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Tag: economy and economic indicators

  • What the banking crisis means for mortgage rates | CNN Business

    What the banking crisis means for mortgage rates | CNN Business


    Washington
    CNN
     — 

    Mortgage rates have taken would-be buyers on a ride this year — and it’s only March.

    Generally, home buyers can anticipate mortgage rates to move down through the rest of this year as the banking crisis drags on, which could cool down inflation.

    But there are bound to be some bumps along the way. Here’s why rates have been bouncing around and where they could end up.

    After steadily rising last year as a result of the Federal Reserve’s historic campaign to rein in inflation, the average rate for a 30-year fixed-rate mortgage topped out at 7.08% in November, according to Freddie Mac. Then, with economic data suggesting inflation was retreating, the average rate drifted down through January.

    But a raft of robust economic reports in February brought concerns that inflation was not cooling as quickly or as much as many had hoped. As a result, after falling to 6.09%, average mortgage rates climbed back up, rising half a percentage point over the month.

    Then in March banks began collapsing. That sent rates falling again.

    Neither the actions of the Federal Reserve nor the bank failures directly impact mortgage rates. But rates are indirectly impacted by actions that the Fed takes or is expected to take, as well as the health of the broader financial system and any uncertainty that may be percolating.

    On Wednesday, the Federal Reserve announced it would raise interest rates by a quarter point as it attempts to fight stubbornly high inflation while taking into account recent risks to financial stability.

    While the bank failures made the Fed’s work more complicated, analysts have said that, if contained, the banking meltdown may have actually done some work for the Fed, by bringing down prices without raising interest rates. To that point, the Fed suggested on Wednesday that it may be at the end of its rate hike cycle.

    Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.

    Following the Fed’s announcement on Wednesday, bond yields — and the mortgage rates that usually follow them — fell.

    But the relationship between mortgage rates and Treasurys has weakened slightly in recent weeks, said Orphe Divounguy, senior economist at Zillow.

    “The secondary mortgage market may react to speculation that more financial entities may need to sell their long-term investments, like mortgage backed securities, to get more liquidity today,” he said.

    Even as Treasurys decline, he said, tighter credit conditions as a result of bank failures will likely limit any dramatic plunging of mortgage rates.

    “This could restrict mortgage lenders’ access to funding sources, resulting in higher rates than Treasuries would otherwise indicate,” Divounguy said. “For borrowers, lending standards were already quite strict, and tighter conditions may make it more difficult for some home shoppers to secure funding. In turn, for home sellers, the time it takes to sell could increase as buyers hesitate.”

    Inflation is still quite high, but it is slowing and analysts are anticipating a much slower economy over the next few quarters — which should further bring down inflation. This is good for mortgage borrowers, who can expect to see rates retreating through this year, said Mike Fratantoni, Mortgage Bankers Association senior vice president and chief economist.

    “Homebuyers in 2023 have shown themselves to be quite sensitive to any changes in mortgage rates,” Fratantoni said.

    The MBA forecasts that mortgage rates are likely to trend down over the course of this year, with the 30-year fixed rate falling to around 5.3% by the end of the year.

    “The housing market was the first sector to slow as the result of tighter monetary policy and should be the first to benefit as policymakers slow — and ultimately stop — hiking rates,” said Fratantoni.

    In second half of the year, the inflation picture is expected to improve, leading to mortgage rates that are more stable.

    “Expectations for slower economic growth or even a recession should bring inflation down and help mortgage rates decline,” said Divounguy.

    That’s good news for home buyers since it improves affordability, bringing down the cost to finance a home. It also benefits sellers, since it reduces the intensity of an interest-rate lock-in.

    Lower rates could also convince more homeowners to list their home for sale. With the inventory of homes for sale near historic lows, this would add badly needed inventory to an extremely limited pool.

    “Mortgage rates are steering both supply and demand in today’s costly environment,” said Divounguy. “Home sales picked up in January when rates were relatively low, then slacked off as they ramped back up.”

    But with cooling inflation comes a higher risk of job losses, which is typically bad for the housing market.

    “Of course, much uncertainty surrounding the state of inflation and this still-evolving banking turmoil remains,” said Divounguy.

    In his remarks on Wednesday, Fed Chair Jerome Powell said estimates of how much the recent banking developments could slow the economy amounted to “guesswork, almost, at this point.”

    But regardless of the tack the economy and banking concerns take, their impact will quickly be seen in mortgage rates.

    “Evidence — in either direction — of spillovers into the broader economy or accelerating inflation would likely cause another policy shift, which would materialize in mortgage rates,” said Divounguy.

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  • Too big for Switzerland? Credit Suisse rescue creates bank twice the size of the economy | CNN Business

    Too big for Switzerland? Credit Suisse rescue creates bank twice the size of the economy | CNN Business


    London
    CNN
     — 

    The last-minute rescue of Credit Suisse may have prevented the current banking crisis from exploding, but it’s a raw deal for Switzerland.

    Worries that Credit Suisse’s downfall would spark a broader banking meltdown left Swiss regulators with few good options. A tie-up with its larger rival, UBS

    (UBS)    , offered the best chance of restoring stability in the banking sector globally and in Switzerland, and protecting the Swiss economy in the near term.

    But it leaves Switzerland exposed to a single massive financial institution, even as there is still huge uncertainty over how successful the mega merger will prove to be.

    “One of the most established facts in academic research is that bank mergers hardly ever work,” said Arturo Bris, a professor of finance at Swiss business school IMD.

    There are also concerns that the deal will lead to huge job losses in Switzerland and weaken competition in the country’s vital financial sector, which overall employs more than 5% of the national workforce, or nearly 212,000 people.

    Taxpayers, meanwhile, are now on the hook for up to 9 billions Swiss francs ($9.8 billion) of future potential losses at UBS arising from certain Credit Suisse assets, provided those losses exceed 5 billion francs ($5.4 billion). The state has also explicitly guaranteed a 100 billion Swiss franc ($109 billion) lifeline to UBS, should it need it, although that would be repayable.

    Switzerland’s Social Democratic party has already called for an investigation into what went wrong at Credit Suisse, arguing that the newly created “super-megabank” increases risks for the Swiss economy.

    The demise of one of Switzerland’s oldest institutions has come as a shock to many of its citizens. Credit Suisse is “part of Switzerland’s identity,” said Hans Gersbach, a professor of macroeconomics at ETH university in Zurich. The bank “has been instrumental in the development of modern Switzerland.”

    Its collapse has also tainted Switzerland’s reputation as a safe and stable global financial center, particularly after the government effectively stripped shareholders of voting rights to get the deal done.

    Swiss authorities also wiped out some bondholders ahead of shareholders, upending the traditional hierarchy of losses in a bank failure and dealing another blow to the country’s reputation among investors.

    “The repercussions for Switzerland are terrible,” said Bris of IMD. “For a start, the reputation of Switzerland has been damaged forever.”

    That will benefit other wealth management centers, including Singapore, he told CNN. Singaporeans are “celebrating… because there is going to be a huge inflow of funds into other wealth management jurisdictions.”

    At roughly $1.7 trillion, the combined assets of the new entity amount to double the size of Switzerland’s annual economic output. By deposits and loans to Swiss customers, UBS will now be bigger than the next two local banks combined.

    With a roughly 30% market share in Swiss banking, “we see too much concentration risk and market share control,” JPMorgan analysts wrote in a note last week before the deal was done. They suggested that the combined entity would need to exit or IPO some businesses.

    The problem with having one single large bank in a small economy is that if it faces a bank run or needs a bailout — which UBS did during the 2008 crisis — the government’s financial firepower may be insufficient.

    At 333 billion francs ($363 billion), local deposits in the new entity equal 45% of GDP — an enormous amount even for a country with healthy public finances and low levels of debt.

    On the other hand, UBS is in a much stronger financial position than it was during the 2008 crisis and it will be required to build up an even bigger financial buffer as a result of the deal. The Swiss financial regulator, FINMA, has said it will “very closely monitor the transaction and compliance with all requirements under supervisory law.”

    UBS chairman Colm Kelleher underscored the health of UBS’s balance sheet Sunday at a press conference on the deal. “Having been chief financial officer [at Morgan Stanley] during the last global financial crisis, I’m well aware of the importance of a solid balance sheet. UBS will remain rock-solid,” he said.

    Kelleher added that UBS would trim Credit Suisse’s investment bank “and align it with our conservative risk culture.”

    Andrew Kenningham, chief Europe economist at Capital Economics, said “the question of market concentration in Switzerland is something to address in future.” “30% [market share] is higher than you might ideally want but not so high that it’s a major problem.”

    The deal has “surgically removed the most worrying part of [Switzerland’s] banking system,” leaving it stronger, Kenningham added.

    The deal will have an adverse affect on jobs, though, likely adding to the 9,000 cuts that Credit Suisse already announced as part of an earlier turnaround plan.

    For Switzerland, the threat is acute. The two banks collectively employ more than 37,000 people in the country, about 18% of the financial sector’s workforce, and there is bound to be overlap.

    “The Credit Suisse branch in the city where I live is right in front of UBS’s, meaning one of the two will certainly close,” Bris of IMD wrote in a note Monday.

    In a call with analysts Sunday night, UBS CEO Ralph Hamers said the bank would try to remove 8 billion francs ($8.9 billion) of costs a year by 2027, 6 billion francs ($6.5 billion) of which would come from reducing staff numbers.

    “We are clearly cognizant of Swiss societal and economic factors. We will be considerate employers, but we need to do this in a rational way,” Kelleher told reporters.

    The Credit Suisse headquarters in Zurich

    Not only does the deal, done in a hurry, fail to protect jobs in Switzerland, but it contains no special provisions on competition issues.

    UBS now has “quasi-monopoly power,” which could increase the cost of banking services in the country, according to Bris.

    Although Switzerland has dozens of smaller regional and savings banks, including 24 cantonal banks, UBS is now an even more dominant player. “Everything they do… will influence the market,” said Gersbach of ETH.

    Credit Suisse’s Swiss banking arm, arguably its crown jewel, could have been subject to a future sale as part of the terms of the deal, he added.

    A spinoff of the domestic bank now looks unlikely, however, after UBS made clear that it intended to hold onto it. “The Credit Suisse Swiss bank is a fine asset that we are very determined to keep,” Kelleher said Sunday.

    At $3.25 billion, UBS got Credit Suisse for 60% less than the bank was worth when markets closed two days prior. Whether that ultimately turns out to be a steal remains to be seen. Large mergers are notoriously fraught with risk and often don’t deliver the promised returns to shareholders.

