments from Yellen indicating she wasn’t yet considering ways to guarantee all bank deposits, despite regulators providing an exception to depositors in Silicon Valley Bank and Signature Bank, which failed earlier this month. Sheila Bair, who ran the Federal Deposit Insurance Corp. from 2006 to 2011, told MarketWatch on Thursday that the focus should be on underwater securities at all banks, not only regional lenders.

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  • ‘This is a risk confronting all banks,’ ex-FDIC chief Sheila Bair tells MarketWatch

    ‘This is a risk confronting all banks,’ ex-FDIC chief Sheila Bair tells MarketWatch

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    Regional banks shouldn’t be the only source of worry for potential fallout from the Federal Reserve’s rapid pace of interest-rate hikes in the past year, said a former top banking regulator.

    “I don’t see regional banks as having any particular problem,” said Sheila Bair, who ran the Federal Deposit Insurance Corp. from 2006 to 2011, in an interview with MarketWatch on Thursday. “We need to be mindful of all unmarked securities at banks — small, medium and large.”

    Bair called the hyperfocus on regional banks and interest-rate risks “counter productive” in the wake of the collapse earlier in March of Silicon Valley Bank and Signature Bank
    SBNY,
    -22.87%
    of New York.

    “This is a risk confronting all banks,” she said. “All examiners need to be on alert for how interest-rate risk is being managed. If there is a run, they will need to sell these securities. Those are the kinds of things all-size banks, and all examiners should be worried about.”

    A run on deposits at Silicon Valley Bank snowballed after it disclosed a $1.8 billion loss on a sudden sale of $21 billion worth of high-quality, rate-sensitive mortgage and Treasury securities. It was the biggest U.S. bank failure since Washington Mutual’s collapse in 2008.

    The FDIC estimated that U.S. banks had some $620 billion of unrealized losses from securities on their books as of the end of 2022, including longer-duration Treasurys and mortgage securities that have become worth less than their face value.

    “Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry,” FDIC Chairman Martin Gruenberg said on March 6, in a speech at the Institute of International Bankers.

    Days after that gathering, Silicon Valley Bank and Signature Bank both collapsed, prompting regulators to roll out a new emergency bank funding program to help head off any liquidity strains at other U.S. lenders. Regulators also backstopped all deposits at the two failed lenders.

    Bair earlier this month argued that if U.S. banking authorities see systemic risks they should go to Congress and ask for a backstop against uninsured deposits, beyond the standard $250,000 cap per depositor, at a single bank. Specifically, she wants zero-interest accounts, or those used for payroll and other operational expenses, to be fully covered, as was the case for a few years in the wake of the global financial crisis to stop runs on community banks.

    Treasury Secretary Janet Yellen said Wednesday that blanket deposit insurance protection isn’t something her department is considering, but added that the appropriate level of protection could be debated in the future.

    Fed Chairman Jerome Powell on Wednesday said the U.S. banking system “is sound and resilient, with strong capital and liquidity,” after hiking rates by another 25 basis points to a range of 4.75% to 5%, up from almost zero a year ago.

    See: Fed hikes interest rates again, pencils in just one more rate rise this year

    Bair has been calling for a pause on Fed rate hikes since December. She said that instead of raising rates by another 25 basis points on Wednesday, Fed Chair Powell should have hit pause and said the central bank needs time to assess.

    “If we have a financial crisis, we won’t have a soft landing,” Bair said. “We have to avoid that at all costs.”

    Read: Bank failures like SVB are a reminder that ‘risk-free’ assets can still wreck portfolios

    Stocks closed modestly higher Thursday in choppy trade, with the Dow Jones Industrial Average
    DJIA,
    +0.23%
    up 0.2% and S&P 500 index
    SPX,
    +0.30%
    advancing 0.3%, while the Nasdaq Composite Index
    COMP,
    +1.01%
    gained 1%.

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  • Moody’s sees risk that U.S. banking ‘turmoil’ can’t be contained

    Moody’s sees risk that U.S. banking ‘turmoil’ can’t be contained

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    Despite quick action by regulators and policy makers, there’s a rising risk that banking-system stress will spill over into other sectors and the U.S. economy, “unleashing greater financial and economic damage than we anticipated,” said Moody’s Investors Service, one of the Big Three credit-ratings firms.

    Simply put, the risk is that officials “will be unable to curtail the current turmoil without longer-lasting and potentially severe repercussions within and beyond the banking sector,” Atsi Sheth, Moody’s managing director of credit strategy, and others wrote in a note distributed on Thursday. Still, the agency’s baseline view is that U.S. officials will “broadly succeed.”

    Moody’s warning came as Treasury Secretary Janet Yellen indicated that the U.S. could take additional actions if needed to stabilize the banking system, and after Federal Reserve Chairman Jerome Powell assured Americans on Wednesday that the central bank would use its tools to protect depositors.

    Read: Regional banks get the attention, but worries are more widespread, says ex-FDIC chief Bair and Debate over expanding deposit insurance weighs on bank stocks. Here’s what to know.

    Beneath the surface, though, is lingering worry. Hedge-fund manager Bill Ackman, for example, is warning of an acceleration of deposit outflows from banks and the latest global fund manager survey from Bank of America
    BAC,
    -2.42%
    found that 31% of 212 managers polled regard a systemic credit crunch as the biggest threat to markets.

    Of the three ways in which banking-system troubles could spill over more broadly, one of them is potentially the “most potent,” according to Moody’s: That is a general aversion to risk by financial-market players and a decision by banks to retrench from providing credit. Such a scenario could lead to the “crystallization of risk in multiple pockets simultaneously,” the ratings agency said.


    Source: Moody’s Investors Service

    “Over the course of 2023, as financial conditions remain tight and growth slows, a range of sectors and entities with existing credit challenges will face risks to their credit profiles,” the Moody’s team wrote. Banks are not the only type of players with exposure to interest-rate shocks, and “market scrutiny will focus on those entities that are exposed to similar risks as the troubled banks.”

    A second potential channel for spillover is through the direct and indirect exposure to troubled banks that private and public entities have — via deposits, loans, transactional facilities, essential services, or holdings in those banks’ bonds and stocks. And a third way in which banking problems could spread more broadly is through a misstep by policy makers, who have been focused on inflation and may not be able to respond effectively enough to evolving developments, Moody’s said.

