Jarden Brief: Janet Yellen boosts confidence after Credit Suisse collapse, First Republic turmoil

Keeping you up to date with the latest market moves, in association with Investment firm Jarden.

International

US

First Republic Bank is now exploring ways to downsize if its efforts to raise new capital are unsuccessful.

The bank has been working with JPMorgan Chase & Co. to secure new sources of capital, but unrealised losses in its loan and investment portfolios have hindered investment.

First Republic is now considering selling parts of its business, including its loan book, to raise cash and reduce costs.

While a sale of the entire bank is still possible, the bank is currently focused on raising capital.

The situation is fluid. The bank’s shares rose 60.0 per cent to US$19.44 following the news, but it is still worth less than a fifth of where its shares were trading before the banking crisis in the United States.

First Republic Bank is among the banks that have been speaking to peers and investment firms about potential deals.

US Treasury Secretary Janet Yellen has said the Government is ready to support smaller banks if needed, which has boosted confidence in the banking system.

US Treasury Secretary Janet Yellen. Photo / AP

Yellen’s comments followed the recent turmoil, including the failure of Silicon Valley Bank, which had caused concern about the stability of the banking system.

The Government provided guarantees to depositors at the failed bank, and Yellen said similar actions could be taken if smaller institutions suffer deposit runs that could pose the risk of contagion.

Shares in regional US banks, such as First Republic, rose significantly after the announcement. Yellen also suggested new banking reforms may be necessary to strengthen regulation in the sector.

Rest of World

Asian bank stocks rebounded after their Additional Tier 1 (AT1) bonds recovered from a sell-off caused by the Credit Suisse Group AG crisis.

The AT1 bonds are considered riskier than other debt instruments.

The Federal Reserve decision on another possible interest rate hike is also a factor in the market’s current state.

Mizuho International Plc strategists believe recent market events may push central bankers to be more cautious with their policy rates.

Meanwhile, Asian stock markets mirrored Wall Street’s positive performance on Tuesday, with the Hang Seng and Shanghai Composite indices rising 1.4 and 0.6 per cent respectively as the market prices a probability of a 0.25 per cent rate rise by the Federal Reserve later this week.

The probability of a rate hike is at 74.5 per cent, while the probability of no rate hike is at 25.0 per cent, according to the CME FedWatch tool.

Following the ongoing acquisition by UBS of Credit Suisse, tens of thousands of job losses are expected, with the domestic business and investment banking division of Credit Suisse likely to be the hardest hit.

The two banks employ over 30,000 staff combined, and UBS is expected to reduce roles by as much as a third of the 120,000 jobs in the combined group.

The Swiss authorities orchestrated the takeover after becoming concerned about the number of customer withdrawals Credit Suisse was experiencing.

Credit Suisse was already reducing jobs, with 4,000 positions cut this year.

Ethos Foundation, representing Swiss institutional investors, is urging Swiss authorities and UBS to spin off Credit Suisse’s domestic business to preserve jobs and maintain healthy competition.

The Swiss Bank Employees Association had also called for Credit Suisse to set up a task force to manage the risk of the large scale job cuts, saying “there is an enormous amount at stake for the 17,000 or so employees of Credit Suisse in Switzerland — and thus also for our national economy.”

Commodities

Spot gold declined by -2.1 per cent to US$1,937.9 per ounce, while U.S. gold futures slipped 0.1 per cent to US$1,980.10.

Despite initially dropping by 1.0 per cent on Monday, gold prices rebounded to reach their highest point since March 2022 at US$2,009.59, as investors assessed the effects of measures taken by various central banks to address a banking crisis and stabilise global financial markets.

Oil prices rose over 2.1 per cent over Monday after falling to their lowest levels in 15 months due to concerns that the global banking sector’s risks could trigger a recession that would affect fuel demand.

Brent crude futures for May rose 1.1 per cent to US$73.79 a barrel. Last week, both benchmarks declined more than 10.0 per cent due to the deepening banking crisis.

