Malaysian banks rating intact despite US bank failures - RAM Ratings

 

Malaysian banks rating intact despite US bank failures - RAM Ratings

Publish date: Sat, 18 Mar 2023, 08:06 AM

KUALA LUMPUR - RAM Rating Services Bhd (RAM Ratings) sees no rating impact on Malaysian banks from the failure of the United States Silicon Valley Bank (SVB) and two other smaller banks last week.

The rating agency said that in Malaysia, banks' credit fundamentals remained robust and resilient supported by strong regulatory supervision to weather heightened volatility in global financial markets.

"Compared to SVB, we see fundamental differences in the business and balance sheet profiles of commercial banks in Malaysia.

"Domestic commercial banks typically engage in more lending activities as opposed to relying on bond investments which are exposed to market volatility. The proportion of domestic banking system assets invested in bond securities is less than 25 per cent," it said in a statement today.

SVB, on the other hand, had more than 50 per cent of its asset base in such securities, which led to huge unrealised losses amid rapid and steep interest rate hikes in the US.

Moreover, less than 40 per cent (on average) of bond holdings in Malaysia's eight major banks are classified as held to maturity (HTM), while the rest are marked to market.

"This means that fair value losses on bond securities are already largely reflected in the banks' capital position. In contrast, SVB classified almost 80 per cent of bond securities as HTM (only a little over 20 per cent were marked to market), indicating that unrealised losses had not yet been reflected in its equity.

"HTM bonds are carried at amortised cost in the balance sheet given the intention to hold these securities to maturity, so fair valuation losses are not captured in the capital," it said.

RAM Ratings said fair value losses in Malaysian banks were also significantly smaller, thanks to Bank Negara Malaysia's (BNM) milder pace of rate hikes and banks' prudent strategy of holding shorter-tenure bonds in recent times.

The domestic banking industry's common equity tier-1 capital ratio stayed at a robust 14.9 per cent at end-2022 from 2021's 15.5 per cent.

"Further valuation losses, if any, should be less severe given the central bank's cautious stance on further rate hikes," said the rating agency, adding that banks in Malaysia are predominantly funded by customer deposits, with high granularity.

Their liquidity profiles are also sound with liquid assets to deposits ratio of around 20 per cent and a net loans to deposits ratio of 88 per cent, it added.

According to BNM, domestic banks have no direct exposure to the three failed US banks.

"The central bank's robust prudential oversight and good track record - which have been evident in previous financial crises - should ensure the continued financial stability of the Malaysian banking system," it noted.

- BERNAMA

 

https://www.nst.com.my/business/2023/03/890196/malaysian-banks-rating-intact-despite-us-bank-failures-ram-ratings

Silicon Valley Bank Fails After Run on Deposits

 Silicon Valley Bank Fails After Run on Deposits

The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.

Silicon Valley Bank’s headquarters in Santa Clara, Calif., on Friday. Founded in 1983, Silicon Valley Bank was a big lender to tech start-ups.

By Emily Flitter and Rob Copeland

Emily Flitter and Rob Copeland cover Wall Street and finance.

March 10, 2023

Updated 9:42 p.m. ET

One of the most prominent lenders in the world of technology start-ups, struggling under the weight of ill-fated decisions and panicked customers, collapsed on Friday, forcing the federal government to step in.

The Federal Deposit Insurance Corporation said on Friday that it would take over Silicon Valley Bank, a 40-year-old institution based in Santa Clara, Calif. The bank’s failure is the second-largest in U.S. history, and the largest since the financial crisis of 2008.

The move put nearly $175 billion in customer deposits under the regulator’s control. While the swift downfall of the nation’s 16th largest bank evoked memories of the global financial panic of a decade and a half ago, it did not immediately touch off fears of widespread destruction in the financial industry or the global economy.

Silicon Valley Bank’s failure came two days after its emergency moves to handle withdrawal requests and a precipitous decline in the value of its investment holdings shocked Wall Street and depositors, sending its stock careening. The bank, which had $209 billion in assets at the end of 2022, had been working with financial advisers until Friday morning to find a buyer, a person with knowledge of the negotiations said.