    On Thursday, U.S. stocks
    DJIA,
    +0.23%

    SPX,
    +0.30%

    COMP,
    +1.01%
    finished higher as investors continued to weigh the risks to the banking sector. The policy-sensitive 2-year Treasury yield
    TMUBMUSD02Y,
    3.833%
    fell to its lowest level this year, while gold futures settled at a more than one-year high.

    Last week, Fitch Ratings said that nonbank financial institutions, insurers, and funds were experiencing a variety of “knock-on effects” as the result of the sudden deterioration of a few U.S. banks.

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  • Bank of England hikes interest rates by quarter-point in 11th consecutive increase

    Bank of England hikes interest rates by quarter-point in 11th consecutive increase

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    The Bank of England on Thursday matched the U.S. Federal Reserve by hiking interest rates by a quarter percentage point.

    The 7-2 decision, the eleventh consecutive increase, brings the U.K. base rate to 4.25%, and comes after data showed inflation surprisingly accelerated in February to a year-over-year rate of 10.4%.  

    “Headline CPI inflation had surprised significantly on the upside and the near-term path of GDP was likely to be somewhat stronger than expected previously,” the Bank of England said in the simultaneously published minutes of the meeting. “The members put some weight on the possibility that the stronger domestic and global outlook for demand was also being driven by factors over and above the weaker path of energy prices, given that the strengthening had at least in part preceded the falls in prices.”

    “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the central bank said.

    The central bank did discuss the banking sector, and the failure of the U.S.’s Silicon Valley Bank and the run-up to UBS’s
    UBS,
    -3.09%
    purchase of Credit Suisse
    CS,
    -5.48%    .
    SVB’s U.K. subsidiary was bought by HSBC for £1.

    The central bank’s financial policy committee said the U.K. banking system maintains robust capital and strong liquidity positions and can “continue supporting the economy” even as interest rates rise.

    The pound
    GBPUSD,
    +0.45%
    traded over $1.23 after the decision. The yield on the 2-year gilt
    TMBMKGB-02Y,
    3.388%
    however slipped 7 basis points to 3.42%, after a big rise on Wednesday when the inflation data came out.

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  • How to Choose a Credit Card for Your Startup | Entrepreneur

    How to Choose a Credit Card for Your Startup | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    Even if you’ve raised a lot of money for your startup and have plenty of cash in your bank account, to fulfill many of the day-to-day bureaucracy of operating your business, you’ll need a credit card.

    A business credit card is a credit card designed for business use, typically offered to business owners, entrepreneurs and small business owners.

    These cards are separate from personal credit cards, and there are several reasons why you might prefer a business credit card over a personal credit card. Using a business credit card can help you keep your business expenses separate from your personal expenses. This makes it easier to track your business expenses for accounting and tax purposes, and can also help you avoid co-mingling funds, which can be a problem if you’re audited by the IRS.

    Related: Do You Need a Business Checking Account for Your Startup? It Depends on These 8 Factors.

    Also, business credit cards often have higher credit limits than personal credit cards, which can be helpful if you need to make large purchases for your business. Lastly, many business credit cards allow you to issue employee cards and set spending limits on those cards. This can help you control your employees’ spending and ensure that they only use the card for business-related expenses.

    Business credit cards are issued by banks and other financial institutions, and the terms and requirements for obtaining one will vary depending on the issuer. Different business credit cards have different benefits that you’ll want to consider before deciding which card is right for you.

    Low or no annual fee

    Although cards with hefty annual fees tend to provide more benefits, you still need to offset the annual fee with your card rewards.

    Fortunately, there are some excellent business cards that have a low or no annual fee. You’ll need to assess whether it is worthwhile paying an annual fee for your new card.

    Low fees

    In addition to an annual fee, you may face transaction fees, interest charges, cash balance fees and other expenses. With the wrong card, any rewards you earn will quickly disappear to cover your fees.

    You should be aware of all the potential fees before you sign up for your new business credit card. If the card offers good rewards, you may decide that it is worth paying more in fees, but you need to think about how the card will perform in the long term.

    Bookkeeping tools

    Many business cards provide account management tools, which can be a massive benefit when you want to remain organized at tax time.

    If there are particular features that could simplify your business admin or that are compatible with your existing business software, this can be a great advantage for you.

    Credit reporting

    One of the priorities of your startup for the long term must be to build its credit history. As credit history is established, it will open new avenues of credit for your business.

    So, you need to ensure that your new business credit card will report to the major credit bureaus.

    Employee cards

    As the owners of a startup, you’ll have plenty of things to take care of. This means that you won’t want the hassle of needing to handle every business purchase.

    If your new card allows employee cards, you can empower your team to pay for items and eliminate the need to deal with expense reimbursements. This will also help you to keep better track of all your business spending.

    Responsive support team

    As a startup, you are likely to be anticipating fast growth and have unpredictable spending. Whether you need to increase your credit limit or require certain features, you will need to be confident that the support team will be on hand to help.

    Travel features

    If you need to travel for your business, you should look for a card that has travel features. From no foreign transaction fees to airport perks, there are some excellent card benefits around.

    Bear in mind that if you plan on traveling internationally, you may want to choose a card that has broad merchant acceptance, such as Mastercard or Visa. If you’re not sure whether to choose cash back or a travel card, calculate expected monthly rewards to understand which is better, or just apply for two cards if it’s possible.

    Solid dashboard

    Finally, to effectively manage your credit card account, you need access to a clean dashboard and a smooth-running app. If you are dealing with time-sensitive issues such as payments, you’ll find it frustrating to try to deal with a clunky app or a dashboard that is not intuitive.

    It is well worth checking online credit card reviews as well as the reviews for the credit card app to see if there are any red flag issues that could highlight potential problems.

    What you’ll need to apply for a business credit card

    As a startup, you may be unfamiliar with what you need when applying for a business credit card. So, here we’ll break down what you will need to have on hand to support your application.

