Buffett, Ackman, Gundlach & Co. worried: star investors do not yet see an end to the US banking crisis

taketonews

• According to experts, the collapse of the First Republic Bank is not the end of the turbulence at US regional banks
• Star investors with various proposals to contain the crisis
• Possible entry into a chronic phase of banking problems

As early as late March, researchers from the Yale School of Management and Boston College’s Carroll School of Management warned that the turmoil in the US banking sector, as well as measures to calm the situation, indicated that we were in the midst of a systemic crisis. According to the experts, the bank turbulence is therefore likely to be more serious and longer lasting than initially assumed. As the collapse of the First Republic Bank showed a few weeks ago, the researchers were probably right in their assessment, especially since some US regional banks still seem to be in trouble. In the aftermath of the most recent bank collapse, numerous well-known investors also questioned the stability of the US regional banks and warned that the banking crisis was far from over.

Bill Ackman calls for guarantee for all bank deposits again

The warning from star investor Bill Ackman was particularly urgent after the takeover of First Republic Bank by JPMorgan. In March, after the collapse of Silicon Valley Bank and Signature Bank, the founder of the hedge fund Pershing Square Capital Management had requested a temporary deposit guarantee from the US deposit insurance authority FDIC for all deposits, including those over the $250,000 limit, as would only prevent further bank runs in this way. At the beginning of May, he criticized on Twitter that the FDIC had not increased deposit insurance and thereby facilitated the collapse of the First Republic Bank. “The FDIC’s failure to update and expand its insurance system has put more nails in the coffin. FRB would not have failed if the FDIC had temporarily guaranteed deposits while a new guarantee system was created,” Ackman said. Now the entire regional banking system is in danger.

According to the activist investor, the consequence of the FDIC’s failure is to watch as US regional banks “fall like dominoes at great systemic and economic costs.” According to Ackman, the banking system is based on trust – and this is currently disappearing due to the bank failures. “Trust in a financial institution is built up over decades and destroyed within a few days. When a domino falls, the next weakest bank starts to wobble,” says the hedge fund manager. Thus, no regional bank can survive bad news or bad data, since a stock price decline inevitably follows, insured and uninsured deposits are being withdrawn, and the statement that they are pursuing “strategic alternatives” means nothing other than that the FDIC is closing the institution next weekend, the investor tweeted with indirect reference to the processes involved in winding up First Republic Bank.

In his tweet, Bill Ackman again called for system-wide deposit insurance and warned that time was running out to resolve the issue. He criticized that big banks had an “unfair competitive advantage” over their smaller industry peers because their classification as systemically important means only their uninsured depositors could sleep easy. “Until the competitive conditions are balanced, the regional banks are at great risk,” said the expert. “How many unnecessary bank failures do we have to watch before the FDIC, the US Treasury Department and our government wake up,” asks Bill Ackman at the end of his tweet, making it clear that he expects further collapses in the US banking sector by then.

Jeffrey Gundlach looks in USmonetary policy Trigger for further turbulence

Bond king Jeffrey Gundlach also sees no end to the US banking crisis at the moment, as he said in an interview with “CNBC” in early May. However, he mainly blames the monetary policy of the US Federal Reserve for this. “The insoles [bei den US-Banken] will continue to decrease. I don’t think this is the final chapter in this regional banking problem […] I don’t really see anything that will cause it to stop unless the Fed cuts rates,” Gundlach said. Customers would continue to withdraw their money from regional banks, according to the investor, “as there’s absolutely no reason it leave it there”. Because of the interest rate hike policy of the Fed, there are much more lucrative investments in the bond area with an also very low risk and a term of only a few months. “It just seems to me as if the deposits are continuing to migrate,” says the Expert told the US broadcaster: “If interest rates stay this high, this stress will continue. I assume that there will be a very high probability that there will be further regional bank failures”, because one rate cut he does not see the US Federal Reserve already at the next meeting.

Interestingly, Jeffrey Gundlach believes that if the Fed had hiked US interest rates more sharply early in the tightening cycle, some of the troubles in the US regional banking system might have been avoided. If the US Federal Reserve had raised interest rates by 200 basis points as a first step, as he had wished, the problems at the regional banks would probably not have been to this extent, the investor told “CNBC”. Instead, interest rates in the US were initially increased by 0.25 percentage points and 0.5 percentage points, before several comparatively large rate hikes of 0.75 percentage points each followed. Had the monetary authorities acted differently, there would not have been a 50 percent drawdown in 30-year Treasuries that has hurt Silicon Valley Bank and others, Gundlach said.

Expert sees the beginning of a chronic phase of banking problems

Top economist and Allianz chief advisor Mohamed El-Erian was also critical of the Fed’s monetary policy and its role in the US bank failures. He mainly criticized Jerome Powell’s recent statements via Twitter. The head of the Fed said at the press conference after the latest interest rate decision that there were three major banks that had been at the center of the turbulence from the start. However, those issues have now been resolved and the sale of First Republic Bank is an important step in putting an end to “this period of severe stress,” Powell said.

However, Mohamed El-Erian sees things differently. “I fear that this will end up being added to the list of unfortunate Federal Reserve announcements of recent years that have washed away the Fed’s credibility, undermined its policy leadership/effectiveness and threatened its political autonomy,” he commented on the Powell statements in a tweet, making it clear that he does not believe in an end to the stress in the US regional banks.

Former PIMCO CEO Paul McCulley spoke to CNBC after the recent rate hike the Fed, on the other hand, was somewhat more relaxed. In an interview with the TV station, he said he was convinced that the acute phase of the banking crisis with several bankruptcies was gradually flattening out. However, he did not give the all-clear because, according to McCulley, a chronic phase of banking problems will now begin, which will also have a negative impact on the economy, since banks with large losses will probably be less likely to grant loans in the future.

Warren Buffett remains cautious on US banks

At the Berkshire Hathaway shareholder meeting in early May, legendary investor Warren Buffett was also cautious when looking at the US banking sector. According to the Financial Times, he said that fear in the banking sector was contagious and that there were no guarantees that customers would not withdraw their deposits. In addition, everything can be done much faster than before, since online banking makes it possible for everyone to move large sums of money within a short period of time. “You can have a run in a few seconds,” Buffett said, and “that changes everything.” Had the FDIC not guaranteed all deposits at Silicon Valley Bank and Signature Bank in March, Buffett said the impact would have been catastrophic.

However, according to the Oracle of Omaha, neither the FDIC nor the US government has any interest in “a bank going bankrupt and people actually losing their deposits.” However, due to poor communication from politicians, authorities and the press, this is not recognized by the public. Berkshire Hathaway is currently acting cautiously with regard to bank stocks – and sold some holdings in the past. “We keep our money with Berkshire in cash and Treasury bills,” Buffett said at the shareholder meeting, according to the Financial Times. So you are ready if the banking system comes to a standstill, even temporarily. “It shouldn’t be. I don’t think it will be, but it could be,” said the veteran investor.

Editorial office finanzen.net

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