    UBS argues that by expanding its global wealth and asset management franchise, the deal will drive long-term shareholder value. “UBS’s strength and our familiarity with Credit Suisse’s business puts us in a unique position to execute this integration efficiently and effectively,” Kelleher said. UBS expects the deal to increase its profit by 2027.

    The transaction is expected to close in the coming months, but fully integrating the two institutions will take three to five years, according to Phillip Straley, the president of data analytics company FNA. “There’s a huge amount of integration risk,” he said.

    Moody’s on Tuesday affirmed its credit ratings on UBS but changed the outlook on some of its debt from stable to negative, judging that the “complexity, extent and duration of the integration” posed risks to the bank.

    It pointed to challenges retaining key Credit Suisse staff, minimizing the loss of overlapping clients in Switzerland and unifying the cultures of “two somewhat different organizations.”

    According to Kenningham of Capital Economics, the “track record of shotgun marriages in the banking sector is mixed.”

    “Some, such as the 1995 purchase of Barings by ING, have proved long-lasting. But others, including several during the global financial crisis, soon brought into question the viability of the acquiring bank, while others have proven very difficult to implement.”

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  • Most Asian shares reverse early losses after US Fed raises rates by a quarter point | CNN Business

    Most Asian shares reverse early losses after US Fed raises rates by a quarter point | CNN Business


    Hong Kong
    CNN
     — 

    Most Asia Pacific shares pared early losses on Thursday, after the US Federal Reserve reaffirmed its dedication to bring down inflation.

    In Hong Kong, the benchmark Hang Seng

    (HSI)     index traded 1.5% higher, leading gainers in the region. One of the top gainers was internet giant Tencent, which was more than 7% higher after posting a strong rise in its online advertising business in the December quarter on Wednesday.

    In Japan, the Nikkei 225

    (N225)     was flat after opening lower. The broader Topix index was 0.3% lower, reversing some of its early morning losses.

    South Korea’s Kospi was 0.2% higher, while Australia’s S&P ASX 200 advanced by half a percentage point.

    Asian shares had opened broadly lower, tracking losses on Wall Street. In the US, the Dow closed 1.6% lower, while the S&P 500

    (DVS)     slipped about 1.7%. The Nasdaq Composite declined 1.6%.

    “Looking ahead, while we see fundamental value in Asia-ex Japan stocks … we remain concerned about a possible pullback in US stocks assuming US data deteriorates in the months ahead,” Nomura analysts wrote in a Thursday research note.

    US markets had been fickle on Wednesday before settling in the red as investors digested the Federal Reserve’s quarter-point rate hike and looked for clues about the state of the banking sector meltdown.

    The Fed raised rates by a quarter point at the conclusion of its two-day meeting, even though its historic rate hiking campaign was a contributing factor in the banking crisis.

    Investors were heartened by the central bank’s strong hints that its aggressive pace of interest rate hikes would come to an end soon. Still, the central bank also warned that rate cuts aren’t coming this year.

    – CNN’s Krystal Hur and Laura He contributed reporting

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  • China may prefer TikTok to be banned than fall into US hands | CNN Business

    China may prefer TikTok to be banned than fall into US hands | CNN Business


    Hong Kong
    CNN
     — 

    Nearly three years after the Trump administration threatened to ban TikTok if its Chinese owner didn’t sell the company to American investors, the video app is once again facing an existential threat.

    TikTok CEO Shou Zi Chew will appear later Thursday before US lawmakers, many of whom want the app banned in the United States because of the risk they say it presents to national security. The clamor for a sale is growing louder again.

    But an outright divestment isn’t in the cards, according to analysts and legal experts, not least because the Chinese government views TikTok’s technology as sensitive and has taken steps since 2020 to ensure it can veto any sale by its Beijing-based owner, ByteDance.

    At issue is who owns the keys to TikTok’s algorithms and the vast troves of data collected from the 150 million people in the United States who use the app each month.

    The Chinese government considers some advanced technology, including content recommendation algorithms, to be critical to its national interest. In December, Chinese officials proposed tightening the rules that govern the sale of that technology to foreign buyers.

    “Beijing will have no say in the US decision to mandate the sale of TikTok, but it will retain the ultimate approval authority over such a sale,” said Brock Silvers, chief investment officer for Kaiyuan Capital.

    “It also seems extremely unlikely that Beijing will accept any deal that removes TikTok’s algorithm[s] from its direct control and regulatory authority,” he said.

    TikTok’s algorithms, which keep users glued to the app, are believed to be key to its success. The algorithms give recommendations based on users’ behavior, thus pushing videos they actually like and want to watch.

    Chinese regulators first added algorithms to the restricted list of technologies in August 2020, when the Trump administration threatened to ban TikTok unless it was sold.

    Back then, Chinese state media published a commentary by a professor of trade at the University of International Business and Economics who said the updated rules meant ByteDance would need a license from Beijing to sell its technology.

    “Some cutting-edge technologies might impact national security and public welfare, and need to be included in [export control] management,” Cui Fan told Xinhua.

    The intended sale of TikTok in 2020 to Oracle and Walmart hit a snag after Beijing added algorithms to its export control list. The Biden administration eventually rescinded the Trump-era executive order targeting TikTok, but replaced it with a broader directive focused on investigating technology linked to foreign adversaries, including China.

    Now, the company is once again caught up in a geopolitical struggle between Washington and Beijing.

    “The TikTok hearings in the United States mark the beginnings of a regulatory meat-grinder facing all [Chinese] tech companies,” said Alex Capri, a research fellow at the Hinrich Foundation.

    A senior official from the Chinese regulator of digital and traditional media visited Bytedance’s offices last week. He urged the company to improve the use of “recommendation algorithms” to spread “positive energy” and strengthen the review of online content, according to a statement from the regulator posted on its website.

    The visit highlights Beijing’s resolve to keep its most powerful internet companies on a tight leash. It also has more direct levers to pull.

    In April 2021, a Chinese government entity acquired a “golden share” of 1% in a Beijing subsidiary of ByteDance, according to business data platform Qichacha. The subsidiary controls operating licenses for Douyin, TikTok’s sister app in China, and Toutiao, a news aggregation app.

    “TikTok’s algorithms make it truly unique in terms of data harvesting and strategic analytics, therefore, I don’t see Beijing allowing it to fall into the hands of US interests,” said Capri.

    “Unless they can somehow still access TikTok’s data through other means and methods, including ongoing cyber intrusion and other forms of back-door access.”

    Chinese regulators have been gradually tightening their control over algorithm technology more generally.

    Starting in March 2022, an unprecedented regulation came into effect requiring internet companies to register recommendation algorithms with the Cyberspace Administration, the powerful internet regulator that reports to President Xi Jinping.

    At the beginning of 2023, rules governing “deep synthesis algorithms” also took effect. They will restrict the use of AI-powered image, audio and text-generation software. Such technologies underpin popular apps such as ChatGPT.

    These regulatory developments suggest that TikTok’s recommendation algorithms will be subject to China’s export controls, said Winston Ma, an adjunct professor at New York University School of Law.

    TikTok has been erecting technical and organizational barriers that it says will keep user data safe from unauthorized access.

    Under the plans, known as Project Texas, the US government and third-party companies such as Oracle would also have some degree of oversight of TikTok’s data practices. TikTok is working on a similar plan for the European Union known as Project Clover.

    But that hasn’t reassured US officials, likely because no matter what TikTok does internally, China would still theoretically have leverage over TikTok’s Chinese owners. (Similar measures taken by Huawei didn’t prevent it from being kicked out of Western 5G markets.)

    And the concerns would remain even if TikTok is sold to an American buyer, Capri said.

    “A change of TikTok’s ownership solves nothing,” he said. “The real issue is general data security and who ultimately has access to that data, by whatever means, regardless of legal ownership.”

    The true test, he said, is whether user data can be effectively ring-fenced and privacy and security can be achieved through data segregation, encryption and other means.

    As for a solution, Silvers expects both sides to try to “finesse a compromise” where US concerns are addressed, but Beijing still retains control over TikTok.

    But, he believes Beijing would ultimately prefer for TikTok leave the US market rather than surrender its algorithm.

    “If any Chinese company is to have any chance of surviving increased scrutiny from Western governments, they will have to entrust their data to third party security firms and endure rigorous third party audits and government intrusion, in addition to transferring ownership,” Capri said.

    “This is really an existential crisis for Chinese firms operating in the West.”

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  • Biden White House closely watching Federal Reserve following bank failures | CNN Politics

    Biden White House closely watching Federal Reserve following bank failures | CNN Politics



    CNN
     — 

    All eyes are trained on the Federal Reserve as it prepares to announce another potential interest rate hike Wednesday afternoon – exactly 10 days after the Biden administration stepped in with dramatic emergency actions to contain the fallout from two bank failures.

    Biden White House officials will be closely watching the highly anticipated rate decision – and monitoring every word of Fed Chairman Jerome Powell’s public comments – for any telling clues on how the central bank is processing what has emerged one of the most urgent economic crises of Joe Biden’s presidency.

    The moment creates a complex, if carefully observed, dynamic for the administration’s top economic officials who have spent much of the last two weeks engaged in regular discussions and consultations with Powell and Fed officials as they’ve navigated rapid and acute risks to the banking system.

    The Fed’s central role in not only supervising US banks and the stability of the financial system, but also in serving as a liquidity backstop in moments of systemic risk, has once again thrust the central bank back to center stage in the government’s effort to stabilize rattled markets.

    But Biden has made the central bank’s independence on monetary policy an unequivocal commitment – and has repeatedly underscored that he has confidence in the Fed’s central role in navigating inflation that has weighed on the US economy for more than a year and remained stubbornly persistent.

    Even as some congressional Democrats have directed fire at Powell for the rapid increase in interest rates and the risks the effort poses to a robust post-pandemic economic recovery, White House officials have taken pains not to shed light on their views publicly.

    Officials stress nothing in the last week has changed that mandate from Biden – and note that the widespread uncertainty about what action the Fed will take on rates only serves to underscore that reality.

    It’s a reality that comes at a uniquely inopportune time for a banking system that has shown clear signs of stabilizing in the last several days, but is still facing a level of anxiety among market participants and depositors about the durability of that shift.

    “I do believe we have a very strong and resilient banking system and all of us need to shore up the confidence of depositors that that’s the case,” Treasury Secretary Janet Yellen said during remarks Tuesday in Washington.

