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https://bloomberg.com/news/articles/2023-03-21/vanguard-plans-to-shutter-business-in-china-exit-ant-jv?srnd=premium-europe&leadSource=uverify%20wallA complete retreat would follow Vanguard’s surprise move two years ago to scrap plans for a mutual-fund management license in China to focus on the BangNiTou tie-up with Ant that was launched in 2020.
Fidelity and Neuberger Berman Group have recently joined BlackRock in launching onshore funds through new wholly-owned units, while Manulife Financial Corp., JPMorgan Chase & Co. and Morgan Stanley have gained approvals to buy out local partners to gain full control of existing ventures.
The race for fund advisory is heating up with more players coming in, hurting profitability. Vanguard’s venture, which has been offering only products from competitors, booked a loss in 2021 that was much higher than an internal forecast made after it was set up in 2019, Bloomberg reported last year. Vanguard owns 49% of it.
The above are edited excerpts from Matt Levine's Money Stuff column of March 17, 2023. Text emphasis has been added.Banking is a confidence trick. You put money in the bank today because you are confident you can take it out tomorrow; to you, a dollar that you have deposited in the bank is just as good — just as much money — as a dollar bill in your wallet. If you show up at the ATM at any time of day or night, you expect it to give you your dollars.
But the bank doesn’t just put your dollars in a box and wait for you to take them out; the bank uses its depositors’ money to make loans or buy bonds, and just keeps a little bit around for people who need cash. If everyone asked for their money back tomorrow, the bank wouldn’t have it.
But everyone is confident that, if they ask for their money back tomorrow, the bank will have it. So they mostly don’t ask for it, so when they do, the bank does have it. The widespread belief that banks have the money is what makes it true.
This is obvious stuff. Also obvious, and famous, is that it is an unstable equilibrium. If people stop believing it, it stops being true. If everyone stops believing in a bank, they will all rush to get their money out, and the bank won’t have it, and their lack of belief will be retrospectively justified. Whereas if they had kept believing, their belief would also have been justified.
Isn’t this ridiculous? But there is a deep social purpose to the confidence trick. Banking is a way for people collectively to make long-term, risky bets without noticing them, a way to pool risks so that everyone is safer and better-off.
You and I put our money in the bank because it is “money in the bank,” it is very safe, and we can use it tomorrow to pay rent or buy a sandwich. And then the bank goes around making 30-year fixed-rate mortgage loans: Homeowners could never borrow money from me for 30 years, because I might need the money for a sandwich tomorrow, but they can borrow from us collectively because the bank has diversified that liquidity risk among lots of depositors.
Or the bank makes small-business loans to businesses that might go bankrupt: Those businesses could never borrow from me, because I need the money and don’t want to take the risk of losing it, but they can borrow from us collectively because the bank has diversified that credit risk among lots of depositors and also lots of borrowers.
But the basic problem remains: the confidence trick, where trust in banks makes them trustworthy and distrust in banks makes them fail.
Bankers and bank regulators tend not to talk in these terms... because talking about it ruins the magic. But they know it in their bones; at a deep level they understand that preserving that confidence is their most important job.
More specifically they know that if there is a run on a bank, and that bank goes bust and doesn’t pay depositors, then there will be a run on other banks. And they know that the run can start with a bank that is bad, that is undercapitalized and made poor decisions and in some sense deserves to fail, but that it can spread to other banks that are good.
And they know that “good” and “bad” are not really the things that matter: What makes a bank good is not just its capital ratios and liquidity position but also confidence, and however good the ratios it is hard for a bank to survive a loss of confidence. They know that they are all interconnected, that they are players in an essentially social game, and that the goal of the game is not to win but to keep playing.
Per M*:Bruce Fund (BRUFX)
Inception date: 3/20/1968
Capital gain in 2022: 58.7%
This fund invests in domestic stocks and bonds, along with zero-coupon government bonds. It currently has about $505 million in assets, and its price declined 20% last year. With a current NAV of $520, an investor with 10 shares worth would have a capital gains bill of about $3,100 to then pay taxes on.
https://morningstar.com/articles/1144873/another-banking-crisis-another-call-to-buffettAny Berkshire Action Would Like Be Capital Injection, Not Acquisition
With all of that in mind, we would expect any action on the part of Berkshire-Buffett in the near term, with regards to the U.S. regional banks, to involve the same kind of capital injection (and Buffett seal of approval). This would be in exchange for high-coupon preferred stock (which is more tax efficient for an insurer) and warrants to buy common stock if anything happens at all. As such, that lifeline will not come cheap for those interested in going that route.
What we do not expect to see is Berkshire stepping in and buying a bank. The firm has shown no interest in holding more than a 10%-15% stake in a U.S. bank primarily because ownership above that threshold comes with reporting requirements and oversight from the regulators that Berkshire is not all that interested in adhering to.
Whether you agree with him not, Bill Fleckenstein comes up with some great captions for his daily Market Rap commentaries (subscription required).
Chyron on BBG right now: "POWELL. YELLEN SAY CAPITAL AND LIQUIDITY OF US BANKS ARE STRONG"
Shades of Sunday evenings circa 2008....
