US regional bank stocks still under pressure

This is an audio transcript of the FT News Briefing podcast episode: ‘US regional bank stocks still under pressure’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, May 3rd. This is your FT News Briefing.

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The big rescue of First Republic has not stopped anxiety around other regional banks. And consumers in India are snapping up Apple’s iPhones, just not the new ones. Plus, European banks are hoping to scoop up some of Credit Suisse’s business, but what’s left for the picking?

Stephen Morris
What you have at Credit Suisse investment bank, with the greatest respect to the people still working there, I would say is a bit of the rump rather than the prime rib.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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In the US, the rescue of First Republic did not reassure investors about what could happen to other similar regional banks. Their stocks plunged yesterday. Shares in another California lender, PacWest, lost about 28 per cent. Arizona-based Western Alliance Bank saw its shares go down more than 15 per cent. Here to talk more about this is the FT’s US banking correspondent, Stephen Gandel. Hi, Stephen.

Stephen Gandel
Hi. Thanks for having me on again.

Marc Filippino
So, Stephen, why did anyone think that JPMorgan rescuing First Republic would end investor anxiety?

Stephen Gandel
Well, because like, if you’re worried about the banking system, it did help the banking system. There, it wasn’t . . . There are no depositors that lost any money. The employees of First Republic are largely gonna be employees of JPMorgan. And so for the banking system, it’s a win. The problem is for someone who was an investor in the stock, they have none of their money. They were completely wiped out. So you have this dichotomy where the depositors should be less worried. And so therefore, we thought that was gonna reassure the system. But the stock investors are actually more worried.

Marc Filippino
So it sounds like, Stephen, investors might be worried that some of these other banks could end up like First Republic.

Stephen Gandel
Yes. So I think what investors have done is looked around and say, OK, so what, what bank out there looks like First Republic or looks like Silicon Valley Bank. So if you look at the two stocks, Pacific West and Western Alliance, they both have these businesses where they lend to venture capital funds and venture companies and start-ups. And that was all of the business at Silicon Valley, right? And so I think that’s what’s going on. Investors are saying, like, I don’t want to be near any problems. So if something looks like Silicon Valley or something looks like First Republic, I don’t want to be in that stock.

Marc Filippino
So just to be clear, and I think this is important for our listeners: there is no new piece of information about these banks that lost . . . Sure. Nothing, right . . . 

Stephen Gandel
Nothing in terms of the fundamentals about these banks. We learned absolutely nothing yesterday. Right? There’s no new news. The earnings are out, right? The quarter was over.

Marc Filippino
Yeah, we saw it in First Republic’s recent earnings report that customers withdrew more than $100bn in deposits. Do we see anything like that in other banks?

Stephen Gandel
So these banks have not seen anywhere near the loss in deposits that First Republic had. And it is kind of curious because the earnings for many of these banks were better than expected, right? They’re still benefiting from the fact that for a long time they didn’t have to pay very much on deposits. But if you look forward and you saw this in First Republic’s earnings report, they are gradually getting more underwater in term . . . meaning that what they now have to pay to keep deposits, what they now have to pay to attract new deposits — that right now is more than what they’re earning on their loans and their investments. So the earnings were better than expected for the first quarter, but there was a sign in their earnings reports that the earnings are about to get a whole lot worse than expected.

Marc Filippino
And just to be clear, the thing that everyone is waiting for is the effect that higher interest rates and quickly raised interest rates is going to have on these banks, right?

Stephen Gandel
Right. And we’re gonna get more bad news on this potentially today when the Fed makes its announcement. So if there are hopes that the bad news on the interested side for the banks was gonna subside, it’s not gonna happen today.

Marc Filippino
Yeah, And the Federal Reserve is expected to raise interest rates by a quarter percentage point today. Stephen Gandel is the FT’s US banking correspondent. Thanks for your time, Stephen.

Stephen Gandel
Thank you.

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Marc Filippino
Apple is getting a boost in India from refurbished iPhones. They accounted for 11 per cent of India’s secondary smartphone sales last year. That’s up from 3 per cent the year before. That makes Apple the fastest growing refurbished brand in India, according to one market research group. It’s good news for Apple, which is banking on India for its future growth. The second-hand market is a gateway into other Apple products and services. The iPhone maker actually just opened up its first two Apple stores in the country.

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When UBS agreed to buy Credit Suisse, a huge competitor disappeared from the banking landscape. Now, other European banks are hoping to scoop up some of Credit Suisse’s business. Here to talk more about this is the FT’s banking editor, Stephen Morris. Hi, Stephen.

Stephen Morris
Hello.

Marc Filippino
We focused a lot on the deal with UBS buying Credit Suisse. But what does the collapse of Credit Suisse do to the banking industry as a whole?

Stephen Morris
So Santander, Deutsche Bank, Barclays, they’re all going after, you know, the few people at Credit Suisse who are left, are still good — the bankers, the dealmakers, the traders, but also in particular their clients. So it’s really opened up this space. Deutsche, for example, is known for shrinking its investment bank and reining in its ambitions. But our story earlier this week showed that they’ve already hired 26 managing directors, kind of the most senior rank or grade within the investment bank and plan to hire many more. Now we think about half of those are from Credit Suisse.

Marc Filippino
So is there gonna be a bank that benefits the most from the collapse of Credit Suisse?

Stephen Morris
Well, Credit Suisse’s most lucrative product, product lines and the ones that UBS are gonna try and keep are, of course, in wealth management and in particular in Asia. That’s where they made a lot of their money. And that’s where as a Swiss bank, they could stand out against those on Wall Street. I would say the biggest beneficiary of Credit Suisse’s collapse is probably Barclays, which has long been struggling to establish itself as the number six investment bank worldwide. So if Barclays can pick up a lot of this business and sustainably show that it can make profits for the next year or so, perhaps the demise of Credit Suisse could actually be a very good news story for its London-based rival.

Marc Filippino
Barclays seems to be the best placed. They have a lot to gain here, but is there enough to go around for all the big competitors across European banking?

Stephen Morris
There probably is enough business to go around. Credit Suisse was a very big business for a long time, so I would say that there’s definitely enough to be split up against smaller competitors. I’d point you back to this much longer two-to-three-year period of decline where a lot of the best people at Credit Suisse and a lot of their most lucrative clients had already left, in essence. So what you have at Credit Suisse investment bank, with the greatest respect to the people still working there, I would say is a bit of the rump rather than the prime rib.

Marc Filippino
Stephen Morris is the FT’s banking editor. Thanks, Stephen.

Stephen Morris
Thank you.

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Marc Filippino
Before we go, the American activist investor Carl Icahn is known for targeting companies and forcing changes in management. Now, Icahn himself is a target. New York investment firm Hindenburg Research said yesterday that it is shorting Icahn’s publicly listed fund called Icahn Enterprises. That means Hindenburg’s placing bets that the stock is gonna fall. This is the third major short from Hindenburg this year. It went after the Indian conglomerate Adani Group and the payment company Block. Hindenburg says Icahn Enterprises is overvalued and the worth of some of its private assets is inflated. Carl Icahn said in a statement yesterday that his company stands by its public disclosures. But Hindenburg’s report triggered a sell-off and shares in Icahn Enterprises plunged. The stock price ended the day down about 20 per cent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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