    Yellen said a new emergency lending facility launched by the Fed, along with its existing discount window, are “working as intended to provide liquidity to the banking system.”

    But prior to the closures of Silicon Valley Bank and Signature Bank, analysts had widely predicted that the Fed would unveil a half-point rate hike. But after the sudden collapse of the two banks that sent shockwaves across the global economy, there has been a growing belief among Wall Street analysts that the central bank will pull back, and only raise rates by a quarter-point – in part to try to alleviate concerns that the Fed’s historically aggressive rate hikes over the past year were precisely to blame for this month’s financial turmoil.

    But there are also concerns that a dramatic pullback, like choosing to forgo any rate increases altogether until a later meeting, would bring its own risks of signaling to the market that there are deeper systemic problems.

    It’s a conundrum top Fed officials started grappling with in the first of their two-day Federal Open Market Committee meeting on Tuesday. How they choose to navigate the path ahead will remain behind closed doors until their policy statement is released Wednesday afternoon.

    Powell is scheduled to speak to reporters shortly after.

    For officials inside the Biden White House, Wednesday is poised to offer critical insight into how the central bank is grappling with its urgent priority of bringing down inflation, while at the same time, minimizing the risk of additional dominoes falling in the US banking sector.

    Those two imperatives – bringing prices down and maintaining stability across the US financial sector – are urgent priorities for the Biden White House, particularly as the president moves closer to a widely expected reelection announcement and the health of the economy remains the top issue for voters.

    Yet the Fed’s decision will come at a moment of accelerating political pressure on the Fed itself – and Powell specifically.

    Massachusetts Democratic Sen. Elizabeth Warren, a member of the Senate Banking Committee, slammed Powell, saying he has failed at two of his main jobs, citing raising interest rates and his support of bank deregulation.

    “I opposed Chair Powell for his initial nomination, but his re-nomination. I opposed him because of his views on regulation and what he was doing to weaken regulation, but I think he’s failing in both jobs, both as oversight manager of these big banks which is his job and also what he’s doing with inflation,” Warren said on NBC’s “Meet the Press.”

    White House officials have made clear – with no hesitation – that Biden’s long-stated confidence in Powell is unchanged. Powell, who was confirmed for his second four-year term as Fed chair last year, announced last week that the Fed would launch a review into the failure of Silicon Valley Bank.

    Treasury and Fed officials, along with counterparts at other federal regulators and their international counterparts, have continued regular discussions this week as they’ve monitored the system in the wake of the weekend collapse, and eventual sale, of European banking giant Credit Suisse.

    US officials viewed the Credit Suisse collapse as unrelated to the crisis that took down the US banks a weekend prior, although they acknowledged it posed broader risks tied to confidence, or the potential lack thereof, in the system.

    In recent days, White House officials have begun to cautiously suggest that they see signs of the US economy stabilizing, following the turbulent aftermath of the closures of Silicon Valley Bank and Signature Bank. Biden, for his part, has credited the sweeping steps his administration announced – namely, the backstopping of all depositors’ funds held at the two institutions and the creation of an emergency lending program by the Federal Reserve – as having prevented a broader financial meltdown.

    He has also called on US regulators and lawmakers to strengthen financial regulations, though it is not yet clear what specific actions the president may ultimately throw his weight behind.

    Press secretary Karine Jean-Pierre declined to comment Tuesday afternoon at the White House press briefing on how she and other officials were watching the Fed’s upcoming decision.

    “The Fed is indeed independent. We want to give them the space to make those monetary decisions and I don’t want to get ahead of that,” Jean-Pierre said. “I don’t even want to give any thoughts to what Jerome Powell might say tomorrow.”

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  • Asia Pacific shares join US gains as investors await key Fed decision | CNN Business

    Asia Pacific shares join US gains as investors await key Fed decision | CNN Business


    Hong Kong
    CNN
     — 

    Asia Pacific shares opened higher on Wednesday, tracking US gains, as investors awaited the US Federal Reserve’s next monetary policy decision later in the day.

    Hong Kong’s benchmark Hang Seng

    (HSI)     index was trading 2.3% higher, leading gains in the region. Japan’s Nikkei 225

    (N225)     rose by 1.8%, while the broader Topix

    (TOPX)     index was also 1.8% higher.

    Elsewhere in the region, both South Korea’s Kospi and Australia’s S&P ASX were about 1% higher. In mainland China, the Shanghai Composite edged up about 0.5%.

    The MSCI Asia Pacific index, which excludes Japanese companies, was broadly higher, rising 0.8%. US futures, including both S&P 500 and Nasdaq, were flat in Asian trade.

    “Asia is trading higher today as risk appetite appears to be returning amidst receding volatility around bank stocks, at least for the time being ahead of Wednesday’s schedule statement from the FOMC,” said Stephen Innes, managing partner of SPI Asset Management, referring to the the Federal Open Market Committee — which is due announce its decision on interest rates on Wednesday afternoon.

    Investors are largely pricing in a 25 basis point rate hike and will listen closely to see if Federal Reserve Chair Jerome Powell is able to justify hiking rates while reassuring panicked markets that the Fed can maintain the safety and security of the banking system.

    On Tuesday, US stocks closed higher as shares of regional banks rebounded from record-breaking losses earlier in the month.

    Shares of troubled lender First Republic

    (FRC)     led the way, soaring 30%, making back a large portion of the losses from its 47% plunge in the prior session. The SPDR Regional Banking ETF (KRE), which tracks a number of small and mid-sized bank stocks, gained 5.8% for the day.

    The boost came after US Treasury Secretary Janet Yellen said at an event hosted by the American Bankers Association that the federal government was willing to guarantee more deposits should the current banking meltdown continue.

    – CNN’s Nicole Goodkind contributed reporting

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  • Google suspends Chinese shopping app Pinduoduo over malware | CNN Business

    Google suspends Chinese shopping app Pinduoduo over malware | CNN Business


    Hong Kong
    CNN
     — 

    Google has suspended Pinduoduo, a popular Chinese budget shopping app, from its Play Store after finding malware in versions of the app.

    In a Tuesday statement, Google said versions of the app that are not in the Play Store have been found to contain malware.

    “We have suspended the Play version of the app for security concerns while we continue our investigation,” a Google spokesperson said.

    It has also enforced Google Play Protect, which scans apps installed on Android phones for harmful behavior, on the allegedly malicious apps, according to the statement.

    “Google Play Protect enforcement has been set to block installation attempts of these identified malicious apps. Users that have malicious versions of the app downloaded to their devices are warned and prompted to uninstall the app,” the spokesperson said.

    In a statement to CNN, Pinduoduo said it was informed by Google Play on Tuesday morning that its app had been “temporarily suspended” because the current version is “not compliant with Google’s Policy.” It said Google Play did not share more details.

    “We are communicating with Google for more information. We have been told that there are several other apps that have been suspended as well,” a Pinduoduo spokesperson said.

    In a later statement Pinduoduo said it strongly rejects “the speculation and accusation that Pinduoduo app is malicious just from a generic and non-conclusive response from Google.”

    It reiterated that “there are several apps that have been suspended from Google Play at the same time.”

    CNN has asked Google for information on whether other apps have also been suspended.

    Malware, short for malicious software, refers to any software developed to steal data or damage computer systems and mobile devices. When hidden in apps, it can be used to gain unauthorized access to information on a user’s phone.

    Pinduoduo is one of China’s most popular e-commerce platforms, with approximately 900 million users. It made its name with a group buying business model, allowing people to save money by enlisting friends to buy the same item in bulk.

    Riding on the domestic success of Pinduoduo, its US-listed parent company PDD last year launched Temu, an online shopping platform in the United States.

    Temu, which runs an online superstore for virtually everything — from home goods to apparel to electronics — has quickly become the most downloaded app in the US for both iOS and Android.

    Since its rollout in September, the app had been downloaded 24 million times as of last month, racking up more than 11 million monthly active users, according to Sensor Tower.

    Google did not mention Temu in its statement. The app is still available to download on the Play Store.

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  • Asia Pacific stocks rise as investor worries about global banking turmoil ease | CNN Business

    Asia Pacific stocks rise as investor worries about global banking turmoil ease | CNN Business


    Hong Kong
    CNN
     — 

    Stocks in the Asia Pacific region rose Tuesday as concerns about the global banking sector eased in response to a whirlwind of intervention by policymakers and industry players.

    The S&P/ASX 200 in Australia jumped 1.3%, boosted by its AXFJ index, a measure of banking stocks, which surged 1.7%.

    In Hong Kong, the Hang Seng Index

    (HSI)     opened up 0.8%. China’s Shanghai Composite was 0.3% higher at the start of its trading session.

    South Korea’s Kospi ticked up 0.8%. Japanese markets were closed for a public holiday. Singapore’s Straits Times Index gained 1.1%.

    US stock futures were flat in Asian trade Tuesday, with Dow futures, S&P 500 futures and Nasdaq futures little changed.

    That followed a sunnier day on Wall Street, as investors became more confident in the outlook for the general banking sector, sending shares up.

    On Monday, central banks across Asia Pacific moved to quell concerns about the finance industry, with authorities in Australia, Hong Kong, Singapore and the Philippines assuring the public that their money was safe following the emergency bailout of Credit Suisse over the weekend.

    That did little to stop stocks from slumping initially, though analysts had predicted global markets could see calm later on Monday as investor nerves settled and relief set in. The landmark rescue of Credit Suisse

    (CS)     by bigger Swiss rival UBS

    (UBS)     on Sunday was followed by a coordinated move by major central banks to boost the flow of US dollars through financial markets.

    Shares of UBS rose about 3.3% in an intraday reversal on Monday, following a drop of as much as 15% earlier in the session.

    Still, recession fears continue to dog investors ahead of the US Federal Reserve’s meeting, which is set to conclude Wednesday. Traders see about a 73% probability of the central bank raising interest rates by 25 basis points.

    US regional banks also aren’t out of the woods yet. Shares of First Republic

    (FRC)    , the struggling California bank bailed out by a consortium of banks last week, fell to an intraday record low Monday before ending the session down about 47% in another day of steep losses for the company.

    The Dow

    (INDU)     closed 1.2% higher, while the S&P 500

    (SPX)     gained about 0.9%. The Nasdaq Composite

    (COMP)     climbed 0.4%.

    — CNN’s Krystal Hur contributed to this report.