Despite this, the G7 is not expected to adjust the US$60-per-barrel price cap on Russian oil this week, according to European Union officials.

The OPEC+ committee will meet on April 3 to discuss cutting oil production targets by 2 million barrels per day until the end of 2023.

Australia

The ASX 200 rose by 0.8 per cent, driven by a positive global market outlook after the Credit Suisse crisis.

Following a positive lead from global markets, Australian bank stocks experienced gains as well, with regional lenders such as Suncorp, Bendigo & Adelaide Bank, and Bank of Queensland seeing the largest increases.

Meanwhile, the big four banks also rose, with Westpac, ANZ, Commonwealth Bank, and National Australia Bank all posting gains.

National Australia Bank CFO Gary Lennon announced his retirement after serving 15 years, with Nathan Goonan taking over the role on July 1st.

Additionally, the Reserve Bank of Australia’s minutes provided colour for its March 7th meeting, revealing that the board is considering a pause on keeping the cash rate at 3.6 per cent at the next meeting, provided the economy shows signs of softening.

The ANZ-Roy Morgan survey showed consumer confidence fell by 0.5 percentage points. This is the fourth consecutive week recording a drop, with the index recording one of the ten worst results since the Covid-19 outbreak in four of the past five weeks.

Laybuy, a buy now pay later company based in Auckland, is set to delist from the ASX this week.

The company has announced that it will lay off 10.0 per cent of its staff due to a challenging macroeconomic environment and a softening retail backdrop.

The company’s path to profitability has been a core objective for the last 12 months, but Managing Director Gary Rohloff said Laybuy might need to extend the delivery of profitability beyond March 31 to hit profitability this financial year, as previously expected.

This is due to a larger than anticipated softening in the retail backdrop. Laybuy has already downsized its workforce by 45 positions at its New Zealand head office as part of its reset, but the company is now looking to further restructure part of its business as mentioned above.

The company’s credit and fraud prevention work has achieved strong results so far, and the Laybuy board has announced that Independent Director and Chairman of the Audit and Risk Committee, Harry Haberlin, will resign effective March 24th, coinciding with the company’s delisting from the ASX.

New Zealand

Stats NZ released overseas trade merchandise data for February 2023, where total goods exports rose by $41 million (0.8 per cent compared to January 2023) to $5.2 billion, despite a fall in meat exports of $200 million (21.0 per cent compared to January 2023).

The milk powder, butter, and cheese group was the largest export commodity group, rising $40 million (2.6 percent compared to January 2023) to $1.6 billion.

Cheese was the standout performer, surging in value by 51.0 percent to $258 million month-on-month, with the quantity exported up by 34.0 percent, and the average price per kilogram rising 12 percent.

The average unit price for milk powder fell by 8.2 percent. Exports to top trading partners mostly rose, except for the European Union.

Goods imports also rose $40 million to $5.9 billion, led by a 37.0 percent month on month increase in petroleum and products. The monthly trade balance was a deficit of $714 million.

New Zealand-based real estate investment trust Goodman Property Trust Limited has announced its portfolio will experience a reduction in fair value of $238 million or 4.7 per cent in its annual result for FY23.

This decline is due to draft valuation reports from independent valuers indicating the company’s portfolio will be valued at around $4.8 billion on 31 March 2023, with a weighted average capitalisation rate of 5.2 per cent, compared to 4.2 per cent in March 2022.

According to CEO James Spence, the changing interest rate environment has impacted real estate investment yields.

However, GMT’s portfolio continues to have strong fundamentals, with occupancy at over 99.0 per cent and annual market rental growth of 19.0 per cent, which has reduced the impact of softening capitalisation rates on valuations.

The forecast valuation movement is expected to reduce net tangible assets by around 17 cents per unit, and further details will be provided with the FY23 annual result announcement on 18 May 2023.

Coming up today

Westpac is set to release the Australian Consumer Confidence report for the February 2023 period, while KMD Brands will announce its 1H earnings.

For more information on the latest market moves, get in touch with Jarden.

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All market pricing and announcements are sourced from Refinitiv, NZX and ASX.