Bank rout: Contagion fears, market manipulation or self-fulfilling prophecy?

bunhill

U.S. federal and state officials are looking into whether "market manipulation" has prompted the recent volatility in banking shares, according to Reuters, with short sellers raking in nearly $380M in paper profits on Thursday alone from betting against regional banks.

The brutal selloff saw PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) plunge 51% and 39%, respectively, as investors grew nervous about "strategic options," as well as the possibility of stockholder wipeout - similar to the ones that followed the collapse of Silicon Valley Bank (OTC:SIVBQ), Signature Bank (OTC:SBNY) and First Republic (OTCPK:FRCB). First Horizon (NYSE:FHN) also tumbled on Thursday after calling off its merger with TD Bank (TD).

"I can say the administration is going to closely monitor the market developments, including the short selling pressures on healthy banks," White House Press Secretary Karine Jean-Pierre declared. "I would have to refer you to the SEC on any possible actions, but certainly this is something that we're going to continue to monitor."

"We believe the banks are having their GameStop-like moment, where social media is amplifying non-traditional approaches to assessing solvency," countered Jaret Seiberg, analyst at TD Cowen. "This creates a self-fulfilling prophecy that pressures stock prices, which then leads to more questions."

Meanwhile, billionaire activist investors like Bill Ackman and Nelson Peltz are warning that more regional banks will fail unless deposit rules change, while the FDIC is looking to propose new payments on larger banks to replenish its deposit insurance fund.

More on the Regional Bank Crisis:

• Cathie Wood thinks regional bank fallout is accelerating
• With FRC's collapse, here are the top 10 regional bank stocks, ranked by SA Quant Ratings

Comments

[EBIX EBUCKS]

Interest rates aren’t even that high, they were just left too low for too long. In the case of SIVB, I think the bank was mismanaged, AND there was market manipulation by short sellers. As soon as they were going to raise more liquidity by selling shares, all of the shorts came out and convinced depositors to flee…coincidence?

[Go and do likewise]

@EBIX EBUCKS Zero to do with manipulation. Banks, unlike say restaurants, are a confidence game. SIVB made a decision to invest in MBS and 10-year govt bonds. So they had no chance to roll-over assets as Fed was raising. Once the silicon valley elites lost confidence, they had their venture cap firms and tech startups pull their cash, and it was game over.

[bluescorpion0]

@Go and do likewise virtually every bank is invested in 10 year bonds and mbs...they should all go down no?

[Go and do likewise]

@bluescorpion0 "One of these things is not like the other"

twitter.com/...

[Gary Jakacky]

Too bad..it is SO simple. At the very worst...

Depositors get their 250K max. etc.
Stockholders get wiped out.
Preferred stockholders probably get wiped out.
Bondholders get the crumbs left over.

Some managers go to jail.

Exactly how is that a problem.

[MWinMD]

Unfortunately, "organic" networks of millions of "apes" are hard to identify, document and certainly prosecute. We're in a Brave New World where trolls rule, and can destroy companies and lives.

[jsantmyer]

Short and distort! Enriching people for wiping out businesses...

[Phil Dumfee]

@jsantmyer Silicon Valley Bank from $700+ a share to zero in weeks due largely to rapid Federal Reserve interest rate increases and social media rumors and scare tactics. All banks are hiding massive paper losses. The climate has been changing for 300 million years since Pangea broke up.

[Hender]

@jsantmyer easy to do with no liquidity,

[ScottHB]

PacWest isn't helping instill confidence by failing to issue the quarterly dividend announcement that should have happened Monday.

[0xfc]

@ScottHB I think they will not issue a div on the preferred or common but at least come out and state it and try to give a small pep talk they hope to reinstate it soon.

[NYCDart25]

@0xfc It is issued $0.01 on common full on pref

[ScottHB]

@NYCDart25 Can you cite a source for this info? I've been unable to find one.

[Simeroth1]

All of the above. Ban shorting on ant bank with customer deposits. Suspend MTM rules on HTM securities. Otherwise will continue to upend banking dystem

[erikdired]

@Simeroth1 Wrong...(as far as shorting .. with MTM you have a point)... banks don't fail, they get seized. Falling stock prices don't close the bank. Let people short as they please. If the Fed will lend liquidity at PAR, as its supposed to as a lender of last resort, and the regulators (same Fed usually) don't seize the banks, then nothing happens except that shorts lose money. It's as usual the regulation thats the issue, not that we need more of it.