The above is a complete and unedited transcript of a current article in The Washington Post.Credit Suisse, the battered Swiss banking giant, has agreed to a takeover by Switzerland’s largest bank, UBS — a move aimed at staving off immediate concerns of a disorderly bankruptcy and stemming panic about global financial turmoil.
UBS has agreed to buy Credit Suisse in an emergency deal that ties up two of Europe’s largest banks, Swiss authorities announced Sunday.
Swiss authorities are planning to speed up the process by circumventing laws that would require a shareholder vote, the Financial Times reported earlier Sunday. The Financial Times also reported that the value of the all-share deal was more than $2 billion, but that figure was not officially confirmed by the Swiss authorities.
A “swift and stabilizing solution was absolutely necessary,” Alain Berset, president of the Swiss Confederation, said in a Sunday afternoon news conference. The UBS deal, he said, was “the best solution for restoring the confidence that has been lacking in financial markets recently.”
In a joint statement Sunday afternoon, Treasury Secretary Janet L. Yellen and Federal Reserve Chair Jerome H. Powell said that they “welcome” the announcement.
“The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient,” Yellen and Powell wrote. “We have been in close contact with our international counterparts to support their implementation.”
Credit Suisse and UBS did not immediately respond to requests for comment.
The takeover caps more than a week of speculation over the Swiss giant’s fate amid growing fears of a global financial crisis, after two U.S. regional banks suddenly failed earlier this month. Although U.S. regulators have taken sweeping steps, including backstopping deposits at Silicon Valley Bank and Signature Bank of New York, those measures have done little to assuage fears of a cascading banking crisis.
Those concerns went global this week, after Credit Suisse warned of “material weaknesses” in its financial reporting. On Thursday, the bank received $53.7 billion in emergency funds from Switzerland’s central bank, but it wasn’t enough to restore confidence in the bank’s viability. Shares of Credit Suisse have tumbled more than 20 percent in the past week, and more than 35 percent this year.
The past week has raised new questions on what it will take to avert another crisis. On Sunday, Sen. Elizabeth Warren (D-Mass.) called on Congress to lift the federal insurance cap for bank deposits above $250,000. She also urged lawmakers to repeal a provision of the 2018 law that had loosened restrictions on banks with $50 billion or more in assets, saying the latest tumult in the financial system underscored her belief that the Fed has fallen short on its core duties.
The above section contains excerpts from a lengthy article in The New York Times, which was heavily edited for brevity.Banks are teetering as customers yank their deposits. Markets are seesawing as investors scurry toward safety. Regulators are scrambling after years of complacency.
The sudden collapses of Silicon Valley Bank and Signature Bank — the biggest bank failures since the Great Recession — have put the precariousness of lenders in stark relief. The problem for SVB was that it held many bonds that were bought back when interest rates were low. Over the past year, the Federal Reserve has raised interest rates eight times. As rates went up, newer versions of bonds became more valuable to investors than those SVB was holding.
The bank racked up nearly $2 billion in losses. Those losses set off alarms with investors and some of the bank’s customers, who began withdrawing their money — a classic bank run was underway.
Even before SVB capsized, investors were racing to figure out which other banks might be susceptible to similar spirals. One bright red flag: large losses in a bank’s bond portfolios. These are known as unrealized losses — they turn into real losses only if the banks have to sell the assets. These unrealized losses are especially notable as a percentage of a bank’s deposits — a crucial metric, since more losses mean a greater chance of a bank struggling to repay its customers.
At the end of last year U.S. banks were facing more than $600 billion of unrealized losses because of rising rates, federal regulators estimated. Those losses had the potential to chew through more than one-third of banks’ so-called capital buffers, which are meant to protect depositors from losses. The thinner a bank’s capital buffers, the greater its customers’ risk of losing money and the more likely investors and customers are to flee.
But the $600 billion figure, which accounted for a limited set of a bank’s assets, might understate the severity of the industry’s potential losses. This week alone, two separate groups of academics released papers estimating that banks were facing at least $1.7 trillion in potential losses.
Midsize banks like SVB do not have the same regulatory oversight as the nation’s biggest banks, who, among other provisions, are subject to tougher requirements to have a certain amount of reserves in moments of crisis. But no bank is completely immune to a run.
First Republic Bank was forced to seek a lifeline this week, receiving tens of billions of dollars from other banks. On Thursday, the U.S. authorities helped organize an industry bailout of First Republic — one of the large banks that had attracted particular attention from nervous investors.
The troubles lurking in the balance sheets of small banks could have a large effect on the economy. The banks could change their lending standards in order to shore up their finances, making it harder for a person to take out a mortgage or a business to get a loan to expand.
Analysts at Goldman believe that this will have the same impact as a Fed interest rate increase of up to half a point. Economists have been debating whether the Fed should stop raising rates because of the financial turmoil, and futures markets suggest that many traders believe it could begin cutting rates before the end of the year.
On Friday, investors continued to pummel the shares of regional bank stocks. First Republic’s stock is down more than 80 percent for the year, and other regional banks like Pacific Western and Western Alliance have lost more than half their values.
Investors, in other words, are far from convinced that the crisis is over.
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