Global bank bailout – Here we go again?

[MongiIG]

SVB, Signature, Credit Suisse, First Republic … it all sounds familiar. Shard Capital’s Bill Blain tells IG’s Angeline Ong why this could be the start of another global bank bailout and where investors can head to find cover.

 Angeline Ong | Presenter, Analyst and Content Editor, London | Publication date: Friday 17 March 2023 

Cut out the noise

Ong: Bill, thank you so much for joining us. There's been so much going on out there. First SVB, then the central banks and the markets and now more news of rescues coming out of the US. What's the real story here?

Blain: Listen, we're back in one of these extraordinary market situations, which basically boils down to almost like a war between the forces of chaos, which is people panicking about how markets are going to develop and the forces of stability, which are the central banks trying to engineer that stability by persuading the market that the banking system is stable.

Skirmishes

Blain: So as this banking crisis really comes to fruition, we've seen a number of skirmishes. The collapse of Silicon Valley Bank, I would say, is just a skirmish. It was quickly addressed by banks backstopping every depositor and providing liquidity. And then, of course, we had the extraordinary thing of Jamie Dimon, the head of JP Morgan, leading $30 billion of Wall Street's finest and try and rescue another ailing bank, First Republic Bank. At the same time, we've got this incredible story going on around Credit Suisse Group AG (CH), where the Swiss National Bank, and I'm sure together with the European Central Bank, managed to put together a very quick backstop plan to provide them with as much liquidity as needed. And at the same time, Christine Lagarde, the head of the European Central Bank, went out there and I would say courageously decided to go ahead with a 50 basis point hike by the ECB at a time of market tension to demonstrate just how safe and secure the system was.

Bond markets next?

Blain: At the end of the day, it's all a bit of a game. It's central banks trying to persuade us there's nothing to worry about. Then, it's the doubts of the market about just how badly damaged the rise in interest rates has hit the bond markets, therefore leaving massive holes in the real numbers that underlie banks. I'll be very happy to talk about just how much damage has been done to the bond market.