    While the requirements for different credit cards can vary from issuer to issuer, the commonly requested information includes:

    • Your tax ID number: If you don’t have a tax ID for your new business, and many entrepreneurs do not, you can usually use your personal Social Security number.
    • Your business name: If you have a legal name for your business, you can use it on your application. If you are a consultant, freelancer or other operation without a business name, you can use your own name.
    • Your legal entity: This is part of the application where you will need to identify how the business is organized. Most small businesses and startups in the U.S. don’t have a formal legal structure as they operate as sole proprietorships, where the individual owner essentially is the business. You can still apply for a business credit card as a sole proprietor, but if you are a partnership or have another type of legal business structure, use this on the application.
    • Business address details: If your business has a separate address, phone number and email address from your personal details, you will need to provide them. If you don’t have a separate business line or business location, you can use your personal details.
    • The business start date: This is fairly straightforward, but you need to be accurate and use the date that you formed your startup.
    • Business revenue: The revenue is the amount of money your startup brings in, which is different from your profit. As a startup, you may not have yet received any revenue, but you can put $0 on the application.
    • Type of industry: This is different from the business structure and the bank or credit card issuer needs to know what industry or niche you work in.
    • Interested parties: Finally, you need to provide details on any individuals who own 25% or more of your business. If your business does have co-owners or interested parties, you should have their names, addresses, Social Security Numbers and dates of birth as the issuer may request them.

    As with a personal credit card, shopping around for the right product is well worth the time. So, before you make a decision about a credit card for your startup, be sure to check all the available options.

    How to determine eligibility for a business credit card?

    To determine eligibility for a business credit card, the following factors are typically considered:

    1. Business and personal credit score: Your business credit score is one of the most important factors in determining your eligibility for a business credit card. A higher credit score will generally make it easier to qualify for a card. Although a personal credit score is not the most important factor in determining eligibility for a business credit card, it may be considered if your business does not have a credit history.
    2. Business income: Your business income is also considered when determining your eligibility for a business credit card. Lenders will typically want to see that your business generates enough income to cover the credit card payments.
    3. Business history: The length of time your business has been in operation, as well as its financial history, will also be considered when determining your eligibility. A business with a longer history and a positive financial track record will generally have an easier time qualifying for a business credit card.
    4. Business type: Some credit cards are tailored to specific types of businesses and may require certain qualifications to be met.

    It’s also important to note that different credit card issuers have different requirements and standards for approving business credit card applications, so it’s always best to check with the lender for more specific information.

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    Baruch Mann (Silvermann)

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  • Coinbase stock sinks 16% after crypto exchange discloses SEC warning

    Coinbase stock sinks 16% after crypto exchange discloses SEC warning

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    Shares of Coinbase Global Inc. dropped 15.8% in the extended session Wednesday after the crypto exchange disclosed a warning from regulators that it may have broken securities laws.

    Coinbase
    COIN,
    -8.16%
    said it received a Wells notice from the Securities and Exchange Commission, which could lead to formal charges.

    “We asked the SEC for reasonable crypto rules for Americans. We got legal threats instead,” Coinbase said in a blog post detailing the action. “Rest assured, Coinbase products and services continue to operate as usual — today’s news does not require any changes to our current products or services.”

    Based on discussions with the SEC, Coinbase said that the potential charges relate to the company’s spot market, its staking service Coinbase Earn, Coinbase Prime and Coinbase Wallet.

    The crypto exchange said it asked the regulators to detail which assets in its platforms the SEC believes may be securities, but the SEC declined to do so. Coinbase called it a “cursory investigation.”

    SEC representatives declined to comment Wednesday.

    The company said that the investigation is “still at a very early stage,” and that it has turned in documents and provided two witnesses for testimony, “one on the basic aspects of our staking services and one on the basic operation of our trading platform.”

    Coinbase has said that its staking services are not securities.

    Regulators have doubled down on efforts to increase oversight of the crypto industry, shutting down crypto exchange Kraken’s staking program in February and issuing a Wells notice to warn stablecoin issuer Paxos.

    Staking allows users to earn rewards by using their existing holdings of tokens to verify transactions.

    Shares of Coinbase ended the regular trading day down 8.2%.

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  • Dow skids 530 points, stocks close sharply lower after Fed raises rates, says cuts unlikely this year

    Dow skids 530 points, stocks close sharply lower after Fed raises rates, says cuts unlikely this year

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    U.S. stocks closed sharply lower on Wednesday, giving up earlier gains, after the Federal Reserve raises interest rates by 25 basis points as expected, but talked down the possibility of cuts to rates this year. The Dow Jones Industrial Average
    DJIA,
    -1.63%
    tumbled 531 points, or 1.6%, ending near 32,028, while the S&P 500 index
    SPX,
    -1.65%
    shed 1.7% and the Nasdaq Composite Index
    COMP,
    -1.60%
    closed down 1.6%, according to preliminary FactSet figures. Fed Chairman Jerome Powell said the U.S. banking system remained resilient after it and regulators rolled out liquidity measures to help shore up confidence in the banking system after the collapse of Silicon Valley Bank and Signature Bank earlier in March. Powell also said that tighter credit conditions for consumers, following the bank failures, would likely work like rate hikes in terms of lowering inflation. It will be a key area of focus for the Fed in the coming weeks and months, he said. The 10-year Treasury rate
    TMUBMUSD10Y,
    3.444%
    fell Wednesday to 3.46%, a sign that investors in the bond market think growth will be slower.

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  • S&P 500 pushes above 4,010 level, stocks turn higher after Fed raises rates by 25 basis points

    S&P 500 pushes above 4,010 level, stocks turn higher after Fed raises rates by 25 basis points

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    U.S. stocks turned higher, shaking off earlier weakness, after the Federal Reserve on Wednesday raised its policy rate as expected by 25 basis points to help fight inflation. The increase in interest rates comes despite recent weakness in the banking system after the collapse earlier in March of Silicon Valley Bank. The S&P 500 index
    SPX,
    -0.55%
    was up 14 points, or 0.4%, to about 4,016, at last check, while the Dow Jones Industrial Average
    DJIA,
    -0.68%
    was up 0.2% near 32,609 and the Nasdaq Composite Index was 0.7% higher. The Fed also said the U.S. banking system remains resilient, in its policy statement. The 10-year Treasury rate
    TMUBMUSD10Y,
    3.507%
    was lower at 3.52%.

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  • How First Republic stock’s tailspin started and why it hasn’t stopped

    How First Republic stock’s tailspin started and why it hasn’t stopped

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    Shortly after Silicon Valley Bank disclosed on March 8 that it was running short of cash and needed to raise capital, First Republic Bank’s epic stock slide began.

    The stock
    FRC,
    -15.47%
    has lost 90% of its value in less than two weeks, hitting an all-time low of $12.18 a share on Monday.

