When searching for income, investors may want to consider “rock solid” stocks that not only focus on dividends but avoid certain risks, according to Jefferies. The firm is expecting steady growth in shareholder payouts, with dividends in the U.S. growing an anticipated 5% this year and 5.6% in 2024, the firm’s global head of microstrategy, Desh Peramunetilleke, wrote in a note Friday. “Despite the concerns about higher rates, US dividends have been rising steadily, reaching US$614bn ([trailing 12 months], not adjusted for float), and US$1.5tn including buybacks,” he said. Right now, few dividend stocks can compete with the attractive yields in the Treasury market. However, the Federal Reserve is expected to hike interest rates one more time this year, and then begin cutting them sometime in 2024. Dividend stocks, meanwhile, can continue raising their payouts. Investors also get the stock appreciation, as well as the risks involved with equities. To determine its rock-solid dividend picks, Jefferies looked at companies in the MSCI USA Index with sustainable dividend and buyback yields. The firm then removed various risks such as unsustainable dividends, weak balance sheets, poor cash flow, poor earnings visibility and value traps. Here are 10 names that made the cut. Apple is the largest company on the list, with a 3.5% total yield, which is its 12-month forward dividend yield and its last 12-month buyback yield. The tech giant, which just released its latest iPhone, has a current dividend yield of 0.6% and is known for its stock buybacks. Shares have pulled back in recent weeks after Apple forecast a decline in revenue for the September quarter. Still, the stock is up 32% year to date. Shares of Nike , on the other hand, got a boost from its latest earnings report, which came after the bell Thursday. Earnings per share came in at 94 cents, topping the 75 cents expected from analysts polled by LSEG, formerly known as Refinitiv. While revenue missed expectations, the stock rallied more than 6% in midday trading. The sneaker and apparel giant has been facing headwinds of late due to high inflation and consumers hesitant to spend on footwear and apparel. Shares are down about 18% so far this year. The stock has a 12-month forward dividend yield and last 12-month buyback yield totaling 5.5%. Its current dividend yield alone is 1.4%. Charles Schwab enjoys a total yield, including dividend and buyback, of 9.6%. Its current dividend yield is 1.8%. The brokerage firm is expected to announce its latest quarterly results in mid-October, but it beat expectations when it reported second-quarter earnings and revenue in July. Lastly, First Citizens Bancshares has a dividend and buyback yield total of 6.3%. Shares are up nearly 84% year to date, helped by its purchase of the failed Silicon Valley Bank’s deposits and loans earlier this year. Morgan Stanley recently initiated coverage of the stock with an overweight rating and an $1,850 price target for December 2024, suggesting 35% upside from Thursday’s close. — CNBC’s Michael Bloom contributed reporting.
First Citizens ‘ acquisition of Silicon Valley Bank will be fruitful for the bank’s stock, according to Atlantic Equities. The firm initiated coverage of First Citizens BancShares on Wednesday with an overweight rating and a $1,775 per share price target. Atlantic Equities’ forecast implies nearly 50% upside from Tuesday’s close of $1,183.76. FCNCA YTD mountain First Citizen’s stock has climbed more than 56% this year. Analyst John Heagerty highlighted the acquisition of Silicon Valley bank as a potential catalyst for the stock’s growth, and noted the purchase “provides clear scale benefits and geographic diversification.” The firm acquired SVB’s assets earlier this year. “The SVB acquisition has transformed FCNCA’s operations both in terms of the strategic benefits and the financial upside,” he noted. “With a combination of an attractive valuation, the strong likelihood of a supportive buyback in 2024 and an under-appreciated business model, we initiate with an Overweight rating.” “More impressively, the $13bn profit on purchase results in a doubling of NII [net interest income] and TBVPS [tangible book value per share] and we calculate adj. EPS accretion of 80-90% while maintaining CET1 [common equity tier 1] at 13.4% and Tier1 leverage at 9.5% at 2Q23E,” Heagerty said. Heagerty added that First Citizens could also benefit from better capital management as well as higher interest rates over a longer period of time, both factors that could lead to more than 20% upside to Atlantic Equities’ full-year 2025 earnings outlook. Still, the acquisition could prove risky, Heagerty added, with potential downside headwinds including deposit outflows and greater exposure to the commercial real estate market. Shares of First Citizens BancShares have been on fire this year despite the regional banking crisis that took place in March, rising 56.1%. — CNBC’s Michael Bloom contributed to this report.