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  • Trump shadow looms large over House GOP policy retreat | CNN Politics

    Trump shadow looms large over House GOP policy retreat | CNN Politics


    Orlando, Florida
    CNN
     — 

    House Republicans had hoped to use their annual retreat to get on the same page about upcoming policy battles and devise a strategy to preserve their fragile majority.

    Instead, they find themselves playing defense for former President Donald Trump.

    While most Republicans had hoped to steer clear of any presidential politics – despite being in Florida, home to two major potential GOP rivals in 2024 – Trump’s announcement over the weekend that he expects to be imminently arrested has put him back in the center of the conversation and forced Republicans to publicly rally to his side. Even some GOP lawmakers who have called for the party to move on from Trump have lined up to offer their full-throated defense of the ex-president, attacking the Manhattan District Attorney’s office that is investigating Trump as a political witch hunt.

    Speaker Kevin McCarthy, echoing calls from inside his conference, has instructed GOP-led committees to investigate whether the Manhattan DA used federal funds to probe a payment made by Trump’s then-personal attorney Michael Cohen to adult film star Stormy Daniels days before the 2016 presidential election.

    McCarthy said Sunday that he already talked to House Judiciary Committee Chairman Jim Jordan, a Republican from Ohio, about an investigation into the matter, and hinted that there could be more developments on that front soon.

    “Remember, we also have a select committee on the weaponization of government, this applies directly to that. I think you’ll see actions from them,” McCarthy told reporters at a news conference kicking off their three-day policy retreat.

    But Republicans weren’t in complete lockstep with Trump. McCarthy carefully broke with Trump’s calls to protest and “take our nation back” if he is arrested, which has sparked concerns of political violence reminiscent of the January 6 attack on the Capitol.

    “I don’t think people should protest this, no,” McCarthy said. But he added: “You may misinterpret when President Trump talks … he is not talking in a harmful way, and nobody should. Nobody should harm one another … We want calmness.”

    Firebrand Rep. Marjorie Taylor Greene of Georgia, however, offered a different take.

    “I don’t think there’s anything wrong with calling for protests,” she told reporters after the news conference on Sunday. “Americans have the right to assemble and the right to protest. And that’s an important constitutional right. And he doesn’t have to say ‘peaceful’ for it to mean peaceful. Of course he means peaceful.”

    The latest Trump drama is once again threatening to divide the GOP and overshadow their carefully-laid messaging plans – a familiar predicament for Republicans who served in Congress while Trump was in office and spent years being forced to answer for his regular controversies. Republican leaders who had hoped to focus on their legislative agenda during the first news conference of their policy retreat instead fielded numerous questions from reporters about Trump and the Manhattan DA’s investigation.

    Asked whether he thinks it would be appropriate for Trump to run for president if he is ultimately convicted, McCarthy said: “He has a constitutional right to run.”

    Multiple Republican lawmakers – including House GOP Conference Chair Elise Stefanik – have endorsed Trump, while at least two of his staunch supporters have thrown their weight behind other candidates in the race: South Carolina Rep. Ralph Norman is backing former South Carolina Gov. Nikki Haley, and Rep. Chip Roy of Texas is supporting Florida Gov. Ron DeSantis.

    Most GOP lawmakers, however, have been reluctant to pick sides just yet, waiting to see how the field develops. Even McCarthy, who credited his speakership to Trump, has yet to make his preference known.

    “I could endorse in the primary, but I haven’t endorsed,” he told reporters on Friday. When pressed on if he will do so, he again repeated: “I could endorse but I haven’t.”

    Aside from a potentially bruising GOP primary contest, House Republicans have other major internal battles on the horizon. They are about to dive into some of the most complicated and divisive policy fights of their razor-thin majority, including lifting the nation’s borrowing limit, funding the government, reauthorizing federal food stamp programs and deciding whether to continue aid for Ukraine.

    Part of their goal during their annual retreat is to just get the conference in sync ahead of these looming debates.

    “The value of something like this is, can we keep the era of good feelings going within the Republican conference?” said Rep. Dusty Johnson of South Dakota, who chairs the centrist-leaning Main Street Caucus. “This is gonna be a nice opportunity for us to just get in the same room, have a couple hundred of us breathe the same air, and remind ourselves that we have more in common than we have apart.”

    While the GOP has notched a handful of victories since taking over the House, including a resolution to overturn a DC crime bill, most of their bills have been messaging endeavors thus far. And even measures that were thought to be low-hanging fruit, like a border security plan, have proved more challenging than expected in their slim majority.

    House Republicans know their biggest challenges lie ahead.

    “The question is really going to be as we get into phase two,” GOP Rep. Brian Fitzpatrick of Pennsylvania, who co-leads a bipartisan caucus with Democrats, told CNN. “The real test is going to be the must-pass pieces of legislation.”

    The GOP’s investigations on a wide array of subjects, including Hunter Biden’s business deals and the treatment of January 6 defendants, have caused some consternation among the party’s moderates. And some were also skeptical about the need for a congressional response to a potential Trump indictment.

    “I’m going to wait until I hear more facts and read the indictment itself,” Rep. Don Bacon, a Nebraska Republican who represents a district President Joe Biden won, told CNN. “I have faith in our legal system. If these charges are political bogus stuff, and they may be, it will become clear enough soon.”

    GOP leaders are nonetheless expressing confidence in their ability to stay united.

    “House Republicans are working as a team,” House GOP Whip Tom Emmer of Minnesota said at the Orlando news conference. “Because that’s what the American people elected us to do.”

    Bacon framed the stakes of the legislative fights with Biden and Senate Majority Leader Chuck Schumer to come by saying, “We need to be the governing party that voters trust. This will determine 2024 results. This means we can’t cave to Biden’s and Schumer’s demands, but we can’t refuse to find consensus and make agreements on must pass legislation.”

    GOP Rep. Tim Burchett of Tennessee, who told CNN he is willing to shut down the government if conservatives do not get what they are calling for pertaining to the debt ceiling, reflected on how House Republicans could learn from their Democratic counterparts in presenting a unified front.

    “They’re better than us at the carrot and the stick. If they get in line, they get the carrot. If they don’t, they get the stick. They all tout the unity thing. Maybe that’s one of our weaknesses,” he told CNN.

    The must-pass pieces of legislation expose not only the fault lines of a slim majority, but also underscore the hurdles House Republicans face in cementing their transition from a nay-saying minority to a governing majority.

    “Campaigning is for dividing. Governing is for uniting,” GOP Rep. Tony Gonzales of Texas told CNN, adding that sentiment must extend beyond House Republicans to Biden and Senate Democrats.

    “I’d say in general, not everybody comes up here to be serious legislators. A lot of people come up here for fame and fortune. I spent 20 years in the military. I’m focused on being a serious legislator,” he added.

    Fitzpatrick told CNN, “It’s definitely an adjustment,” when describing the House Republicans’ transition from minority to majority, particularly for those members who have not served in the majority before. But Fitzpatrick pointed to the fact that the messaging bills that Republicans have brought to the floor so far have passed almost unanimously.

    Some of the House GOP’s biggest hurdles will come in trying to write a budget blueprint, which they hope will kick off negotiations over the raising debt ceiling, where Republicans are demanding steep spending cuts.

    Further complicating the GOP’s goal to balance the budget and claw back federal spending, Republican leaders – egged on by Trump – have vowed not to touch Social Security and Medicare.

    Norman acknowledged how difficult it is going to be to coalesce around a framework that the entire conference can agree on. Before leaving Washington, the far-right House Freedom Caucus laid out their own hardline spending demands in the debt ceiling fight.

    “I don’t expect to get 218 on the first blush. What we present, there’s gonna be some gnashing of teeth,” he told CNN. “Every dollar up here has an advocate.”

    Burchett told CNN he stands behind the proposals being pushed by the Freedom Caucus.

    “It seems like every time the conservatives are the only ones that compromise. And we are just going to have to say no compromise,” he told CNN, adding he is willing to shut down the government on this issue. “I did it under Trump, and I’ll sure as heck do it under Biden.”

    McCarthy said he thought it was “productive” for his members to outline “ideas” for the budget, and dismissed the idea that anyone was drawing red lines.

    Asked about Biden’s insistence that House Republicans show them their budget before negotiations can continue, McCarthy replied, “Why do we have to have a budget out to talk about the debt ceiling? We’re not passing the budget, we’re doing a debt ceiling.”

    He added that he has told the president, “We’re not going to raise taxes, and we’re not going to pass a clean debt ceiling, but everything else is up for negotiation.”

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  • Silicon Valley Bank left a void that won’t easily be filled | CNN Business

    Silicon Valley Bank left a void that won’t easily be filled | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    It’s difficult to overstate the influence that Silicon Valley Bank had over the startup world and the ripple effect its collapse this month had on the global tech sector and banking system.

    While SVB was largely known as a regional bank to those outside of the tight-knit venture capital sphere, within certain circles it had become an integral part of the community – a bank that managed the idiosyncrasies of the tech world and helped pave the way for the Silicon Valley-based boom that has consumed much of the economy over the past three decades.

    SVB’s collapse was the largest bank failure since the 2008 financial crisis: It was the 16th largest bank in the country, holding about $342 billion in client funds and $74 billion in loans.

    At the time of its collapse, about half of all US venture-backed technology and life science firms were banking with SVB. In total, it was the bank for about 2,500 venture firms including Andreessen Horowitz, Sequoia Capital, Bain Capital and Insight Partners.

    But the influence of SVB went beyond lending and banking – former CEO Gregory Becker sat on the boards of numerous tech advocacy groups in the Bay Area. He chaired the TechNet trade association and the Silicon Valley Leadership Group, was a director of the Federal Reserve Bank of San Francisco and served on the United States Department of Commerce’s Digital Economy Board of Advisors.

    There’s no doubt that the failure of Silicon Valley Bank left a large void in tech. The question is how that gap will be filled.

    To find out, Before the Bell spoke with Ahmad Thomas, president and CEO of the Silicon Valley Leadership Group. The influential advocacy group is working to convene its hundreds of member companies – including Amazon, Bank of America, BlackRock, Google, Microsoft and Meta – to discuss what happens next.

    This interview has been edited for length and clarity.

    Before the Bell: What’s the feeling on the ground with tech and VC leadership in Silicon Valley?

    Ahmad Thomas: Silicon Valley Bank has been a key part of our fabric here for four decades. SVB was truly a pillar of the community and the innovation economy. The absence of SVB – that void – and coalescing leaders to fill that void is where my energy is focused and that is not a small task.