    Supportive comments from Treasury Secretary Janet Yellen helped it snap back on Tuesday, but it’s hovering between positive and negative territory on Wednesday as investors await a key Federal Reserve decision on interest rates.

    First Republic finds itself in a tough spot with a low share price and fresh debt downgrades and not even efforts to inject $30 billion into the company’s deposits in a scheme backed by JPMorgan Chase & Co.
    JPM,
    -2.58%
    and a backstop from the U.S. Federal Reserve seem to be helping.

    The bank’s troubles stem from its overlap both in clientele and parts of its balance sheet with doomed Silicon Valley Bank, which is being sold off this week by the Federal Deposit Insurance Corp. after it officially failed on Friday, March 10. Silicon Valley Bank suffered a classic run on a bank, when depositors, nervous that it needed to raise capital, yanked their deposits.

    First Republic has suffered the same deposit flight.

    As a San Francisco bank with a focus on serving high-end clients, First Republic has acted as wealth manager for the greater Silicon Valley region of executives, managing directors and startup CEOs, as well as their counterparts on the East Coast.

    The list incudes Facebook
    META,
    -1.16%
    Founder Mark Zuckerberg, who has a large mortgage courtesy of First Republic, as the Wall Street Journal has reported. Few of its loans ever sour — it had $213 billion in assets at the end of 2022 and $176 billion in deposits.

    With its sophisticated lending products and access to the technology startup world, Silicon Valley Bank was also known for its a customer base from the venture capital and private equity world. 

    Also Read: 24 bank stocks that contrarian bottom-feeders can feast on now

    Those well-heeled clients of both banks started running into problems as interest rates rose last year, pundits warned of an economic slowdown and investors switched to a risk-off strategy of conserving cash and containing costs.

    The collapse of FTX and strain in the crypto world also fed the need for cold, hard government-backed currency. Rising interest rates made it more expensive to borrow and put a chill on the deal-making environment.

    All of this and other factors led to a drain on deposits at Silicon Valley Bank and others as it faced “elevated client cash burn” at a rate that was double pre-2021 levels, even as venture capital and private equity funds were slowing down their capital raising activities, the company said in an ill-fated mid-quarter report.

    On March 8 after the market close, Silicon Valley Bank said it planned to sell $2.25 billion in common stock and a type of preferred stock, with one of its major clients, private equity firm General Atlantic, in line to buy $500 million worth. Goldman Sachs Group Inc.
    GS,
    -1.14%
    was handling the deal.

    The company also disclosed that it had lost $1.8 billion on the sale of $21 billion in available-for-sale securities on its balance sheet to cover deposit withdrawals.

    It was this last part that caused big trouble for First Republic. Not only did its clientele overlap with Silicon Valley Bank, its holdings included some of the same securities that Silicon Valley Bank sold at a loss.

    Wall Street investors quickly started bidding down shares of First Republic and other regional banks and the credit rating agencies moved in, cutting the bank’s rating from investment grade deep into junk in just a few days.

    None of this helped First Republic hold on to its deposits.  

    As one longtime banking official said recently, money from Silicon Valley types typically comes in the form of uninsured deposits, which means they’re in excess of the $250,000 that the FDIC will guarantee if a bank goes out of business. This so called hot-money is great for banks when times are good, but can move away quickly if the environment changes.

    “When hot money gets nervous, it runs,” former FDIC chairman Bill Isaac told MarketWatch recently.

    While an unprecedented effort on March 16 by 11 banks to inject $30 billion into First Republic’s deposits temporarily provided a lift to its stock, the move apparently wasn’t enough.

    First Republic said last Thursday that it had borrowed between $20 billion and $109 billion from the Federal Reserve during that week. It also increased short-term borrowing from the Federal Home Loan Bank by $10 billion at a rate of 5.09%.

    Jefferies analyst Ken Usdin said the numbers revealed that First Republic’s total deposits had dropped by up to $89 billion in the week ended March 17 past week—or about three times more than the $30 billion injection from the bank.

    “With [First Republic’s] earnings profile clearly impaired, the new deposits effectively bridge the estimated $30.5 billion of uninsured deposits still on [the bank’s] balance sheet, providing time for [it] to likely explore a sale,” Usdin said.

    Janney Montgomery Scott analyst Tim Coffey said First Republic’s stock drop in recent days reflects uncertainty around what a potential second bailout would look like, or how the bank’s balance sheet is faring after a steep run in deposits and the falling value of its long-dated securities.

    Another unknown is the company’s latest Tier 1 capital Ratio, a key measure of a bank’s balance sheet strength.

    Like Silicon Valley Bank, First Republic’s balance sheet has had more than the usual exposure to long-dated securities, which have been falling in value as interest rates rise. 

    A typical mix for a bank of comparable size is to hold about 72% of securities as available for sale. The remaining 28% are held to maturity. First Republic’s mix is reversed with 12% available for sale and 88% held to maturity.

    The bank’s mix of longer-dated assets now commands a lower market value, given where interest rates are. The bank’s emphasis on long-dated securities provided a better return when interest rates were near zero, but they have been a liability in the current environment.

    “They’ve had duration risk where the value of their securities started going down as interest rates rose,” Coffey told MarketWatch.

    Another problem for First Republic is that many of those long-dated securities are in the mortgage business, which has been ailing as interest rates rise.

    Plenty of questions remain about First Republic’s situation and whether it could have been avoided. The challenges facing First Republic as well as the demise of Silicon Valley Bank and Signature Bank will be the focus of hearings on Capitol Hill next week.

    Wall Street is also awaiting comments from the U.S. Federal Reserve when it updates its interest rate policy later on Wednesday.

    And JPMorgan Chase continues to work with First Republic on a potential bailout, even as the bank has reportedly hired Lazard
    LAZ,
    -2.17%
    to weigh strategic alternatives.

    All of these factors add to the uncertainty swirling around First Republic, giving investors little reason to go long on the stock for now.

    Also Read: 24 bank stocks that contrarian bottom-feeders can feast on now

    Related: Senate Banking Chair Sherrod Brown sees bipartisan support for changes to deposit insurance

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  • First Republic stock tumbles after hours as bank reportedly hires more advisers

    First Republic stock tumbles after hours as bank reportedly hires more advisers

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    Shares of First Republic Bank dropped about 15% in the extended session Tuesday after news that the troubled bank reportedly has hired advisers to review its options and manage the crisis.