Investors searching for income have many options these days, but choosing where to put their money isn’t necessarily as simple as going for the highest yield. The Federal Reserve’s latest rate-hiking cycle, which began in March 2022, has had the pleasant side effect of raising yields on otherwise boring assets, including short-term Treasury bills. To compete for investors’ dollars, banks have also boosted rates on high-yield savings accounts and certificates of deposit. Meanwhile, yields on money market funds have also ticked higher: The Crane 100 Money Fund Index touts a 7-day current yield of 4.92% as of June 18. Many people believe the period of Fed rate increases is winding down. The central bank held off on a June rate hike , but it indicated two more were coming later this year. That would push the benchmark rate to 5.6% . Before you start putting your money into income-producing products, first determine your overall investing goals and what you are trying to accomplish, said certified financial planner Jamie Hopkins, managing partner of wealth solutions at Carson Group. “We don’t invest in a vacuum,” he said. “We have reasons for it.” Also, understand why you are seeking income: Is it to improve returns, diversify your investments or is it an actual source of income? Your time frame – whether it is one year or 20 – is also an important factor, as is the amount of money you want to invest and how much liquidity you need with your investment, Hopkins said. Where the Fed stands in its rate-hiking cycle is also a key consideration. Some analysts and strategists have proposed adding longer-dated bonds – that is, going out 5 to 7 years or even 10 years – to portfolios to mitigate the reinvestment risk they’d face on shorter-dated issues if the central bank began cutting rates. “We are in a sweet spot now,” said Don Grant, a CFP and investment advisor with Sabre Wealth. “So, if you can find something that has liquidity or that you can lock in at around 5%… do it now.” Here’s what to consider when looking at ways to earn income right now. Treasurys You don’t have to take an excessive amount of risk to snap up attractive yield in the current interest rate environment. Three-month T-bills offer a yield of 5.2%, while 2-year Treasurys offer a rate of 4.7%. For short-term cash needs, T-bill ladders have given investors a way to earn some interest on otherwise idle cash. “You can buy a six-month T-bill and it’s 100% safe,” said Jordan Benold, a CFP at Benold Financial Planning. “The maturity is so short, and you get 5.3% on an annualized basis. It’s great income and safety, and if you’re still growing [your investments], it’s very uncorrelated to the stock market.” Money market funds Assets in retail money market funds grew to $1.99 trillion, according to the latest data from the Investment Company Institute . Investors might appreciate the convenience of money market funds – they’re easily available within your brokerage account – but they should be fee conscious, as high expenses eat away at returns. Further, even as money market funds offer relative safety, they can still face some risk. Remember that the Reserve Primary Fund slipped below its $1 net asset value during 2008, amid the great financial crisis. Some of the underlying holdings in the fund included commercial paper issued by Lehman Brothers, and the fund encountered redemption problems as investors rushed to cash out. Don’t confuse money market funds with money market accounts. Though money market accounts – which are offered by banks – are protected by the Federal Deposit Insurance Corporation, up to $250,000, money market funds are not. “They’re pretty safe, but they’re not insured, and that’s something that people are aware of in a way they haven’t been in a long time,” said Danika Waddell, CFP and founder of Xena Financial Planning. Certificates of deposit and high-yield savings accounts Liquidity should be a big factor for investors eyeing bank products like CDs and high-yield savings accounts. Depositors who are fine with locking up money in a CD for 12 months are rewarded with attractive yields. Consider that Bread Financial touts an annual percentage yield of 5.25% for a 1-year CD, while a BMO Alto CD offers a 5.1% yield for the same length of time. The trade-off is that you may forfeit some of your interest if you pull your money before the term. You can also shop around for CDs with no penalties, which are available at Ally Financial , CIT Bank — whose parent is First Citizens BancShares — and Synchrony Financial . All three banks offer 11-month instruments with yields exceeding 4% and no penalty. Waddell notes these CDs might be a good place to keep emergency funds. High-yield savings accounts offer easier access to your funds, but the rate isn’t quite as rich. Multiple institutions, including Ally, Capital One and Synchrony Financial are offering yields of at least 4%. The catch, of course, is that the bank can change the rate on your high-yield savings account, while you can lock in the rate on a longer-term CD. Both CDs and savings accounts are subject to the FDIC’s protection, but you should know the standard deposit insurance amount is $250,000 per depositor, per insured bank and per ownership category.