    I would say there was a fairly high level of unease a few days ago, and I believe the swift steps taken by leaders in Washington have helped quell a fair amount of that unease, but looking at Credit Suisse and First Republic just over the last couple of days, clearly we are in a situation that is going to continue to develop in the weeks and months ahead.

    So how do you fill it?

    We’re working to be a voice around stability, particularly about the fundamentals of the innovation economy. We can acknowledge the void given the absence of Silicon Valley Bank, but I do think we need voices out there to be very clear in highlighting that the fundamentals and the innovation infrastructure remains robust here in Silicon Valley.

    This is a moment where I think people need to take a step back, let cooler heads prevail, and understand that there are opportunities both from an investment standpoint, a community engagement standpoint and corporate citizenship standpoint for new leaders in Silicon Valley to step up.

    Are you working to advocate for more permanent regulation in DC?

    It’s far too early for that. But if there are opportunities to enhance access to capital to entrepreneurs to founders of color or in marginalized communities and if there are opportunities to try and drive innovation and economic growth, we will always be at the table for those conversations.

    Do you have any ideas about how long this crisis will continue for? What’s your outlook?

    The problem is twofold: A crisis of confidence and the set of economic conditions on the ground. The economic conditions remain volatile for a variety of reasons: The softening economy, inflationary pressures and the interest rate environment. But I think right now we need to focus on stabilizing confidence in the investor community, in our business executive community and in the broader set of stakeholders around the strength of the innovation economy. That is something we need to shore up near term.

    From CNN’s Mark Thompson

    Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse (CS) in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.

    “UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

    UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

    Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.

    Credit Suisse had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

    Read more here.

    From CNN’s David Goldman

    A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.

    On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.

    New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.

    At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.

    Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.

    Read more here.

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  • UBS is buying Credit Suisse in bid to halt banking crisis | CNN Business

    UBS is buying Credit Suisse in bid to halt banking crisis | CNN Business


    London
    CNN
     — 

    Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.

    “UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

    UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

    Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.

    Credit Suisse

    (CS)     had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

    Shares in the 167-year-old bank fell 25% over the week, money poured from investment funds it manages and at one point account holders were withdrawing deposits of more than $10 billion per day, the Financial Times reported. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.

    But it did “build a bridge” to the weekend, to allow the rescue to be pieced together, Swiss officials said Sunday night.

    “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.

    “It is absolutely essential to the financial structure of Switzerland and … to global finance,” he told reporters.

    Desperate to prevent the meltdown spreading through the global financial system on Monday, Swiss authorities initiated the search for a private sector solution, with limited state support, while reportedly considering Plan B — a full or partial nationalization.

    “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Credit Suisse chairman Axel Lehmann said in a statement.

    “This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

    The emergency takeover was agreed to after a days of frantic negotiations involving financial regulators in Switzerland, the United States and United Kingdom. UBS

    (UBS)     and Credit Suisse rank among the 30 most important banks in the global financial system, and together they have almost $1.7 trillion in assets.

    Financial market regulators around the world cheered UBS’ action to take over Credit Suisse.

    US authorities said they supported the action and worked closely with the Swiss central bank to assist the takeover.

    “We welcome the announcements by the Swiss authorities today to support financial stability,” said US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell, in a joint statement. “The capital and liquidity positions of the US. banking system are strong, and the US financial system is resilient.”

    Christine Lagarde, President of the European Central Bank, said the banking sector remains resilient but the ECB stands at the ready to help banks maintain enough cash on hand to fund their operations if the need arises.

    “I welcome the swift action and the decisions taken by the Swiss authorities,” Lagarde said. “They are instrumental for restoring orderly market conditions and ensuring financial stability.

    The Bank of England said it welcomed the measures taken by the Swiss authorities “to support financial stability.”

    “We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” it said in a statement. “The UK banking system is well capitalized and funded, and remains safe and sound.”

    The global headquarters of UBS and Credit Suisse are just 300 yards apart in Zurich but the banks’ fortunes have been on very different paths recently. Shares of UBS have climbed 15% in the past two years, and it booked a profit of $7.6 billion in 2022. It had a stock market value of about $65 billion on Friday, according to Refinitiv.

    Credit Suisse shares have lost 84% of their value over the same period, and last year it posted a loss of $7.9 billion. It was worth just $8 billion at the end of last week.

    Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was set up to finance the expansion of the railroad network and industrialization of Switzerland.

    In addition to being Switzerland’s second biggest bank, it looks after the wealth of many of the world’s richest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, 17,000 of those in Switzerland.

    The Swiss National Bank said it would provide a loan of 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to boost liquidity.

    UBS Chief Executive Ralph Hamers will be CEO of the combined bank, and Kelleher will serve as chairman.

    The takeover will reinforce the position of UBS as the world’s leading wealth manager with $5 trillion of invested assets, and boost its ambition to grow in the Americas and Asia. UBS said it expects to generate cost savings of $8 billion per year by 2027. Credit Suisse’s investment bank is in the crosshairs.

    “Let me be clear. UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.

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  • Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

    Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

    Editor’s Note: Lanhee J. Chen is a regular contributor to CNN Opinion and the David and Diane Steffy fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California state controller in 2022. He has played senior roles in both Republican and Democratic presidential administrations and has been an adviser to four presidential campaigns, including as policy director of 2012 Mitt Romney-Paul Ryan campaign. The views expressed in this commentary are his own. View more opinion on CNN.



    CNN
     — 

    When Silicon Valley Bank collapsed this month, analysts and policymakers quickly began considering how to prevent similar failures from happening in the future. While there are changes that lawmakers should consider, when it comes to financial regulation, history shows us that politicians are usually reacting to the last crisis and one step behind the next one.

    The savings and loan crisis of the 1980s led to passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which closed insolvent financial institutions, created new regulatory agencies and implemented restrictions on how savings and loan (or thrift) institutions could invest deposited funds.

    The 2007-2008 financial crisis led to passage of the sweeping Dodd-Frank Act in 2010, which revamped federal regulation of the financial services sector and placed restrictions on how banks do business. Amid criticism that Dodd-Frank had gone too far in regulating banks, a bipartisan coalition in Congress passed, and then-President Donald Trump signed into law in 2018, some rollbacks of Dodd-Frank’s requirements pertaining to small and midsize financial institutions.

    Democrats have largely blamed this rollback of regulations for SVB’s demise. Many Republicans, for their part, have focused their aim on whether the bank’s leadership spent too much time pursuing “woke” policies on diversity and sustainability rather than ensuring depositors were protected.

    The fact that there is so little overlap between Republican and Democrat critiques in the wake of SVB’s collapse illuminates the challenging road ahead for bipartisan policy solutions to avert a future similar failure. If the two sides can’t even agree on the principal cause of the bank’s failure, it’s unlikely there will be consensus on the policies needed to shore up the financial system for the future.

    But they should. While Democrats generally favor more aggressive oversight of the financial system and Republicans largely argue that the current regulatory scheme is sufficient, the right answer looking ahead is somewhere in between.

    In the wake of SVB’s failure, some regulatory interventions have come into focus and could form the basis of policy discussions in the coming weeks and months as Congress considers how to respond to the current banking crisis.

    First, SVB’s demise came when a lack of liquidity (or a shortfall of cash on hand) left it unable to pay out depositors when they came looking for their money. The bank had invested a disproportionate amount of assets in long-term debt that was purchased at a time when interest rates were much lower than they are today. When the bank attempted to liquidate this debt over the last few weeks, it was forced to do so at a significant loss. SVB failed to hedge against risk by diversifying its investments.

    When depositors tried to withdraw $42 billion in cash from the bank on a single day, SVB’s cash shortfall generated a panic among those who had deposits at the bank and raised concerns about the health of the US banking system more broadly.

    Just as individual investors are often advised to diversify their investment strategies to minimize risk, so too might politicians look to requirements that banks ensure that they have proper diversification in how they are investing their assets.

    Further, some Republicans and many Democrats are also calling for expanded deposit insurance so that bank deposits over the current federal cap of $250,000 are also insured. Democratic Sen. Elizabeth Warren of Massachusetts, a vocal supporter of increased financial sector regulation, has called for increased deposit insurance that would be paid for by banks. Democratic Rep. Ro Khanna of California is expected soon to introduce legislation that raises or removes the insurance cap entirely, such that deposits of all amounts will be protected.

    Some Republicans have joined them in addressing the insurance cap. Republican Sen. J.D. Vance of Ohio, for example, has argued that lifting the cap (for example, by ensuring the cap keeps up with inflation) would equalize the playing field between large banks and smaller local and regional ones. Republican Sen. Mitt Romney of Utah has suggested that larger depositors might be insured up to the entire amount of their deposits in exchange for a small fee.

    If Congress moves toward increasing or eliminating the deposit insurance cap entirely, it should do so carefully. Depending on how the policy is constructed, such changes could disproportionately benefit wealthier institutional depositors or encourage bad behavior by banks if they know an open-ended bailout is waiting on the other end of risky investment decisions.

    Finally, some changes will undoubtedly come through the Federal Reserve, rather than Congress. This is probably a good thing, as these policymakers have some insulation from the political forces that directly affect lawmakers.

    The Federal Reserve, for example, will likely examine the extent of both capital and liquidity requirements at banks based on their total assets. A bank’s capital is the difference between its assets and liabilities or, put another way, the resources a bank has to ultimately absorb losses. Liquidity, by comparison, is a measure of the cash and assets a bank has immediately on hand to pay obligations (such as money that depositors might ask for).

    America’s central bank may also look at the content of “stress tests” created by the Dodd-Frank Act and designed to regularly assess the health of large financial institutions across the country. For nearly a decade, tests have been benchmarked to a low-interest rate environment, which is not reflective of recent conditions.

    But ultimately, the Federal Reserve is not blameless in the collapse of SVB as it created a fertile environment for the bank’s failure by keeping interest rates as low as they were for as long as they were. Lawmakers should do their part to make sure people understand that monetary policy has far-reaching impacts.

    While the best way to prevent the next SVB is likely to be viewed by policymakers through partisan-tinted glasses, there are avenues for Democrats and Republicans to work together. But the window to do so is narrow and closing. This time next year, we’ll be in the throes of presidential primary elections, and neither party will be particularly interested in compromise — even if that’s what our financial system needs.

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  • Price hikes are double whammy for pet owners who are crushed by inflation | CNN Business

    Price hikes are double whammy for pet owners who are crushed by inflation | CNN Business


    Minneapolis
    CNN
     — 

    As head of PAWS Atlanta, Joe Labriola can get a good sense of the region’s economic well-being from the day-to-day activity of the city’s oldest no-kill animal shelter.