    First Republic
    FRC,
    +29.47%
    stock rallied 30% in the regular trading day Tuesday, buoyed by reports that JPMorgan Chase & Co.
    JPM,
    +2.68%
    was working to help bolster the bank’s capital.

    The Wall Street Journal reported late Tuesday that First Republic had tapped Lazard to help it review its options, and consultant McKinsey for post-crisis planning, citing people familiar with the matter. Options on the table include a sale, a capital infusion and asset sales, the sources said, according to the Journal.

    Separately, Reuters reported Tuesday that the bank could downsize if a capital raise fails, and Bloomberg reported First Republic may rely on government backing to facilitate a deal to shore it up.

    The bank issued “a message to our clients” late Tuesday, as its stock was falling in after-hours trading, that noted recent “unprecedented events,” and promised an update.

    “Our commitment to client service is unchanged, and we remain well-positioned to continue to manage deposit activity,” the statement reads. “Today, as every day, we are processing transactions, opening accounts, funding loans, answering questions, and serving clients’ overall banking and wealth management needs.”

    First Republic stock has swung wildly in recent days, ending Monday’s session at a record low, and several trade halts plagued it during the day.

    San Francisco-based First Republic last week got $30 billion in deposits from 11 major U.S. banks, but the stock promptly resumed its slide as it suspended its dividend to preserve cash.

    That followed the collapse of Silicon Valley Bank and Signature Bank earlier this month and contagion fears that have rocked bank stocks.

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  • S&P 500 reclaims 4,000 mark, stocks end higher ahead of Fed rate decision

    S&P 500 reclaims 4,000 mark, stocks end higher ahead of Fed rate decision

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    The S&P 500 on Tuesday posted its highest close since the collapse of Silicon Valley Bank earlier this month, which sent shockwaves through financial markets and raised concerns about the stability of the U.S. banking system. The S&P 500 index
    SPX,
    +1.30%
    closed up about 51 points, or 1.3%, ending near 4,003, according to preliminary data from FactSet. That was its highest close since May 6, four days before the failure of Silicon Valley, the biggest bank collapse since the 2008 global financial crisis. The Dow Jones Industrial Average
    DJIA,
    +0.98%
    rose 1% Tuesday, while the Nasdaq Composite Index
    COMP,
    +1.58%
    swept to a 1.6% gain. Banks and companies with heavy exposure to rate-sensitive assets, including property loans, have been under pressure since Silicon Valley Bank’s implosion. It drew attention to some $600 billion in paper losses at banks from their holdings of “safe” but low-coupon securities that have fallen in value in the year since the Federal Reserve began rapidly increasing interest rates to combat high inflation. Those older bonds end up worth less when investors have access to new securities with higher yields, with a similar low-risk profile in terms of credit risks. The failure of several regional banks in March, plus the sale of Credit Suisse
    CS,
    +2.46%
    to rival bank UBS
    UBS,
    +11.97%
    over the weekend, has reawakened fears of potentially broader problems in the banking system as central bank have increased rates and ended an era of easy money. Even so, stocks were rallying as the Federal Reserve at the conclusion of its 2-day policy meeting on Wednesday is expected to raise its policy rate by another 25 basis points.

    See: The Fed will either pause or hike interest rates by 25 basis points. What are the pros and cons of each approach?

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  • First Republic stock rockets toward record gain, but recovers less than half of Monday’s plunge

    First Republic stock rockets toward record gain, but recovers less than half of Monday’s plunge

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    Shares of First Republic Bank
    FRC,
    +42.71%
    rocketed 43.7% on heavy volume, putting them on track for a record one-day gain, as Treasury Secretary Janet Yellen said the U.S. government was committed to keeping the banking system safe, and amid reports JPMorgan Chase & Co.
    JPM,
    +2.95%
    was working to help the bank. The previous record rally was 27.0% on March 14, 2023. Trading volume ballooned to 87.8 million shares, already nearly triple the full-day average, and enough to make stock the the most actively traded on major U.S. exchanges. Meanwhile, the stock’s price gain of $5.33 means it has only recovered about 49% of Monday’s $10.85, or 47.1% selloff, that took the stock to a record-low close of $12.18. The stock has plummeted 85.6% year to date, while the SPDR S&P Regional Banking exchange-traded fund
    KRE,
    +5.48%
    has tumbled 22.2% and the S&P 500
    SPX,
    +0.73%
    has gained 3.7%.

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  • What are CoCos and why are Credit Suisse’s now worth zero?

    What are CoCos and why are Credit Suisse’s now worth zero?

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    The Swiss regulator on Sunday announced that it was writing the value of Credit Suisse’s additional Tier 1 bonds — also called AT1 bonds, or contingent convertible bonds or CoCos — down to zero, as part of the bank’s merger with UBS.

    The news has spooked investors of the AT1 market, which is valued at about $275 billion.

    For more: The $275 billion bank convertible bond market thrown into turmoil after Credit Suisse’s securities wiped out

    But what are Cocos and why should you care? Here’s what you need to know:

    CoCos, or contingent convertible capital instruments, to give them their full name, are hybrid capital instruments that are structured to absorb losses in times of stress. They were introduced after the 2008 financial crisis to help steer risk away from taxpayers and onto bondholders.

    They are bonds that automatically convert into equity—shares in the bank—when a bank’s capital falls below a certain threshold.

    If a bank is functioning normally, investors are paid a coupon, just like any bondholder. But if things go wrong, the bank can “bail in” the CoCo investor, converting debt into shares in what would then be a troubled lender.

    Also read: Saudis, Qataris and Norway to see big losses on UBS deal for Credit Suisse

    European banks liked to issue CoCos, because they are counted as additional Tier 1 capital. They’re a way for banks to improve their capital ratios, as required under rules put in place after the crisis, without issuing more shares.

    U.S. banks don’t issue CoCos—they use a different type of preferred stock to boost their Tier 1 capital. But U.S. investors have been buyers of CoCos for the extra yield they have offered. That’s risky because the instruments can be converted to low-value shares, or entirely wiped out as has now happed with those issued by Credit Suisse
    CSGN,
    -55.74%

    CS,
    -52.98%    .

     CoCos are perpetual bonds, or bonds that have no set maturity date. They can be redeemed if a bank exercises an option to do so, typically after a five-year period. But regulators may block banks from redeeming them, if the cost of issuing replacement debt is much higher. And if a bank becomes highly stressed like Credit Suisse, they can simply be written off.