Shares of First Citizens BancShares , the regional bank known for acquiring Silicon Valley Bank’s assets after its failure set off an industry crisis in March, could continue to climb, according to KBW. Analyst Brady Gailey reiterated his outperform rating and increased his price target to $1,500 from $950. Gailey’s new price target implies the stock could rally 27.6% over the next year from Wednesday’s close. “After being unknown and under-owned to most of the institutional investor community for decades, we believe the more investors get to know the new FCNCA, the more they’ll like what they see, which should be good for future valuation,” he said in a note to clients Wednesday. On Wednesday, First Citizens reported $20.09 in earnings per share excluding items for the first quarter, less than the $22.29 anticipated by analysts polled by StreetAccount. Deposits totaled $140.05 billion, an increase of more than $50 billion from the end of 2022 the bank said was due in part to the SVB acquisition. The company raised its full-year profit guidance to between $150 and $161 per share including the earnings accretive from the acquisition. Gailey, meanwhile, raised his expectations for earnings per share to $164 from $90 for 2023, and to $180 from $94 for 2024. “As FCNCA said on its 1Q23 call, SVB was a home run of a deal for FCNCA,” he said. “We are increasing EPS estimates dramatically and they are still conservative in our opinion.” The stock is up about 55% since the start of the year, making it one of the few regional banks to avoid a sell-off on the year. Since March 24, shares are up a whopping 102%. By comparison, the SPDR S & P Regional Banking ETF (KRE) has tumbled 36.9% since 2023 began. FCNCA KRE YTD mountain First Citizens BancShares vs. the KRE — CNBC’s Michael Bloom contributed to this report.
Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.
With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.
Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.
However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.
Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.
Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.
Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.
The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.
Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.
Scott Olson | Getty Images
“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.
LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.
And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.
“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.
SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.
The story isn’t just about rising interest rates.
Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.
Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.
After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.
For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.
As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.
There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.
Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”
Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”
While fintechs broadly are under far less regulatory pressure than crypto companies,the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.
Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.
They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.
Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.
Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”
Apple savings account
Apple
Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.
Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.
“We started with credit,” Laplanche said. “We think that’s a better strategy.”
SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”
Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.
“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”
Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.
“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”
— CNBC’s Darla Mercado contributed to this report.
U.S. regional banks largely sold off after the collapse of Silicon Valley Bank in March. Regulators seized its deposits, in what is the largest U.S. bank failure since the global financial crisis . Although their shares have regained some ground since, after the government said it was ready to provide further guarantee of deposits , the SPDR Regional Banking ETF (KRE) is still down 26% in the year to date. Should you buy the dip or steer clear of the uncertainty? A bull and a bear on U.S. regional banks faced off on CNBC’s ” Street Signs Asia ” on Thursday and shared their stock picks. ‘The worst is behind’ Christopher Marinac, director of research at Janney Montgomery Scott, a financial services firm, said banks are profitable, and he estimates that tangible book value per share this quarter will gain 3% on average despite “all of the noise and worries in March.” He said the industry still has very good credit quality and reserves are rising. “The [regional] banks are in very good shape – leverages [are] substantially less today than it was in 2007 and 2008 which positions the banks for a lot less losses than the market realize. So the stocks I think have a chance to bounce and I think the worst is behind,” Marinac told CNBC. ‘Not the environment’ for regional banks It’s “not the environment” for regional banks right now, said Brian Stutland, portfolio manager at Equity Armor Investments. He said regional banks rely on a few major economic factors. First, they need to be able to borrow commercial paper — near or at the U.S. Federal Reserve funds rate — and at the same time lend out to customers at 150 to 200 basis points higher than where they borrowed against deposits. “That condition is not available,” he said. “Also, GDP expansion and increasing new business formations with declining unemployment rates are also necessary and that too is in question at the very least as you can see by a flight to safety into the 10 year note,” he said. A rising 10-year note is another condition — and that’s not present either, Stutland added. “[The Fed] is expecting a mild recession in the second half of the year. That’s gonna put pressure on the 10-year note, U.S. Treasury to be somewhat suppressed to the downside. I don’t expect it to get back up to 4% by the end of the year. That’s certainly going to hurt regional banks,” Stutland told CNBC. Deposits, cash levels and growth The bank crisis in the U.S. has led to only about a 3% decline in deposits in the U.S. system, Marinac said. He said the decline was less than what investors expected it to be, and although there were “clear” deposit outflows at five banks — SVB, Signature, First Republic, PacWest, and Western Alliance — it was far less for the rest of the industry. “U.S. deposits are still net 30% higher today than at year-end 2019, pre-pandemic,” he said. Marinac added that banks have “excellent cash flows” to handle any recession. However, Stutland argued that the issue of deposits is “levels of risk” when it comes to the regional banks. “All deposits being protected, I think is a pipe dream,” he told CNBC. “Will we insure depositors beyond what people expect if there’s some failure?” As for the healthy cash levels that Marinac noted, Stutland asked where growth “is going to come from.” “Even if the cash reserves hold in there, I’m still worried about things holding up and where’s the growth going to come for these regional banks until the economic macro economic environment improves,” he said. Stock picks For investors still keen on regional bank stocks, Marinac said his top two picks are Fifth Third Bancorp and First Citizens . First Citizens announced in late March that it will buy over Silicon Valley Bank’s deposits and loans. He highlighted “the fact that [regional bank] stocks are down 40% when you’ve had earnings down about 5%. Even though earnings estimates will fall again for 2023 and 2024, as we go through earnings season this month, they’re not going to come down 40%.” “So overall, I think you have very good value,” Marinac added. Stutland, for his part, said he would go for bigger banks, preferring JPMorgan to Bank of America . “We want to be in the bigger bank area, because I think this type of economic environment is going to be favorable for those guys,” he said. “[I’d] rather own some growth type techie type names as a recovery to this and a push forward in the second half of this year, rather than [own] regional banks and take the risk in that area,” Stutland added.