    Through the course of the past year, it’s become increasingly clear to him that people in the area are struggling under the weight of inflation and economic uncertainty.

    Practically the entirety of the daily call volume consists of requests to rehome pets. The shelter’s “surrender queue” is full, awaiting adoptions to free up space in the main shelter. And the shelves at PAWS Atlanta’s Pet Food Pantry quickly go bare.

    But perhaps the most heartbreaking indicator is something this particular shelter never had to track before 2022. Last year, 166 pets were found abandoned at the shelter’s front gate.

    “A number of animals are being abandoned that have serious medical issues,” Labriola told CNN. “The only thing we can guess is that people just can’t afford those expenses, and they’re hoping by dropping off [their pets] at our facility that we’re going to be able to pick up the slack. And we do as best we can, but it’s really putting a strain on our resources.”

    Overall inflation remains high across the United States, but has slowly and methodically stepped down since setting a fresh 40-year record of 9.1% in June 2022, as measured by the Consumer Price Index. However, during the past eight months, inflation in pet-related products and services has only worsened, rising in some cases to record-setting levels.

    In February, when annual CPI declined to 6%, the catch-all “pets, pet products and services” index rose to 10.9%, veterinary services jumped nearly 2 percentage points to 10.3% and pet food increased to 15.2%, according to Bureau of Labor Statistics data.

    Those price increases are a double whammy for pet owners whose household finances have been weakened by persistently high inflation and for those who fear for rising instances of “economic euthanasia,” when animals are humanely put to death for financial reasons.

    The recent pet-specific price spikes also are compounding pressures facing organizations tasked with providing a safety net for animals in need.

    Nationwide, shelters are not seeing increases in pets being surrendered, said Kitty Block, chief executive officer and president of the Humane Society of the United States. However, when there are certain communities seeing spikes in abandoned or surrendered pets, that’s a sign of broader societal hardship, she said.

    “When people are having to surrender their animals for economic reasons or because they’re in the middle of a horrible disaster or war zone area, that’s a people problem; this is not some issue that is not relevant to people,” Block said. “This is bigger than dogs or cats in shelters. It’s about the people who love them.”

    At the store level, many pet products saw double-digit average unit price increases during the past year, with several items — including pet food, non-clumping cat litter and bird grooming items — seeing year-over-year price hikes north of 20%, according to Nielsen IQ data for the 52-week period ended January 28, 2023.

    “Throughout 2022, price increases were pretty extensive — all the way up to 20% and almost 30% price hikes versus the year prior — across the pet department,” said Andrea Binder, vice president of NielsenIQ North America. “In early 2023, we have started to see those start to taper off a little bit. Prices are still increasing but at a lower rate than they were in 2022.”

    The price hikes have been attributed to rising input and ingredient costs, she added.

    “The cost of chicken, the cost of beef, the cost of aluminum to make a wet cat food can … a lot of those commodity prices have been rising pretty dramatically throughout 2021 and 2022, which has caused manufacturers to increase their costs, and then therefore a lot of retailers follow suit,” she said.

    Linda Harding's dogs, Lola and Phoebe.

    Pet products, services and food have become “exponentially” more expensive, said Linda Harding, who lives in San Diego with two dogs. She said her pet food costs for Lola, her Australian Shepherd mix, and for Phoebe, her Golden Retriever, have doubled to $250 per month.

    Harding has cut back on her own expenses. She hasn’t turned on the heat much all winter, she’s limited electricity use and she has stopped buying items like clothes and eggs.

    “When you take on a pet, you take on a big responsibility,” she said. “It’s almost like when you buy a car, you’re going to have a lot of responsibility with that car. That car is going to break down, that car’s going to need repairs. It’s an investment.”

    She added: “And they’re our furbabies. We love them to pieces. So it’s not really even a question. I need to find the money to keep them as healthy as possible so we can love them as long as possible.”

    Mary Avila, a disabled veteran who lives on a fixed income, keeps things simple.

    She doesn’t go clothes shopping anymore, she buys cheaper cuts of meat, and she does try to sock away money in case her pets need a small medical procedure.

    “They always give,” said Avila, who lives in Bakersfield, California, with her cat, Jack, and two dogs, Domino and Squirt. “The cat doesn’t give as much, because cats. But the dogs, they always give, they’re always happy, they always want you around. They always are there for you.”

    Patricia Kelvin of Poland, Ohio, said her Social Security benefits and pension can only go so far, so when the cost of utilities, food or trash collection go up, she has to cut back.

    But not for her cat, Jesse.

    Patricia Kelvin's cat, Jesse.

    “If he had some major medical concern, there are a lot of things I would give up so he would get care,” she said. “There’s just no question in my mind. If my diet was going to be more beans than something else, I wouldn’t hesitate. If I had to sell my sterling silver, which I’ve had for 60 years, that would go before my little ‘Whiskers’ would be deprived.”

    The Animal Rescue League of Iowa is the largest nonprofit rescue organization in the Hawkeye State and adopted out 8,400 dogs, cats and small farm animals throughout last year.

    As pet support services manager, Josh Fiala’s role at ARL is to help keep animals out of the shelter by offering programs — such as a pet food pantry, vaccine clinics, veterinary assistance and crisis care — to help keep pets with their people.

    “We definitely, without question, have seen a dramatic increase in pretty much every one of those services,” he said, noting that the pet food pantry in particular has seen spikes in demand.

    Josh Fiala, Animal Rescue League of Iowa's Pet Support Services Manager, helps load pet food into a vehicle during a Pet Food Pantry in January 2022.

    ARL gave out about 40,000 pounds of pet food in both 2020 and 2021. Last year, it distributed 146,000 pounds of food.

    Waggle, a pet-dedicated crowdfunding platform for medical expenses and emergencies, has seen recent spikes in the volume of postings on its website — with some of the biggest increases coming from pet owners in rural communities and areas with high costs of living, said Steven Mornelli, chief executive officer and founder. Additionally, Waggle has also seen a 30% increase in posting for help with medical bills $250 and under, he told CNN.

    “We have taken that as a correlation with the stresses of inflation,” he said.

    In 2022, 4% more animals entered shelters than left, according to Shelter Animals Count, a national database of animal shelter statistics launched by some of the largest animal welfare organizations in the United States.

    That’s the largest gap seen in the past four years and is the result of fewer pets leaving shelters, not increases in surrenders, said Christa Chadwick, vice president of shelter services at the American Society for the Prevention of Cruelty to Animals.

    Adoption levels have remained essentially flat, but there has been a large decline in animals being transferred to other shelters because of staffing and driver shortages, she added.

    Joey, a shelter dog at Baypath Humane Society in Hopkinton, Massachusetts, on April 9, 2021.

    But she also highlighted the economic pressures affecting current and prospective pet owners.

    “It’s heartbreaking to know that there are situations where pet owners are being put in a position where they are making a decision about their pet, whether it’s to surrender that pet to an animal shelter or they have to make a decision about euthanasia because they can’t afford care, she said.

    “People tend to get angry at the pet owner when they [abandon or surrender their pet] but our experience has shown that when pet owners get to that point, it’s the only option they see available to them,” Chadwick. “And that’s real, and that’s hard for everybody involved, and that’s really hard for the animal who’s at the center of that.”

    Chadwick sees a role for shelters and other organizations to provide a safe and welcoming place for owners who may feel like they have no other option.

    Despite the broader economic challenges occurring within the US, PAWS Atlanta’s Labriola has had its share of feel-good success stories this year.

    PAWS Atlanta's staff members take care of pets during a public vaccine clinic on February 23.

    Donations have remained strong as has the volunteer program, he said. The low-cost public vaccination and spay and neuter clinics are sold out, indicating that people are taking advantage of inexpensive ways to care for their pets, he added.

    And just recently, the shelter’s focus of working with dogs who have been there for more than a year, or “long-term guests,” is starting to pay off, he said.

    “We’ve been able to place three long-termers into forever homes recently, freeing up space to rescue more homeless dogs,” he said.

    • Shelters, veterinarians and local rescue groups can serve as first points of contact.
    • The Humane Society of the United States’ website has a variety of resources for people facing financial challenges and need vet care, food, boarding, supplies and information to help keep pets with their families. The website has a list of national, state and local organizations.
    • Inquire if veterinarians accept Care Credit, ScratchPay or a similar service but be sure to carefully review the terms of repayment and how interest rates would be applied.
    • Ask if your veterinarian has a client-driven donation fund to help other clients in need; consider fundraising platforms such as Waggle and GoFundMe
    • Consider purchasing pet health insurance.

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  • Dutch to restrict semiconductor tech exports to China, joining US effort | CNN Business

    Dutch to restrict semiconductor tech exports to China, joining US effort | CNN Business


    Amsterdam/Washington
    Reuters
     — 

    The Netherlands’ government on Wednesday said it plans new restrictions on exports of semiconductor technology to protect national security, joining the US effort to curb chip exports to China.

    The announcement marked the first concrete move by the Dutch, who oversee essential chipmaking technology, toward adopting rules urged by Washington to hobble China’s chipmaking industry and slow its military advances.

    The US in October imposed sweeping export restrictions on shipments of American chipmaking tools to China, but for the restrictions to be effective it needs other key suppliers in the Netherlands and Japan, who produce key chipmaking technology, to agree. The allied countries have been in talks on the matter for months.

    Dutch Trade Minister Liesje Schreinemacher announced the decision in a letter to parliament, saying the restrictions will be introduced before the summer.

    Her letter did not name China, a key Dutch trading partner, nor did it name ASML Holding

    (ASML)    , Europe’s largest tech firm and a major supplier to semiconductor manufacturers, but both will be affected. It specified one technology that will be impacted is “DUV” lithography systems, the second-most advanced machines that ASML sells to computer chip manufacturers.

    “Because the Netherlands considers it necessary on national security grounds to get this technology into oversight with the greatest of speed, the Cabinet will introduce a national control list,” the letter said.

    A White House representative did not immediately respond to a request for comment.

    ASML said in a response it expects to have to apply for licenses to export the most advanced segment among its DUV machines, but that would not impact its 2023 financial guidance.

    ASML dominates the market for lithography systems, multimillion dollar machines that use powerful lasers to create the minute circuitry of computer chips.

    The company expects sales in China to remain about flat at 2.2 billion euros in 2023, implying relative shrinkage as the company expects overall sales to grow by 25%. Major ASML customers such as TSMC and Intel

    (INTC)     are engaged in capacity expansions.