While the woes facing Silicon Valley Bank are unique to it, a financial contagion appeared to spread through parts of the banking sector, prompting Treasury Secretary Janet Yellen to publicly reassure investors that the banking system was resilient.

Investors dumped stocks of peers of Silicon Valley Bank, including First Republic, Signature Bank and Western Alliance, many of which cater to start-up clients and have similar investment portfolios.

Trading in shares of at least five banks was halted repeatedly throughout the day as their steep declines triggered stock exchange volatility limits.

By comparison, some of the nation’s largest banks appeared more insulated from the fallout. After a slump on Thursday, shares of JPMorgan, Wells Fargo and Citigroup all were generally flat on Friday.

That’s because the biggest banks operate in a vastly different world. Their capital requirements are more stringent and they also have far broader deposit bases than banks like Silicon Valley, which do not attract masses of retail customers. Regulators have also tried to keep the big banks from focusing too heavily in a single area of business, and they have largely stayed away from riskier assets like cryptocurrencies.

Greg Becker, the president and chief executive of Silicon Valley Bank, last year. The bank’s downward spiral accelerated this week.

“I don’t think that this is an issue for the big banks — that’s the good news, they’re diversified,” said Sheila Bair, former chair of the F.D.I.C. Ms. Bair added that since the largest banks were required to hold cash equivalents even against the safest forms of government debt, they should be expected to have plenty of liquidity.

On Friday, Ms. Yellen discussed the issues surrounding Silicon Valley Bank with banking regulators, according to a statement from the Treasury Department.

Representatives from the Federal Reserve and the F.D.I.C. also held a bipartisan briefing for members of Congress organized by Maxine Waters, a Democrat from California and the ranking member of the House Financial Services Committee, according to a person familiar with the matter.

Silicon Valley Bank’s downward spiral accelerated with incredible speed this week, but its troubles have been brewing for more than a year. Founded in 1983, the bank had long been a go-to lender for start-ups and their executives.

Though the bank advertised itself as a “partner for the innovation economy,” some decidedly old-fashioned decisions led to this moment.

Flush with cash from high-flying start-ups that had raised a lot of money from venture capitalists, Silicon Valley Bank did what all banks do: It kept a fraction of the deposits on hand and invested the rest with the hope of earning a return. In particular, the bank put a large share of customer deposits into long-dated Treasury bonds and mortgage bonds which promised modest, steady returns when interest rates were low.

That had worked well for years. The bank’s deposits doubled to $102 billion at the end of 2020 from $49 billion in 2018. One year later, in 2021, it had $189.2 billion in its coffers as start-ups and technology companies enjoyed heady profits during the pandemic.

But it bought huge amounts of bonds just before the Federal Reserve began to raise interest rates a little more than a year ago, then failed to make provisions for the possibility that interest rates would rise very quickly. As rates rose, those holdings became less attractive because newer government bonds paid more in interest.

That might not have mattered so long as the bank’s clients didn’t ask for their money back. But because the gusher of start-up funding slowed at the same time as interest rates were rising, the bank’s clients began to withdraw more of their money.

To pay those redemption requests, Silicon Valley Bank sold off some of its investments. In its surprise disclosure on Wednesday, the bank admitted that it had lost nearly $2 billion when it was all but forced sell some of its holdings.

“It’s the classic Jimmy Stewart problem,” said Ms. Bair, referring to the actor who played a banker trying to stave off a bank run in the film “It’s a Wonderful Life.” “If everybody starts withdrawing money all at once, the bank has to start selling some of its assets to give money back to depositors.”

Those fears set off investor worries about some of the regional banks. Like Silicon Valley Bank, Signature Bank is also a lender that caters to the start-up community. It’s perhaps best known for its connections to former President Donald J. Trump and his family.

First Republic Bank, a San Francisco-based lender focused on wealth management and private banking services for high net worth clients in the tech industry, warned recently that its ability to earn profits is being hampered by rising interest rates. Its Phoenix-based peer in the wealth management industry, Western Alliance Bank, is facing similar pressures.