An exterior view of First Citizens Bank headquarters on March 27, 2023 in Raleigh, North Carolina.
Melissa Sue Gerrits | Getty Images News | Getty Images
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As part of the deal, First Citizens will spend just $16.5 billion to buy SVB assets worth $72 billion. Additionally, the Federal Deposit Insurance Corporation will share losses on SVB’s commercial loans and provide a credit line to First Citizens. Investors liked the bargain First Citizens struck — its shares skyrocketed a staggering 53.74%on the news.That’s a jump from $582.55 to $894.61.
The Dow Jones Industrial Average and S&P 500 rose Monday as regional banks rallied on improved sentiment. First Republic jumped 11.81%, KeyCorp added 5.31% and PacWest increased 3.46%. Likewise, bank stocks in Europe rose 1.4% — Deutsche Bank, in particular, climbed 6.29% — helping the pan-European Stoxx 600 index close 1.1% higher.
Jack Ma, founder of Alibaba, has been spotted in China after spending months out of the country. Analysts think it’s a sign Beijing’s loosening its grip on the technology sector in its pursuit of economic growth this year.
PRO Jeremy Siegel, professor at the Wharton School, said the Federal Reserve “basically beat inflation late last year,” citing these indicators.
Investors are heaving a sigh of relief, and it’s all about the banks.
First Citizens’ purchase of SVB’s assets was a bargain in monetary terms. More crucially, it signaled to markets that, despite SVB’s financial difficulties, there was still value in SVB’s reputation and relationship with its clients. There’s hope, then, of reviving a dead bank — something that can happen only in an environment conducive to such miraculous feats.
Another troubled bank, First Republic, rallied after it was reported that U.S. authorities were considering giving the bank more time to shore up its liquidity. It might not need much more time, not only thanks to the $30 billion deposit promised to it by a coalition of banks, but also because the outflow of deposits from smaller banks to larger institutions has slowed in recent days, as sources told CNBC’s Hugh Son.
And beleaguered KeyCorp, which tanked about 60% since the start of the banking turmoil, has a chance of surging 68.6%, according to Citi, which upgraded KeyCorp to buy from neutral.
The optimism was reflected in the SPDR S&P Regional Banking ETF (KRE), which rose about 0.87%. Major indexes — with the exception of the Nasdaq Composite (more on that in a moment) — closed the day in the green too. The Dow increased 0.6% and the S&P inched up 0.2%. The Nasdaq Composite, however, fell 0.5%.
Technology shares, which posted sterling gains as banks struggled the past two weeks, are now facing difficulties of their own. Alphabet slid 2.83%, Apple lost 2.8% and Meta fell 1.5%. Charles Schwab’s Liz Ann Sonders noted the S&P 500 information technology sector’s valuation, relative to the performance of the companies, has risen more than 30%. That’s not a sign we’re back in the pandemic days of sky-high tech valuation, but it’s something to keep an eye on as the banking crisis (hopefully) gets contained.
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The winning bidder in the government’s auction of Silicon Valley Bank’s main assets received several concessions to make the deal happen.
First Citizens BancShares is acquiring $72 billion in SVB assets at a discount of $16.5 billion, or 23%, according to a Sunday release from the Federal Deposit Insurance Corporation.
But even after the deal closes, the FDIC remains on the hook to dispose of the majority of remaining SVB assets, about $90 billion, which are being kept in receivership.
And the FDIC agreed to an eight-year loss-sharing deal on commercial loans First Citizen is taking over, as well as a special credit line for “contingent liquidity purposes,” the North Carolina-based bank said Monday.
All told, the SVB failure will cost the FDIC’s Deposit Insurance Fund about $20 billion, the agency said. That cost will be born by higher fees on American banks that enjoy FDIC protection.
Shares of First Citizens shot up 45% in trading Monday.