    ASML has never sold its most advanced “EUV” machines to customers in China, and the bulk of its “DUV” sales in China go to relatively less advanced chipmakers. Its biggest South Korean customers, Samsung

    (SSNLF)     and SK Hynix both have significant manufacturing capacity in China.

    The Dutch announcement leaves major questions unanswered, including whether ASML will be able to service the more than 8 billion euros worth of DUV machines it has sold to customers in China since 2014.

    Schreinemacher said the Dutch government had decided on measures “as carefully and precisely as possible … to avoid unnecessary disruption of value chains.”

    “It is for companies of importance to know what they are facing and to have time to adjust to new rules,” she wrote.

    Japan is expected to issue an update on its chip equipment export policies as soon as this week.

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  • China’s economic recovery is on track. But youth unemployment is getting worse | CNN Business

    China’s economic recovery is on track. But youth unemployment is getting worse | CNN Business


    Hong Kong
    CNN
     — 

    China’s economic recovery appears to be on track as it gradually emerges from three years of its strict zero-Covid policy. But rising youth unemployment underscores the tough challenges ahead for the new government to achieve its economic targets and maintain social stability.

    The National Bureau of Statistics on Wednesday released key economic indicators for January and February combined, a usual practice to avoid any distortion by the long Lunar New Year holiday, which usually falls on different dates every year.

    Industrial production rose by 2.4%, accelerating from December’s 1.3% growth. Retail sales increased 3.5%, reversing a 1.8% decline in the previous month. The growth figures are in line with market expectations.

    Investment in fixed assets, such as real estate and infrastructure, jumped 5.5%, beating estimates. In particular, capital spending on electricity and heating facilities and railways soared around 20%.

    “The economic data released today confirmed the recovery in China was well on track,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

    Recent PMI figures had indicated a strong recovery in China’s economic activity, with February’s factory output from large, state-owned enterprises hitting the highest level in more than a decade.

    “The fading of virus disruptions led to a rapid improvement in economic conditions at the start of the year,” analysts from Capital Economics wrote.

    But there are some weak spots in Wednesday’s data.

    Youth unemployment surged. The jobless rate for 16- to 24-year-olds hit 18.1% in the January-to-February period, compared to 16.7% in December. The overall unemployment rate also increased to 5.6%.

    The real estate sector remains mired in a deep slump.

    Property investment fell 5.7% from a year ago in the first two months of this year, although it was an improvement from the 12.2% drop seen in December. Property sales by floor area contracted 3.6%.

    At the just-concluded session of the National People’s Congress, the country’s rubber-stamp parliament, the government set a cautious growth plan for this year, with a GDP target of around 5% and a job creation target of 12 million.

    But Li Qiang, the new premier who took office on Saturday, admitted it’s “not an easy task” to achieve the stated goals.

    At his first news conference on Monday, Li highlighted the challenge to create enough jobs.

    “This year’s college graduates are expected to reach 11.58 million people. From the perspective of employment, there will be certain pressure,” he said. “We will further expand employment channels and help young people.”

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  • Asian markets tumble as SVB fallout fears rattle banking sector | CNN Business

    Asian markets tumble as SVB fallout fears rattle banking sector | CNN Business


    Hong Kong
    CNN
     — 

    Asian stocks fell broadly on Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market despite US government efforts to stabilize the financial system.

    Japan’s Nikkei 225

    (N225)     tumbled 2.19% to post its third straight day of declines. Hong Kong’s Hang Seng

    (HSI)     briefly dropped 2.5%, before trimming losses in the afternoon. Korea’s Kospi lost almost 3%. China’s Shanghai Composite shed 0.65%.

    Banks were the hardest hit sector across the region.

    HSBC

    (HBCYF)     Holdings plunged more than 5% in Hong Kong after the banking giant pledged to inject 2 billion pounds ($2.4 billion) of liquidity into SVB’s UK unit, which it had bought for 1 pound. Standard Chartered Bank sank nearly 7%.

    The sell-off happened despite extraordinary measures by US regulators over the weekend to avert a potential banking crisis following the collapse of SVB. The California-based lender fell with astounding speed on Friday, marking America’s biggest bank shutdown since 2008.

    Investors are now on edge over whether the demise of SVB could spark a broader banking sector meltdown. On Monday, US stocks were mixed, with banking shares taking a hit.

    “Investors fear other financial institutions are sitting on significant unrealized losses on their balance sheets because of markedly higher interest rates,” said DBRS Morningstar analysts on Monday.

    The fear was “irrespective of fundamentals,” they said.

    US Treasury yields were sharply lower on Monday as investors flocked to safe-haven assets. The yield on the 2-year Treasury was briefly down more than 50 basis points, the biggest daily drop in decades.

    “At the moment, markets are speculating on a Fed’s U-turn, but are equally pricing in a greater degree of contagion in the banking sector turmoil, which is ultimately weighing on risk sentiment,” ING analysts wrote in a research note on Tuesday.

    Should the Federal Reserve accommodate market hopes and end its interest rate tightening cycle, there would be ample room for market sentiment to rebound, they said.

    Other Asia Pacific banking shares also fell.

    In Hong Kong, shares in Bank of China (Hong Kong) and Hang Seng Bank fell 3.7% and 1.3% respectively. Pan-Asian insurer AIA Group traded down 4.7%.

    In Tokyo, Mitsubishi UFJ Financial Group, Japan’s biggest bank, lost 8.4%. Sumitomo Mitsui Financial Group and Mizuho Financial Group both dropped more than 7%.

    In Seoul, KB Financial Group and Shinhan Financial Group fell 3.6% and 2.5% respectively.

    In Shanghai, China Merchants Bank dropped 1.2% and China Minsheng Banking Corp retreated by 0.3%.

    In Sydney, Macquarie Group pulled back by 3.1% and ANZ Group was 1.5% lower.

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  • The tech industry avoided an ‘extinction-level event,’ but it’s not unscathed | CNN Business

    The tech industry avoided an ‘extinction-level event,’ but it’s not unscathed | CNN Business



    CNN
     — 

    For much of the weekend, Silicon Valley scrambled to find a way through what one prominent tech investor described as an “extinction-level event for startups” after the collapse of a top lender in the industry.

    Startups raced to line up loans from venture funds and fintech firms to make payroll. Venture-backed retailers hosted last-minute sales to boost their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition calling for Treasury Secretary Janet Yellen and others to offer “relief.”

    Then, late Sunday, federal officials stepped in to guarantee that all customers of the failed Silicon Valley Bank would have access to their full deposits on Monday. The sense of relief was palpable throughout the tech sector.

    “Obviously, I’m quite relieved,” said Stefan Kalb, co-founder and CEO of Seattle-based startup Shelf Engine, who told CNN that his company would have had to shut down by the end of the week without the government intervention. “It was a very stressful weekend and I’m quite relieved with the news.”

    Parker Conrad, the CEO of HR platform Rippling, who had previously said some customers’ payrolls were being delayed by the bank failure, tweeted Sunday: “Anyone else breathing a sigh of relief and looking forward to a good night’s sleep tonight?”

    And Garry Tan, the CEO of tech startup accelerator Y Combinator who authored the petition to Yellen, praised the federal government for “decisive action.” Tan, the investor who had previously warned of “an *extinction level event* for startups” that would “set startups and innovation back by 10 years or more,” added his appreciation on Sunday for “everyone who helped us through a very very intense time.”

    But even as the tech industry enjoys a respite from a fearful weekend, unknowns remain. “You can feel the collective *sigh*,” Ryan Hoover, a tech founder and investor wrote on Twitter Sunday. “I’m still nervous,” he added. “Hard to predict the collateral effects.”

    It’s unclear how the aftershocks of the bank’s collapse will add to the startup industry’s growing challenges accessing capital. SVB’s collapse also risks changing how the world, and prospective recruits, think of Silicon Valley.

    For years, the term itself conjured an image of an enclave of bright, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry is relying on the federal government to survive after failing to see the risk, or worse, contributing to it through a shared hysteria.

    In the chaotic days leading up to the bank’s collapse on Friday, some venture firms reportedly urged their portfolio companies to withdraw their money, which may have contributed to the bank failing.

    Then, over the weekend, many venture capitalists and tech founders banded together to try and lobby government and public goodwill towards saving the companies impacted by Silicon Valley Bank’s sudden collapse.

    While some VCs appeared to embrace fear-mongering on Twitter, much of the public messaging focused on the small businesses with exposure to Silicon Valley Bank that might be not be able to continue operating after losing access to the money in their bank account.

    “We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy,” the Y Combinator petition stated. “We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank.”

    A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, released a joint statement late Friday supporting Silicon Valley Bank, given its unique and vital role in the startup economy. The bank worked with nearly half of all venture-backed tech and healthcare companies in the United States.

    “For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US,” the statement read. “In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”

    Even before the bank’s collapse, the startup industry was in a tough moment. Venture capital funding had dwindled amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the biggest private companies were reportedly slashing their valuations.

    The instability at a top tech lender, and the lingering questions about its impact on other regional banks and the broader financial system, risk making it even harder for money-losing startups to access the capital they need to survive.

    President Joe Biden emphasized in remarks Monday that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank. But some are already skeptical of that statement, including Democratic Sen. Elizabeth Warren of Massachusetts, who wrote in an op-ed Monday morning, “We’ll see if that’s true.”

    More immediately, there’s uncertainty around how long it will take for companies to get their money out of the bank.

    As of Monday, Kalb said the money in his Silicon Valley Bank account has not been transferred yet to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I’ve been obsessively checking my email,” he said. “Hopefully the money will be able to be transferred shortly.”

    Ben Kaufman, the co-founder of venture-backed toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend trying to “fight for survival,” including holding a last-minute 40% off sale, using the code “BANKRUN,” to raise capital over the weekend.

    “We did not know how long it was going to take for us to get our cash out … we still kind of don’t, they say today, we’ll see what happens,” he said, noting the bank held 85% of his company’s assets. “We hope we can, and we’re so grateful that the Fed stepped in, and the way they did.”

    When asked if the past week’s events would change how and where he stores his money, Kaufman said that is “going to have to be a consideration moving forward.”

    “I don’t want to do this again,” he said.

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  • Wall Street pummels regional banks, despite Biden’s assurances | CNN Business

    Wall Street pummels regional banks, despite Biden’s assurances | CNN Business


    New York
    CNN
     — 

    Wall Street’s confidence in regional banks remained shaky Monday, despite emergency measures from the Biden administration to protect customer deposits.

