The collapse of Silicon Valley Bank earlier this year sent shockwaves through the banking industry, triggering a regional banking crisis in the United States and setting off a chain reaction with economic and regulatory consequences felt worldwide. While the crisis brought challenges, it also led to some surprising winners emerging from the turmoil. In this article, we delve into the aftermath of the crisis, the banks that have come out on top, and the uncertain road ahead.
UBS: A Rescuer’s Reward
When the dust finally settled, UBS found itself on the winning side. Shares of UBS have soared by approximately 20% since its critical rescue of Credit Suisse from the brink of collapse. The highlight of UBS’s triumph came with its recent announcement of a staggering $29 billion quarterly profit, a record high for any lender. This astronomical figure owes much of its existence to the discrepancy between Credit Suisse’s balance sheet value and the $3.8 billion that UBS paid to acquire the troubled bank.
JPMorgan Chase: Navigating to New Heights
JPMorgan Chase, another banking giant, has also emerged as a clear winner. Following its strategic acquisition of First Republic Bank, JPMorgan’s shares have gained more than 6%. The bank’s profit has surged to record levels, illustrating the benefits of its bold move during the crisis.
The Role of G-SIB Banks
Global systemically important banks (G-SIBs), including JPMorgan Chase, have played pivotal roles in stabilizing the financial system during times of crisis. JPMorgan, in particular, stands out as the highest-rated G-SIB bank in the United States. Its historical significance in American banking mirrors its current prominence, with J.P. Morgan himself having been instrumental in the creation of the Federal Reserve over a century ago.
Prudence in the Face of Uncertainty
Despite the apparent victories for some banking giants, the banking sector remains a complex and challenging environment. Uncertainties persist, including proposals for mid-sized banks with assets exceeding $100 billion to issue debt series for capital reinforcement and potential revisions to G-SIB rules. These uncertainties cast a shadow over a substantial portion of the banking sector.
David Kotok of Cumberland Advisors, an investment advisory firm, emphasizes prudence in approaching the banking sector under these conditions. He notes that his portfolio contains no bank ETFs, given the sequential uncertainty elements beyond the control of the normal business cycle.
Consolidation: A Continual Trend
The banking industry has witnessed a consistent trend toward consolidation over the years, and this trend is expected to continue. Each crisis often triggers a wave of consolidation, with larger banks growing in size and new entrants finding it increasingly challenging to join the market. The banking landscape is marked by the mantra of “big gets bigger,” and this trajectory shows no signs of abating.
The UK’s Economic Twist
In a twist of economic fate, the United Kingdom’s GDP data was recently revised to reveal a surprising fact. By the end of 2021, the UK’s economy had actually grown by 0.6% compared to the final quarter of 2019, before the pandemic hit. This revision contradicts previous estimates of a 1.2% decline and has shifted the UK from being the worst performer in the G7 to a more favorable position.
Return-to-Office Policies: A Post-Labor Day Reset?
As summer unofficially ended, return-to-office mandates gained traction among office workers across the United States. Companies like Amazon, Meta (formerly Facebook), and Merck have implemented policies requiring employees to spend a specific number of days in the office each week. Non-compliance with these policies can lead to disciplinary actions, including performance rating reductions or even dismissal.
The fallout from the regional banking crisis earlier this year has left an indelible mark on the banking industry. While some banks have reaped the rewards of strategic moves and decisive actions, uncertainty continues to cast a long shadow over the sector. The winners and losers in this evolving landscape will be determined by their ability to navigate the ever-changing currents of the financial world.