The deal terms may be explained by tepid interest in SVB assets, according to Mark Williams, a former Federal Reserve examiner who lectures on finance at Boston University.
“The deal was getting stale,” Williams said. “I think the FDIC realized that the longer this took, the more they’d have to discount it to entice someone.”
The ongoing sales process for First Republic may have cooled interest in SVB assets, according to a person with knowledge of the process. Some potential acquirers held off on the SVB auction because they hoped to make a bid on First Republic, which they coveted more, this person said.
In the wake of SVB’s collapse, many investors were worried about the risk of further contagion in the financial system, sparking a sell-off of regional bank shares. First Republic was one of the hardest hit.
In its release, First Citizens said it has closed more FDIC-brokered bank acquisitions than any other lender since 2009. The bank’s holding company has $219 billion in assets and more than 550 branches across 23 states.
The deal is a significant boost to First Citizens’ asset size and deposit base, according to Williams.
“They move into the big leagues with this deal,” he said. “When other banks see fire, they run away. This bank runs towards it.”
Red pedestrian crossing signs outside a Credit Suisse Group AG bank branch in Basel, Switzerland, on Tuesday, Oct. 25, 2022.
Stefan Wermuth | Bloomberg | Getty Images
Talks over rescuing Credit Suisse rolled into Sunday as UBS sought $6 billion from the Swiss government to cover costs if it were to buy its struggling rival, a person with knowledge of the talks said.
Authorities are scrambling to resolve a crisis of confidence in the 167-year-old Credit Suisse, the mostly globally significant bank caught in the turmoil spurred by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week.
The guarantees UBS is seeking would cover the cost of winding down parts of Credit Suisse and potential litigation charges, two people told Reuters.
Credit Suisse, UBS and the Swiss government declined to comment.
The frenzied weekend negotiations follow a brutal week for banking stocks and efforts in Europe and the U.S. to shore up the sector. U.S. President Joe Biden’s administration moved to backstop consumer deposits while the Swiss central bank lent billions to Credit Suisse to stabilise its shaky balance sheet.
UBS was under pressure from the Swiss authorities to take over its local rival to get the crisis under control, two people with knowledge of the matter said. The plan could see Credit Suisse’s Swiss business spun off.
Switzerland is preparing to use emergency measures to fast-track the deal, the Financial Times reported, citing two people familiar with the situation.
U.S. authorities are involved, working with their Swiss counterparts to help broker a deal, Bloomberg News reported, also citing those familiar with the matter.
Berkshire Hathaway‘s Warren Buffett has held discussions with senior Biden administration officials about the banking crisis, a source told Reuters.
The White House and U.S. Treasury declined to comment.
British finance minister Jeremy Hunt and Bank of England Governor Andrew Bailey are also in regular contact this weekend over the fate of Credit Suisse, a source familiar with the matter said. Spokespeople for the British Treasury and the Bank of England’s Prudential Regulation Authority, which oversees lenders, declined to comment.
Credit Suisse shares lost a quarter of their value in the last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from a string of scandals that have undermined the confidence of investors and clients.
It ranks among the world’s largest wealth managers and is considered one of 30 global systemically important banks – the failure of any would ripple throughout the entire financial system.
There were multiple reports of interest for Credit Suisse from other rivals. Bloomberg reported that Deutsche Bank was considering buying some of its assets, while U.S. financial giant BlackRock denied a report that it was participating in a rival bid for the bank.
The failure of California-based Silicon Valley Bank brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks – including the European Central Bank on Thursday – was pressuring the banking sector.
SVB and Signature’s collapses are largest bank failures in U.S. history behind the demise of Washington Mutual during the global financial crisis in 2008.
First Citizens BancShares is evaluating an offer for SVB and at least one other suitor is seriously considering an offer, Bloomberg News reported on Saturday.
Banking stocks globally have been battered since SVB collapsed, with the S&P Banks index falling 22%, its largest two-week loss since the pandemic shook markets in March 2020.
Big U.S. banks threw a $30 billion lifeline to smaller lender First Republic. U.S. banks have sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.
The Mid-Size Bank Coalition of America asked regulators to extend federal insurance to all deposits for the next two years, Bloomberg News reported on Saturday, citing a letter from the coalition.
In Washington, focus has turned to greater oversight to ensure that banks and their executives are held accountable.
Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.
The swift and dramatic events may mean big banks get bigger, smaller banks may strain to keep up and more regional lenders may shut.
“People are actually moving their money around, all these banks are going to look fundamentally different in three months, six months,” said Keith Noreika, vice president of Patomak Global Partners and a Republican former U.S. comptroller of the currency.