    First Republic shares fell more than 60% and were briefly halted for volatility. Western Alliance Bancorp’s stock also fell 60%, and PacWest Bancorp fell more than 34%.

    The SPDR S&P Regional Banking exchange-traded fund fell 11%.

    Monday’s turmoil for bank stocks stems from the collapse Friday of Silicon Valley Bank, which came unglued last week as customers panicked and yanked their deposits.

    Rather than bailing out the bank, the Biden administration and federal regulators on Sunday night said they would to backstop customers’ deposits — even those that weren’t insured. The same protections would be in place for customers of Signature, a New York regional lender that folded when depositors were apparently spooked by SVB’s demise.

    By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.

    The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.

    Despite those emergency measures to avoid a 2008-style crisis, investors sold off shares of regional banks that are seen as having similar risk potential.

    “It’s a good thing that we have the backstop, and it’s a good thing that the depositors were protected,” said Mike O’Rourke, chief market strategist at Jones Trading. “But it doesn’t change the fact that there’s still problems — you’re just basically buying time to sort the problems out in a better way.”

    The intervention from the Biden administration and the Fed does not amount to a 2008-style bailout, meaning investors in the banks’ stock and bonds will not be protected.

    O’Rourke said he’s not concerned about the health of the banking system.

    “It’s a confidence-crisis risk,” he said. “If we get through the next 24, 48 hours without the regulators having to close anymore banks, we should be fine.”

    First Republic lists $213 billion in assets. The lender reached out to customers over the weekend in a bid to reassure them.

    “In light of recent industry events, the last few days have caused uncertainty in the financial markets,” First Republic senior executives said in an email to clients viewed by CNN. “We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.”

    —CNN’s Matt Egan contributed reporting.

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  • Why Silicon Valley Bank collapsed and what it could mean | CNN Business

    Why Silicon Valley Bank collapsed and what it could mean | CNN Business


    London
    CNN
     — 

    Silicon Valley Bank collapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.

    The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.

    In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”

    Here’s what you need to know about the biggest US bank failure since the global financial crisis.

    Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.

    It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.

    SVB benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

    The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.

    SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.

    But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.

    What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

    When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

    At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.

    That forced companies to draw down on deposits held by SVB to fund their operations and growth.

    While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.

    That set off panic among customers, who withdrew their money in large numbers.

    The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.

    By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

    US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.

    The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

    “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary Janet Yellen told CBS in an interview Sunday.

    “But we are concerned about depositors and are focused on trying to meet their needs.”

    There are already some signs of stress at other banks. Trading in First Republic Bank

    (FRC)     and PacWest Bancorp

    (PACW)     was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab

    (SCHW)     stock was down 7% at 11.30 a.m. ET Monday.

    In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

    SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.

    At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

    In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.

    Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.

    “While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”

    HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.

    Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

    The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.

    In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”

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  • From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

    From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Understanding the economy is a complicated task, and even the experts are struggling to answer seemingly simple questions like “Are we on the brink of a recession?” or “Why isn’t inflation falling faster?”

    Many have resorted to the use of metaphor to convey the current complexity of the economy.

    It’s a communications tactic that some Federal Reserve officials have long favored. In the early 1980s, Nancy Teeters, the first woman appointed to the Federal Reserve Board, came up with an apt metaphor to explain why she disagreed with steep rate hikes implemented by then-Fed Chairman Paul Volcker.

    Her colleagues were “pulling the financial fabric of this country so tight that it’s going to rip,” she said. “Once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again,” she added, before remarking that “none of these guys has ever sewn anything in his life.”

    These days, economists and analysts are turning to increasingly outlandish metaphors to help translate their thoughts.

    Here are some of the most interesting descriptors used recently and what they mean:

    Wile E. Coyote

    If you think back to Saturday morning cartoons, you may remember the never-ending, and mostly futile, chase between Wile E. Coyote and his nemesis, Road Runner. That pursuit often ended with Wile E. running off a cliff and into mid-air.

    The toons were fun sources of entertainment in our salad years, but former Treasury Secretary Larry Summers says they now double as a case study for the Fed and the economy.

    “The [Federal Reserve’s] process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past,” Summers told CNN last week.

    And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said — if we run off the cliff, gravity will eventually win out.

    “The economy could hit an air pocket in a few months,” he said.

    Antibiotics

    When describing the state of the economy, Summers doesn’t just rely on Looney Tunes. He also borrows from the medical community.

    While describing why the Fed can’t end its rate hike regimen when inflation shows signs of showing, Summers has compared higher interest rates to medicine for a country sick with high inflation. The entire dose must be taken for the treatment to fully work, he says.

    “We’ve all had the experience of taking a course of drugs and giving up, stopping the drugs, before the course was exhausted, simply because we felt better. And then, whatever infection we had came back and it was harder to fight the second time,” Summers told Boston’s NPR news station WBUR in February.

    For what it’s worth, Before the Bell is also guilty of using this one.

    Fog report

    We may be driving in the fog, landing a plane in the fog or even just walking in it.

    What’s important in this oft-used scenario is that it’s hard to see and we’re doing something that typically requires clear visibility.

    Clients “facing the fog of uncertainty in financial markets, economic growth and geopolitics,” should “avoid unnecessary lane changes,” and “allow extra time to reach your destination,” advised Goldman Sachs analysts earlier this year.

    It’s essentially a fancy way of saying that no one really knows what’s going on in this economy. Instead of attempting to find a way out of the chaos, investors should slow down, stay the course and wait for recovery.

    Edibles

    Late last year, investment analyst Peter Boockvar used a semi-illicit metaphor to explain why he thought the Fed might be over-tightening the economy into recession. He compared the Fed to an inexperienced consumer of weed gummies, which can take a long time to kick in.

    During that waiting period, an eager consumer may think the drugs aren’t working and eat more before the effects of the first dose even set in. They then inevitably find themselves way too stoned and feeling not-so-great.

    Boockvar was careful to note that he himself does not indulge in this practice, by the way.

    Storm chasing

    JPMorgan Chase CEO Jamie Dimon should receive an honorary degree in meteorology for his recessionary weather predictions.

    The Big Bank exec has repeatedly referred to economic recession as a storm gathering on the horizon — occasionally he’ll update the public on how far away and how bad that storm is.

    Last summer Dimon spooked markets when he compared a possible upcoming recession to a “hurricane.” In November, he downgraded it to a “storm.”

    By January, his forecast was simply “storm clouds,” adding that he probably should never have used the term “hurricane.”

    Polyurethane

    Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, has likened the economy to a bendable piece of plastic. Much like the economy, he wrote, polyurethane, “displays flexibility and adaptability, but also durability and strength.”

    He added that “the material’s ability to be stretched, bent, stressed and flexed without breaking, while in fact returning to its original condition, is what makes it so chemically unique. In recent years the US economy has displayed a remarkable resilience to stresses and an extraordinary ability to adapt to changing conditions.”

    Last week Senator Elizabeth Warren grilled Federal Reserve Chair Jerome Powell about American job losses being potential casualties of the central bank’s battle against high inflation.

    Warren, a frequent critic of the Fed’s leader, noted that an additional 2 million people would have to lose their jobs if the unemployment rate rises from its current 3.6% rate to reach the Fed’s projections of 4.6% by the end of the year.

    “If you could speak directly to the two million hardworking people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them?” Warren asked.

    Powell argued that all Americans, not just two million, are suffering under high inflation.

    “Will working people be better off if we just walk away from our jobs and inflation remains 5% or 6%?” Powell replied.

    Warren cautioned Powell that he was “gambling with people’s lives.”

    The discussion was part of a larger cost-benefit conversation that keeps popping up around the jobs market: Which is worse — widespread job loss or elevated inflation?

    CNN spoke with two top economic analysts with different perspectives to gain a deeper understanding of the debate.

    Below is our interview with Johns Hopkins economist Laurence Ball.

    Yesterday we published our interview with Roosevelt Institute director Michael Konczal, you can read that here.

    This interview has been edited for length and clarity.

    Before the Bell: Is it necessary to increase the unemployment rate to successfully fight inflation?

    Laurence Ball: There’s a trade off between inflation and unemployment. When the economy is very strong and unemployment is pushed down, inflation tends to be higher. Right now there are almost two job openings per unemployed worker, the supply of workers looking for jobs and the demand for firms to hire is out of whack. That’s leading to faster wage increases, which sounds good except that gets passed through to faster price increases and more inflation. So somehow the labor market has to be brought back towards a normal balance of workers and jobs and that means slowing down the economy, and that probably means raising unemployment.

    Can you explain the cost-benefit analysis of two million jobs lost to get down to 2% inflation?

    If we assume we have to get inflation down to 2%, then it’s just an unhappy fact of life that that’s going to require higher unemployment. But a lot of people, including me, think that if the Fed gets it down to 4% or 3%, that’s the time to declare victory or say, ‘close enough for government work.’

    It gets more and more expensive in terms of how much unemployment it costs to go from 3% to 2% inflation. Those last few points will have disproportionately large costs, and it’s very dubious if that’s really worth it.

    Now, the Fed has the political problem that they’ve been insisting on a 2% target rate for years. If they say right at this moment that 3% or 4% is okay that would be seen as surrendering or moving the goalposts. I think a likely outcome is that inflation gets down to 3% or 4% and the Fed continues to say their target is a 2% inflation rate but never does what has to be done to get it there.

    If you examine Fed history you see that 5% appears to be a magic number. When inflation is above 5% it becomes this big political issue. When it goes below 5% it disappears from the headlines.

    What do you think is important for our readers to know about this back-and-forth between Powell and Warren?

    Behind all of this, in a market economy there’s sort of a basic glitch. We have this thing called unemployment, we sort of chronically have not enough jobs for everybody and that’s a big problem. The problem can be reduced somewhat in the short run if you get the economy going very fast. But then that leads to inflation. Accepting that unemployment has to go back up is just recognizing that there’s this glitch in the market economy or capitalism. It’s not clear how we can get around that.

    CNN Business’ David Goldman reports: 

    In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.

    In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.

    SVB collapse: live updates

    In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature’s customers whole. By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.

    The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.

    Wall Street investors were relieved that the government intervened as stock futures rebounded on Sunday evening, although the rally is fading Monday morning. Markets had tumbled more than 3% Thursday and Friday as investors feared more bank failures and systemic risk for the tech sector.

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