    A call for Credit Suisse bondholders is expected to take place on March 22, according to law firm Quinn Emanuel Urquhart & Sullivan, which said on Monday it is exploring potential legal actions on behalf of AT1 bondholders.

    The surprise for some investors on Monday is that the Swiss move has wiped out the bondholders but not the shareholders, even though bondholders typically rank above equity holders in capital structure.

    Not the Credit Suisse CoCos, which were structured to allow for the Swiss regulatory move.

    Under the terms of the deal with UBS, Credit Suisse shareholders will be able to exchange their shares for about 0.70 francs, which is below where the stock closed Friday, but more than the bondholders will receive.

    Most of the demand for CoCos in recent years has come from private banks and retail investors, especially in Europe and Asia, along with big U.S. institutional investors who were attracted by the higher yields in the low-interest-rate environment that prevailed from the crisis until the Federal Reserve started raising interest rates last year.

    To be sure, the Credit Suisse CoCos were showing signs of stress last week as the bank became more embroiled in crisis. The bank’s 9.75% coupon CoCo bonds due June of 2028 were trading at an average price of 36 cents on the dollar last Wednesday, as MarketWatch’s Joy Wiltermuth reported.

    Now fund managers say investors are likely to avoid them, undermining their use for banks.

    “The UBS-CS deal might have avoided an immediate risk event, but the AT1 write down has added an uncertainty which could persist for weeks if not months,” said Mohit Kumar, chief financial economist in Europe at Jefferies.

    “Given the large amount of AT1s outstanding, this would also raise the prospect of losses for other investors and the ability of banks to use them as a funding source in the future,” he added.

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  • The Fed will either pause or hike interest rates by 25 basis points. What are the pros and cons of each approach?

    The Fed will either pause or hike interest rates by 25 basis points. What are the pros and cons of each approach?

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    The Federal Reserve will meet on Wednesday and, for once, the outcome is unclear.

    This is the most uncertain Fed meeting since 2008, said Jim Bianco, president of Bianco Research.

    Fed officials, starting with former chair Ben Bernanke, have perfected the art of having the market price in what the central bank will do — at least regarding interest rates — at each upcoming meeting. That has happened 100% of the time, Bianco said on Twitter.

    The Fed’s meeting this week is different because it follows the sudden collapse of confidence in the U.S. banking system following the government takeover of Silicon Valley Bank as well as the tremors around the world that have led to the shotgun wedding of Swiss banking giant Credit Suisse and its longtime rival, UBS.

    At the moment, the market probabilities are 73% for a quarter-percentage-point move and 27% for no move, according to the CME FedWatch tool. The market seems to be growing in confidence of a hike, analysts said, based on movements on the front end of the curve.

    The Fed’s decision will come on Wednesday at 2 p.m. Eastern and will be followed by a press conference from Fed Chair Jerome Powell.

    “Depending on your perspective, the Fed’s decision will be seen as either capitulation to the markets or ivory-tower isolation from the markets,” said Ian Katz, a financial sector analyst with Capital Alpha Partners.

    Here are the pros and cons for both a pause and a 25-basis-point hike.

    The case for and against a pause

    The main rationale for a pause is that the banking system is under stress.

    “While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient. We think Fed officials will therefore share our view that stress in the banking system remains the most immediate concern for now,” said Jan Hatzius, chief economist at Goldman Sachs, in a note to clients Monday morning.

    Former New York Fed President William Dudley said he would recommend a pause. “The case for zero is ‘do no harm,’” he said.

    The case against a pause is that it could spark more worries about the banking system.

    “I think if they pause, they are going to have to explain exactly what they are seeing, what is giving them more concern. I am not sure a pause is comforting,” said former Fed Vice Chair Roger Ferguson in a television interview on Monday

    The case for and against a 25-basis-point hike

    The main reason for a quarter-percentage-point rate increase, to a range of 4.75%-5%, is that it could project confidence.

    “What you need from policymakers is steady hands, steady ship,” said Max Kettner, chief multi-asset strategist at HSBC. “You don’t need overaction … flip-flopping around in projections or opinions.”

    The Fed should say that it has managed to contain confidence so far and that “we can press ahead with the inflation fight,” he added.

    Oren Klachkin, lead U.S. economist at Oxford Economics, said he didn’t think “the recent bank failures pose systemic risks to the broad financial system and economy.”

    He noted that “inflation is still running hot” and the Fed has better ways to alleviate banking-sector stress than interest rates.

    The case against hiking is that doing so could further exacerbate concerns about the stability of the banking sector.

    “A rate hike now might have to be quickly reversed to deal with a deeper, less contained recession and disinflation. Why would the Fed raise rates when it may be forced to cut rates so much sooner than previously hoped?” asked Diane Swonk, chief economist at KPMG.

    Gregory Daco, chief economist at EY, said he thinks economic activity is slowing, which gives the Fed time.

    “There is no rush to hike. We are not going to see hyperinflation as a result,” he said.

    Stocks
    DJIA,
    +1.20%

    SPX,
    +0.89%
    rose Monday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.485%
    inched up to 3.46%, still well below the 4% level seen prior to the banking crisis.

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  • Credit Suisse shares slump by two-thirds after UBS deal

    Credit Suisse shares slump by two-thirds after UBS deal

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    Credit Suisse shares dropped as much as 65% on Monday after the struggling Swiss bank agreed to be taken over by its rival UBS at a steep discount.

    The decline in Credit Suisse’s shares
    CSGN,
    -54.25%

    CS,
    -52.61%
    mostly reflected the 59% discount it agreed to take in the deal initially valued at 3 billion francs, but also reflected the slide in UBS shares
    UBSG,
    +4.21%

    UBS,
    +4.48%
    after the transaction was announced.

    UBS shares in the afternoon were trading 5% lower, as investors balanced the risks of absorbing Credit Suisse with the future profit potential. UBS expects the deal to lift earnings by 2027 and points out it would have some $5 trillion in invested assets.

    The Euro Stoxx banks index
    SX7E,
    +0.97%    ,
    which doesn’t include UBS or Credit Suisse, fell 1% in see-saw trade.

    Among the worries that stem from the deal was that the Swiss government wrote down the value of what are called AT1 bonds to zero. These bonds, also called contingent convertible bonds or CoCos, have been a key funding source for European banks.