[T&ETrade]

@erikdired Falling stock prices cause depositors to panic. “What does the market know about my bank that I don’t?!?!” Then they run. Then the bank fails. Simple as that. Short sellers and manipulative publications cause stock market panics. It’s disingenuous to say that large short sellers don’t manipulate the situation. Shorters are no heroes. They are selfish opportunists, aka perfect capitalists.

[erikdired]

@T&ETrade Again, it can make depositors run and panic (which itself only happens cause gov't shows it will seize a small bank but not a big one, "too big to fail". so they panic and run to a bigger bank, not to hoard their cash in their mattress). But it can't make a regulator seize a bank. The Fed literally exists so that bank runs won't. If you are solvent, have equity, the Fed is lender of last resort. Doesn't matter if everyone pulls all their money out. And after people see that it doesn't fail, they'll come back (or in fact experience will teach that no reason to have run in the first place so there won't be runs). It is always the regulator that choses (or not) to seize the bank. These are not declaring BK like a regular business cause they can't pay their bills.

[gmacdig]

Market manipulation ... ya think?

[Go and do likewise]

Madness to expect the fed to cut with the numbers out today. So no relief for banks holding long-dated, low-interest treasuries.

[erbrown]

The FEDS .25 rise yesterday was the killer!

[AnimeSnoopy]

This is what happens when you screw all the investors every time a bank fails in order to rescue depositors...

First banks screwed depositors with poor returns
Now they screw investors

Is it really any wonder that they are crashing???

Screw em

[Heavy Fuel]

......"officials are looking into whether "market manipulation" has prompted the recent volatility in banking shares"........LOL.......Since when has "Manipulation" never been part of the "Market".....

[rubble]

Anyone out there bought an auto in the last year with a loan? Are these banks loaning people for the full price of the vehicle and surcharges?

[Go and do likewise]

Sharks are circling but you have to ask why. There are real problems in the banking sector. And that is amplified because banking, unlike many industries, is a confidence game.

[TommyIrish]

Well, if there is one bank that you could plausibly take a nibble at $18 it would be WAL.

As for the short-seller nonsense - SBNY, FRC and SIV had to be bailed out for a $100(?)bn because of mis-management not short-sellers.

Sure, the NYCB take-over looked like a sweetheart deal BUT as for JPM I am guessing the acquisition cost them $15bn on mark-to-market basis, whether it is a good deal longer term or not.

[PHILIP MAX]

@TommyIrish JPM picked up over $300 billion in assets for $10billion. Not so shoddy.

[0xfc]

@PHILIP MAX I have not read all the details but I highly doubt the math works out like that.

[TommyIrish]

@PHILIP MAX

The JPM press release was master class on how to provide lots of numbers, infused with patriotism and positivity, whilst avoiding to give you the lowdown, just clear as mud.

Your interpretation suggests that it worked!

I bet they were down $15bn on mark-to-market basis, ignoring the variou externalities that Dimon obviously perceived to provide some longer-term value.

[excenter]

Is this all a fed power grab to tighten their grip on the banking system so as to easier implement a digital currency?

[thirdcamper]

@excenter No.

[Simeroth1]

@thirdcamper yes

[Big Tex 6988]

@excenter You hit the nail on the head.

[ziggyzig]

The banks are being attacked by naked shorts and via the CDS market. By folks who don't give a darn about the harm they are doing.

[Seriol]

@ziggyzig I disagree. Shorts are the symptom. What's the cause? A: absurd govt spending during the lockdowns and the resulting interest rate cycle.

[Leo Trollstoy]

@ziggyzig I think some of them relish the harm they are participating in. They glory in it.

[tango_67]

@Seriol So is that the fault of the bank?

[bluescorpion0]

Oh how rich! Where was the governmentn when insiders were doing illegal pre-arbitrage stock and option sales? I have seen countless examples where NOTHING was done. Also when senators and fed officials were insider trading. Now suddenly short-selling bank stocks is somehow a problem?

