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On The Verge Of A Banking Industry Apocalypse?

Every time that they tell us that everything is fine, things just seem to get even worse.



This banking crisis was supposed to be “over” after Silicon Valley Bank and Signature Bank collapsed. It wasn’t. Then it was supposed to be “over” after First Republic collapsed. It wasn’t. By now, most of you already know about what has been happening to PacWest, Western Alliance, First Horizon and countless other regional bank stocks. In all my years, I have never seen banking stocks fall so quickly. If this avalanche continues to pick up momentum, pretty soon we will have to stop talking about a “banking industry crisis” and start talking about a “banking industry apocalypse”.

Ironically, I think that CNN has actually summarized the current state of affairs better than anyone else…

A summary of where things stand in the banking crisis: The Fed: “Banks are fine.” The Treasury: “Banks are fine.” The banks: “We’re fine.” Wall Street: “Everybody sell, the banks are on fire!”

On Thursday, PacWest released a carefully worded statement that was supposed to calm investors down…

Our message remains consistent with what was conveyed last week with earnings. As previously announced, the Company has explored strategic asset sales, including moving the $2.7 billion Lender Finance loan portfolio to held for sale in 1Q23. This planned sale remains on track and upon completion will accelerate our CET1 capital ratio to 10%+ (from 9.21% at 1Q23). Additionally, in accordance with normal practices the Company and its Board of Directors continuously review strategic options. Recently, the Company has been approached by several potential partners and investors – discussions are ongoing. The company will continue to evaluate all options to maximize shareholder value.

But instead this statement sparked a massive wave of panic and the stock dropped more than 50 percent

The rout in regional banks picked up steam again on Thursday morning, with several stocks suffering sizeable losses. PacWest sank 50.6% was halted for volatility multiple times. The slide began on Wednesday evening following news that the Los Angeles-based bank was exploring strategic options, including a potential sale.

Western Alliance was down 38 percent even though it pushed back very hard against a report by the Financial Times that indicated that a sale of the bank was being explored

Western Alliance is exploring strategic options including a potential sale of all or part of its business, the Financial Times reported on Thursday citing two people briefed on the matter. The Arizona-based bank has hired advisers to explore its options, the report added, saying the bank’s deliberations were at an early stage and might not come to anything.

And shares of First Horizon fell 37 percent when the market opened after their merger with Toronto-Dominion Bank fell through

First Horizon Corp. shares plunged 37% at the cash open in New York, the most significant decline since September 2008. Bloomberg reported First Horizon held a conference call earlier today, seeking to calm investors after the merger agreement with Toronto-Dominion Bank was “terminated.” The regional bank said it has ‘stable funding’ and adequate capital.

Those are the three big names that are dominating the headlines right now, but there are many more institutions that are teetering on the brink of insolvency.


In fact, one recent study determined that “186 more banks are at risk of failure”

After the demise of Silicon Valley Bank and Signature Bank in March, a study on the fragility of the U.S. banking system found that 186 more banks are at risk of failure even if only half of their uninsured depositors (uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run) decide to withdraw their funds.

So what is the bottom line?


The bottom line is that things are bad, and now that the Fed has decided to raise interest rates again they will soon get even worse.


At this stage, very few banks are truly safe. Depositors continue to pull money out of the system, bonds that are held by these banks continue to lose value, and more loans are going bad with each passing day.


This banking crisis is far from over.


In fact, it is just beginning.


Yesterday, Bill Ackman warned that our entire regional banking system “is at risk”…

The regional banking system is at risk. SVB’s depositors’ bad weekend woke up uninsured depositors everywhere. The rapid rise in rates impaired assets and drained deposits. Zeroing out shareholders and bondholders massively increased the banks’ cost of capital. CRE losses loom. Meanwhile, higher-yield, more user- friendly alternatives beckon @Apple. The @FDICgov failure to update and expand its insurance regime has hammered more nails in the coffin. FRB would not have failed if the FDIC temporarily guaranteed deposits while a new guarantee regime were created. Instead, we watch the dominoes fall at great systemic and economic cost. Banking is a confidence game. At this rate, no regional bank can survive bad news or bad data as a stock price plunge inevitably follows, insured and uninsured deposits are withdrawn and ‘pursuing strategic alternatives’ means an FDIC shutdown over the coming weekend.

He is mostly correct.


But I will quibble with him on one point.


Even if all deposits in the system are fully guaranteed, a lot of people will still be pulling their money out.


As Zero Hedge has aptly noted, many wealthy individuals are transferring funds from checking accounts that yield next to nothing to money market funds that pay around five percent…

People are not moving their money because of deposit loss fears: everyone already knows unlimited insurance is guaranteed, especially in blue states; they are moving because it takes 30 seconds to transfer from a 0.01% yielding checking account to a 5.1% money market.

The Federal Reserve could help the banks by cutting interest rates.


But that isn’t going to happen any time soon.


So brace yourselves for more bank failures.


Prior to the collapse of First Republic, Gallup conducted a survey that asked Americans if they are concerned about the money that they have in the banking system.


These are the results

Amid turbulence in the U.S. banking system, nearly half of Americans are anxious about the safety of the money they have in accounts at banks or other financial institutions. A total of 48% of U.S. adults say they are concerned about their money, including 19% who are “very” and 29% who are “moderately” worried. At the same time, 30% are “not too worried” and 20% are “not worried at all.” These findings are from a Gallup poll conducted April 3-25, the month after Silicon Valley Bank and Signature Bank collapsed. News about the failure of a third bank — First Republic — came after the poll was completed.

Needless to say, the events of the past couple of weeks are not going to help people feel any better.


Our banking system is in a tremendous amount of trouble, and this is just one element of the broader societal meltdown that we are currently witnessing.


I am extremely concerned about the rest of 2023.


And I am even more concerned about what 2024 will bring.


Events are starting to move very rapidly now, and very dark days are ahead.

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