    The Invesco AT1 capital bonds ETF dropped 14%.

    “It has become harder to assess the attractiveness of the current historically large spread pick-up provided by AT1 bonds vs. their [high-yield] corporate counterparts, which will likely constrain the appetite towards the AT1 asset class,” said analysts at Goldman Sachs.

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  • Credit Suisse, UBS, First Republic, and More Stock Market Movers

    Credit Suisse, UBS, First Republic, and More Stock Market Movers

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    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/stock-market-movers-a86267f

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  • Norway’s Oil Fund Has Roughly 1.49% Stake in Credit Suisse, No AT1 Bond Exposure

    Norway’s Oil Fund Has Roughly 1.49% Stake in Credit Suisse, No AT1 Bond Exposure

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    By Dominic Chopping

    Norway’s sovereign wealth fund had a 1.49% stake in Credit Suisse Group AG at the end of 2022 and a 3.31% stake in UBS Group AG, holdings that remain “approximately unchanged,” it said Monday.
    

    UBS yesterday agreed to take over Swiss rival Credit Suisse for more than $3 billion as regulators pushed for the deal in an effort to calm declining confidence in the global banking system.
    

    

    Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares held, but holders of around $17.3 billion of additional tier 1 bonds, or AT1s, will receive nothing.
    

    Norges Bank Investment Management, the arm of Norway’s central bank that manages the sovereign-wealth fund, commonly known as the oil fund, said that it doesn’t hold any Credit Suisse AT1 bonds.
    

    Write to Dominic Chopping at dominic.chopping@wsj.com
    

    

    

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  • 
		
		
    
			
    Asian stocks tumble after Credit Suisse takeover
    
			
    Asian stocks tumble after Credit Suisse takeover
    
			
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    BEIJING (AP) — Asian stock markets fell Monday after Swiss authorities arranged the takeover of troubled Credit Suisse amid fears of a global banking crisis ahead of a Federal Reserve meeting to decide on more possible interest rate hikes.
    

    Shanghai, Tokyo and Hong Kong declined. Oil prices retreated, and U.S. equity futures were tilting lower after initially rising on the takeover news.
    

    

    Swiss authorities on Sunday announced UBS would acquire its smaller rival as regulators try to ease fears about banks following the collapse of two U.S. lenders. Central banks announced coordinated efforts to stabilize lenders including a facility to borrow U.S. dollars if necessary.
    

    Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation. That caused prices of bonds and other assets on their books to fall, fueling unease about the industry’s financial health.
    

    “Investors are waiting to see where the dust settles on the banking saga before making any bold moves,” Stephen Innes of SPI Asset Management said in a report.
    

    The Hang Seng
    
        HSI,
    
        -2.65%
    
       in Hong Kong lost 3% to 18,920 and the Nikkei 225
    
        NIK,
    
        -1.42%
    
       in Tokyo shed 1.2% to 26,990.25.
    

    The Shanghai Composite Index
    
        SHCOMP,
    
        -0.48%
    
       lost 0.2% to 3,241 after the Chinese central bank on Friday freed up additional money for lending by reducing the amount of money commercial are required to hold in reserve. Hong Kong shares of HSBC
    
        5,
    
        -6.23%
    
       dropped over 6%.
    

    The Kospi
    
        180721,
    
        -0.69%
    
      in Seoul retreated 0.6% to 2,382.03 and Sydney’s S&P-ASX 200
    
        XJO,
    
        -1.38%
    
       lost 1.4% to 6,900.00.
    

    India’s Sensex opened down 1.1% at 57,341.79. New Zealand and Southeast Asian markets also declined.
    

    The Swiss government said UBS will acquire Credit Suisse for almost $3.25 billion after a plan for the troubled lender to borrow as much as $54 billion from Switzerland’s central bank failed to reassure investors and customers.
    

    U.S. regulators have also sought to calm fears over threats to banking systems. The Federal Reserve said cash-short banks had borrowed about $300 billion from the Federal Reserve in the week up to Thursday.
    

    Separately, New York Community Bank
    
        NYCB,
    
        -4.66%
    
       agreed to buy a significant chunk of the failed Signature Bank in a $2.7 billion deal, the Federal Deposit Insurance Corp. said late Sunday. The FDIC said $60 billion in Signature Bank’s loans will remain in receivership and are expected to be sold off in time.
    

    Concerns persist about other lenders with shaky finances. Credit Suisse is among 30 institutions known as globally systemically important banks. Ahead of its takeover, Wall Street’s benchmark S&P 500 index
    
        SPX,
    
        -1.10%
    
       lost 1.1% on Friday to 3,916.64.
    

    Shares of First Republic Bank
    
        FRC,
    
        -32.80%
    
       sank nearly 33% to bring their plunge for the week to 71.8%.
    

    The Dow Jones Industrial Average
    
        DJIA,
    
        -1.19%
    
       lost 1.2% to 31,861.98. The Nasdaq Composite
    
        COMP,
    
        -0.74%
    
       fell 0.7% to 11,630.51. Dow futures
    
        YM00,
    
        -0.70%
    
       fell 0.3% early Monday, while S&P 500 futures
    
        ES00,
    
        -0.60%
    
       and Nasdaq-100 futures
    
        NQ00,
    
        -0.33%
    
       were steady.
    

    The unexpectedly large, fast rate hikes by the Fed and other central banks to cool inflation that is close to multi-decade highs have caused prices of bonds and other assets on their books to fall.
    

    Traders expect last week’s turmoil to push the Fed to limit a rate hike at its meeting this week to 0.25 percentage points. That would be the same as the previous increase and half the margin traders expected earlier.
    

    A survey released Friday by the University of Michigan showed inflation expectations among American consumers are falling. That matters to the Fed, which has said such expectations can feed into virtuous and vicious cycles.
    

    In energy markets, benchmark U.S. crude
    
        CL.1,
    
        -3.27%
    
       sank 93 cents to $64.81 in electronic trading on the New York Mercantile Exchange. The contract fell $1.61 on Friday to $66.74. Brent crude
    
        BRN00,
    
        -3.29%    ,
    
       the price basis for international oils, declined $1.05 cents to $71.92 per barrel in London. It retreated $1.73 the previous session to $72.97.
    