USA IS CORRUPT (so is everyone else)
#peakglobalcorruption!!

[kmi]

So... it's factually true that every 0.25 increase puts increasing pressure on banks.

What's more interesting are the reports now popping up around the internet about how the bank collapses of '23 are already outpacing the bank collapses in the GFC during 2008 www.zerohedge.com/...

The market anticipates that the most recent .quarter point increase will break more banks, and it may well be right. Unemployment has been ticking up. Inflation persists high. Debt ceiling pending.

Market metrics are all flashing red. Sure, it will be the most anticipated recession in history, but the amusing part of it is that it didn't have to be this way. The Biden admin didn't have to spend its way into a massive inflationary spiral forcing the Fed to siphon out excess money by raising rates faster than it has ever before in history.

At any moment, policy makers could have taken their foot off the spending gas. Close the border which is causing massive spike in housing inflation. Expand drilling on Federal lands to drop oil from $70 to the MAGA era average of $50. Reinstate student loans to encourage smarter spending. Rescind unspent covid era money. Install work requirements Clinton-style on welfare benefits. Negotiate a cease-fire in Ukraine to avoid food and commodity price inflation, and maybe pull back a bit on the $100b being spent there. Stop sending money to the Taliban in Afghanistan and HAMAS in Palestine. But no.

Fiscal policy spiraled us out of control, and the Fed is doing its thing.

[kmi]

Meanwhile, the Biden admin is refusing to back off its hardline policies as it continues to run the American economy aground: this time over the debt ceiling increase.

It is increasingly looking like we will have a replay of the '11 Obama era debt ceiling fiasco where Obama's hard line successfully knocked down the United States' credit rating.

Back then the S&P knocked down US credit rating not based on an actual default but on the fact that Obama was willing to game it. Just like O'Biden.

In the banking sector I'm long $WFC $CUBI $BPOP preferreds.

[claudesnow]

@kmi with your thousands of comments I'd think you'd be more informed. This is occuring from a long history of accumulating debt. The previous administrations have done their part.

[Milkweed]

@kmi

That RINO Boehner got 10% across the board spending cuts past Obama and Schumer and reduced Obama's $1T+ deficit to $350B by the time Trump took over. He was run out of town on a rail for not being fiscally conservative enough. It took life long democrat Trump two years with an all GOP (in name only) Congress to run the deficit back up to $1T at the high point of the economic cycle BEFORE CoV, when we are supposed to be reducing deficits. Trump and his MAGA sycophants deserve as much credit for inflation and the banking crisis as Biden.

[Convoluted]

Rumors and concerted stock sales (or buys) have been part of the market since the days of Baruch. In those days, newspapers were the obvious choice for planting rumors.

What we have witnessed with the advent of ‘social media’, combined with modern trading technology, is that opinion can be laced with malevolent intent. This is the case with politics, medical information-anything really.

[Finding Your Retirement]

how would short sellers destroy your bank? All short sellers can do is sell your stock and wait to buy back. if a bank was properly ran its stock price would zero affect on its solvency

the fact 5 banks went under shows it's weak and the fundamentals aren't anywhere close to what they're reporting. FRC had a book value of over 80 when it go taken out. how are you going to blame short sellers when FRC themselves came out and told everyone they were solvent and had plenty of cash only to be taken out a few days later

[Petja Ylitalo]

@Finding Your Retirement In even strongest bank, if it loses deposits without getting replacement money (from FED or other banks) it will have to do forced sales of assets, and forced sales on quick timetable to people who are not sure what they are buying will lead to big discounts, causing big losses for selling bank.
Atleast FRC was weak, but would 90% sure have survived if they got 5% replacement money until a slow deleveraging could be done, would have had no issues without deposit losses caused by media scares.

[Leo Trollstoy]

@Finding Your Retirement Short sellers also destroy many smaller businesses by making it impossible for them to raise capital by issuing new shares. when you step back a bit, it's easier to see the many ways short selling hurts a market/economy.

[Raymond Chung, CFA]

@Finding Your Retirement the government didn't give FRC a choice. They couldn't tolerate FRC in the news and would not let it slog it out and survive by itself by the slimmest margins. Had they not taken a highly reputable bank prematurely under the fear would not be spreading