Who Could Blame You For Thinking This About The Whole Bank Failure Thing?

Who could blame you for thinking what we're going to post now. We read the following during our daily perusal of financial reporting. You don't have to be particularly cynical for this to make a lot of sense.

“Goliath is winning,” Wells Fargo banking analyst Mike Mayo said in a research note on Monday as he singled out JPMorgan as a beneficiary “in these less certain times”.

None of that should be a surprise, and the real story behind the SIVB collapse emerged late last week when we reportedthat JPMorgan was seeking to convince some SVB customers to move their funds, in the process making the devastating and terminal SIVB bank run worse. Here is what we said:

Let us get this straight: the largest US commercial bank was actively soliciting the clients of one of its biggest competitors, and the 16th largest US bank, knowing full well deposit flight would almost certainly lead to the collapse of a bank which courtesy of fractional reserve banking, had only modest cash to satisfy deposit demands: certainly not enough to meet $42 billion in deposit outflows.

Of course, Jamie, who has suddenly emerged as a key figure in the Jeff Epstein scandal alongside Jes Staley, knows this, and would be delighted with an outcome that kills two birds with one stone: take his name off the front pages and also make JPMorgan even bigger. Actually three birds: remember it was JPM that started that "Not QE" Fed liquidity injection in Sept 2019 when the bank "suddenly" found itself reserve constrained. We doubt that JPM would mind greatly if Powell ended his rate hikes and eased/launched QE as a result of a bank crisis, a bank crisis that Jamie helped precipitate.

And while we wait to see if Dimon's participation in the Epstein scandal will now fade from media coverage, and whether Powell will launch QE, we know one thing for sure: JPM was a clear and immediate benefactor of SIVB's collapse because in a day when everything crashed, JPM stock was one of the handful that were up.

And so, just like the Lehman collapse made the remaining bailed out banks stronger, so the failure of a handful of regional banks not only allowed mega banks such as JPM and BofA - which have tens of billions in net unrealized losses on their HTM books to take advantage of the Fed's new bailout facility, the BTFP, but to also beef up their depositor bases while assuring that their profits rise too .

Almost as if it was all planned from the start...

(You can find the entire article HERE.)

A couple of comments:

Would it be surprising if it turned out the TBTF (Too Big To Fail) banks somehow (or outright) exacerbated the demise of SVB? Would it be a bit surprise if certain media "bites" that announced - over and over again - that people were "fleeing" regional banks with their money and sticking it in the likes of JPM Chase, BofA, Citi, etc.? The TBTF (Too Big To Fail) banks should have been broken up long ago, particularly after they were caught with their pants down during the 2008 crisis. Instead, the Fed supported them, bolstered them, with their rescue packages and subsequent ZIRP (zero interest rate policy) that lasted for years - to the detriment. 

How did they get away with all this? They simply spread the word 1) that it was necessary to "save" the financial system; 2) that it was good for country and the world, even 3) that it was good for you and me - even though it was all rubbish (at least the last two parts). 

Now we've got interest rates rising and undermining banks. And it's likely regional banks won't be the only ones undermined. Indeed, well-run regional banks may not suffer as much as - you guessed, the Big Guys.

Oh, and what's this? Credit Suisse, one of those Big Guys, had to be rescued (by the Swiss central bank). There will be more to come, of course.

(And, of course it already has with the close shave of First Republic Bank in the U.S. - this one "saved" by the Big Guys who chipped in an sent a big check over to the FR folks. Great guys, aren't they?)

But no surprise there, eh? They're (big banks/central banks) birds of a feather and as such simply continue to feather their nests. So while they should be broken up - should have been broken up a long time ago - don't hold your breath.

Now, expect all sorts of reasons why these failures were "one-offs." They're not. There's big trouble brewing. If you're not sure about that, recall this. Friday (St. Patrick's Day) marked the anniversary of the demise of Bear Stearns. And their collapse was a kind of kick start to the crisis of 2008. Add to this a comparison between the "reassurances" of Treasury Secretaries Hank Paulson (2008) and Janet Yellen: No worries. All is good. We've got this.

Paulson's reassurances were worthless. Yellen's likely will follow.

But, hey, it's the weekend before Monday, the first day of spring. Enjoy it.

Oh, and for all who know what this means: Sunday combines Laetare Sunday and St. Joseph's feast day - a rare combo that calls for a special observation and celebration. Double enjoy!