    The dollar
    
        DXY,
    
        +0.13%
    
       gained to 131.83 yen from Friday’s 131.67 yen. The euro
    
        EURUSD,
    
        -0.11%
    
       declined to $1.0676 from $1.0681.
    

    MarketWatch contributed to this report.
    

    

    

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  • 
		
		
    
			
    U.S. stock-market futures edge higher after historic deal to rescue Credit Suisse
    
			
    U.S. stock-market futures edge higher after historic deal to rescue Credit Suisse
    
			
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    U.S. stock-index futures opened with modest gains Sunday evening as investors assessed a historic deal to rescue troubled Swiss lender Credit Suisse, the latest maneuver by authorities attempting to prevent a deeper loss of confidence in the global banking system. 
    

    Swiss bank UBS Group
    
        UBS,
    
        -5.50%
    
       agreed to buy rival Credit Suisse
    
        CS,
    
        -6.94%
    

            CSGN,
    
        -8.01%
    
       for more than $3 billion, a substantial discount to its Friday closing price, in a deal shepherded by Swiss regulators and closely watched by monetary and economic policy makers around the world.
    

    

    Don’t miss: Here’s why UBS’s deal to buy Credit Suisse matters to U.S. investors
    

    Also Sunday, the Federal Reserve and five other major central banks announced they were taking steps to ensure that U.S. dollars remained readily accessible throughout the global financial system. 
    

    Futures on the Dow Jones Industrial Average
    
        YM00,
    
        +0.64%
    
       rose 123 points, or 0.4%, while futures on the S&P 500
    
        ES00,
    
        +0.65%
    
       and Nasdaq-100
    
        NQ00,
    
        +0.42%
    
       were also up 0.4%, 
    

    Oil futures ticked higher after suffering their worst week of 2023 and ending Friday at their lowest since December 2021, with analysts tying the plunge largely to rising recession fears. April West Texas Intermediate crude
    
        CL.1,
    
        +0.55%
    

            CL00,
    
        +0.55%
    

            CLJ23,
    
        +0.55%
    
       rose 0.3% to $66.92 a barrel on the New York Mercantile Exchange, while May Brent crude
    
        BRN00,
    
        +0.52%    ,
    
       the global benchmark, ticked up 0.1% to $73.05 a barrel on ICE Futures Europe.
    

    The positive initial tone in markets late Sunday was reflected in a weaker tone for the Japanese yen, which has seen haven-related support this month on rising banking worries. The U.S. dollar was up 0.3% versus the Japanese currency
    
        USDJPY,
    
        +0.60%
    
       at 132.18 yen. The ICE U.S. Dollar Index
    
        DXY,
    
        +0.08%    ,
    
       a measure of the currency against a basket of six major rivals, was up 0.1%.
    

    Futures on U.S. Treasurys
    
        TY00,
    
        -0.82%    ,
    
       which also tend to serve as a haven during periods of crisis, were slightly lower. Treasurys rose sharply last week, dragging down yields, which move opposite to price, in volatile trading.
    

    Read: Why bond-market volatility is at its highest since the 2008 financial crisis amid rolling fallout from banks
    

    Credit Suisse’s 167-year run came to an end after a collapse in the value of its shares and bonds last week. Economists, investors and authorities worried that a collapse by Credit Suisse could amplify contagion fears in the global banking system after the demise earlier this month of California’s Silicon Valley Bank, or SVB.
    

    Economists expect U.S. banks to significantly tighten lending standards in response to the upheaval, raising the odds of the economy falling into recession. 
    

    The Tell: ‘Hard landing’ in store for U.S. economy as bank crisis intensifies: economist
    

    As a result, fed-funds futures traders abandon expectations for a return to a supersized 50-basis-point, or half-percentage-point, rise in the Fed’s benchmark interest rate when policy makers complete a two-day meeting on Wednesday. The market at the end of last week showed traders saw a nearly 75% chance of a 25-basis-point hike, and a roughly 25% chance the Fed would hold rates unchanged.
    

    Traders also priced in the potential for significant rate cuts by the end of the year, signaling rising recession expectations. Those shifting expectations helped drive the Treasury rally, particularly for the policy-sensitive 2-year note
    
        TMUBMUSD02Y,
    
        4.003%    .
      
    

    Analysts said the Fed may be reluctant to hold off on a rate hike this week given still-elevated inflation readings and data so far that that shows the job market remains tight. Some economists see the Fed echoing the European Central Bank’s lead from last week, when it followed through with an earlier pledge to hike rates by 50 basis points while making clear that further rate moves would depend on future developments and data.
    

    Don’t miss: What’s at stake for stocks, bonds as Federal Reserve weighs bank chaos against inflation fight
    

    “While the Fed is obviously wary of contagion risks, it still views the banking sector as being well-capitalized, and it will want to stress that the inflation battle is not won, and it remains too high, so a 25-bps hike seems very likely, though like the ECB it will likely stress a high level of uncertainty, and offer no guidance, and emphasize data and financial conditions dependency,” said Marc Ostwald, London-based chief economist and global strategist at ADM Investor Services, in a note.
    

    Despite efforts by the Fed and other U.S. regulators to ringfence SVB and a pair of other collapsed banks while moving to backstop deposits, other regional banks have faced significant pressure. While all depositors at those banks were made whole, calls have increased for the U.S. to formally remove a $250,000 cap on insured deposits.
    

    Meanwhile, First Republic Bank
    
        FRC,
    
        -32.80%
    
       saw its credit rating downgraded further into junk territory by S&P Global Ratings, news reports said. The ratings firm cut the bank’s credit rating three notches to B-plus from BB-plus and warned further downgrades were possible, according to Reuters.
    

    First Republic has been a top concern for investors and regulators following the collapse of SVB. Last week a group of 11 large banks agreed to provide a combined $30 billion in deposits to First Republic in an effort to shore up confidence in the lender. Shares of First Republic have plunged more than 80% so far in March.
    

    U.S. stocks ended lower Friday amid banking sector fears, with the Dow
    
        DJIA,
    
        -1.19%
    
       booking back-to-back weekly losses. 
    

    The S&P 500 
    
        SPX,
    
        -1.10%
    
       rose 1.4% last week, while the technology-heavy Nasdaq Composite 
    
        COMP,
    
        -0.74%
    
       climbed 4.4% in its biggest weekly percentage gain since January, according to Dow Jones Market Data.
    

    

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