by bitkogan
Friends, hello everyone!
It’s been just over a month since the Silicon Valley Bank bankruptcy, but the much feared Armageddon in the US financial system has not occurred. Good golly, who on earth could have imagined? Where is the crisis? Where is the show? Where is the request that the last person to exit the market please turn off the lights?
Or maybe, we’re still not through the storm, and this calm all around us is just the eye of the hurricane?
I see the situation as twofold.
- On one hand, the Fed and the Treasury have made it clear, not only through words but also actions, that “they will not leave their own people in trouble.”
- On the other hand, rising interest rates bring the potential for recession, defaults, and bankruptcies in corporate governance.
What cause is there for concern?
I wrote earlier that rating agencies were expected to be the next to arrive on the battlefield. And voila! Here they are, right on cue, beginning to revise their credit estimates.
According to Barclays Plc, in the US, about $11.4 billion worth of bonds were downgraded to high-yield (junk) status in Q1.
With a high degree of probability, this figure may jump to $80 billion, or about 2.2% of BBB corporate bonds by the end of 2023. Prospects are nothing to write home about, to put it mildly…
And what about regional banks?
A further decline in the number of deposits will likely lead to an increase in interest rates on deposits by financial institutions, even if the Fed takes a break in tightening monetary policy.
As a result, the net interest margin on bank deposits is likely to eventually fall as well.
In the face of loss and risk reduction, banks are likely to continue tightening lending conditions.
The problem is that in most US counties, small and medium-sized financial institutions account for 90% of loans to small businesses.
Conclusion:
Despite support from regulators, the potential continuation of rising rates will slow down the US economy.
Sooner or later, they will realize the snowballing problems and begin to dispose of risky assets.
As a result, the process of ruining or collecting pennies from US bank accounts is highly likely.
P.S. What about the infamous FRC (First Republic Bank)? The bank just recently reported its quarterly results.
✔️Upon immediate analysis of its balance sheet, it seems highly likely that the question of its collapse is only a matter of time.
✔️Before the report on Monday, its shares grew by as much as 12%, but in the postmarket, after the report, we saw a collapse of 22%.
✔️The volume of deposits on the balance sheet fell by 40% for the quarter, to $104.5B, while it was expected to fall to just $160.6B.
✔️The bank’s capitalization dropped from $30 billion before the crisis to $3 billion. And this decline is apparently being detected.
Do I really need to spell it all out?