Separately, another bank, Silvergate, said on Wednesday that it was shutting down its operations and liquidating after suffering heavy losses from its exposure to the cryptocurrency industry.

A First Republic spokesman responded to a request for comment by sharing a filing the bank made to the Securities and Exchange Commission on Friday stating that its deposit base was “strong and very-well diversified” and that its “liquidity position remains very strong.”

A Western Alliance spokeswoman pointed to a news release by the bank on Friday describing the condition of its balance sheet. “Deposits remain strong,” the statement said. “Asset quality remains excellent.”

Representatives of Signature and Silicon Valley Bank had no comment. Representatives for the Federal Reserve and F.D.I.C. declined to comment.

Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.

In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which reduced how frequently banks with assets between $100 billion and $250 billion had to submit to stress tests by the Fed.

At the end of 2016, Silicon Valley Bank’s asset size was $45 billion. It had jumped to more than $115 billion by the end of 2020.

Friday’s upheaval raised uncomfortable parallels to the 2008 financial crisis. Although it’s not uncommon for small banks to fail, the last time a bank of this magnitude unraveled was in 2008, when the F.D.I.C. took over Washington Mutual.

The F.D.I.C. rarely takes over banks when the markets are open, preferring to put a failing institution into receivership on a Friday after business has closed for the weekend. But the banking regulator put out a news release in the first few hours of trading on Friday, saying that it created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one.

The regulator said that the new entity would be operating by Monday and that checks issued by the old bank would continue to clear. While customers with deposits of up to $250,000 — the maximum covered by F.D.I.C. insurance — will be made whole, there’s no guarantee that depositors with larger amounts in their accounts will get all of their money back.

Those customers will be given certificates for their uninsured funds, meaning they would be among the first in line to be paid back with funds recovered while the F.D.I.C. holds Silicon Valley Bank in receivership — although they might not get all of their money back.

When the California bank IndyMac failed in July 2008, it, like Silicon Valley Bank, did not have an immediate buyer. The F.D.I.C. held IndyMac in receivership until March 2009, and large depositors eventually only received 50 percent of their uninsured funds back. When Washington Mutual was bought by JPMorgan Chase, account holders were made whole.

Emily Flitter covers finance. She is the author of “The White Wall: How Big Finance Bankrupts Black America.” @FlitterOnFraud

Rob Copeland covers Wall Street and banking. @realrobcopeland

https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html

Cyprus' Unprecedented Bailout: More Common Than You Think

By Morgan Housel 

March 18, 2013 

The tiny nation of Cyprus was bailed out by its eurozone partners and the IMF this weekend. That much is barely news. The bailout of a country with a broken banking system is now known as a slow Sunday.

But there was something different about Cyprus' bailout that sent shivers through the global banking system. Deposit holders in Cyprus banks are being forced to pay for part of the deal. The original deal, which looks like it's now being revised as I write this, says those with 100,000 euros or more in Cyprus banks will have 9.9% of their deposits levied -- or taxed, or confiscated, or whatever you want to call it. Those with less than 100,000 euros will take a 6.75% haircut.

This is rare, if not unprecedented, in modern bank bailouts. Deposit holders have long been considered sacrosanct. In the U.S., we have the FDIC. A bank's shareholders can lose everything when it screws up. Bondholders can take a hit, too. But deposit holders, particularly small mom-and-pops, are typically untouchable. "The FDIC has a long history of stability and safety," says former chairwoman Sheila Bair. "No one has ever lost a penny of insured deposits." Europe can't say the same. 

But there's another side to this story.

If Cyprus had its own currency, it would be dealing with its economic problems by printing money. That would eventually cause inflation. How much? I don't know, let's say 6.75%. In that case, those with cash deposits in Cypriot banks would lose 6.75% of their money in real terms -- the same amount being directly confiscated on most deposits through the IMF bailout. 

Think of it that way, and Cyprus's bailout fee is only unprecedented in a semantic way. When a government directly takes 6.75% of deposits, people freak out. When the government takes money indirectly through 6.75% inflation, few are concerned.

There are two takeaways from this.

The obvious one is that Cypriots are getting a raw deal only if you consider the bailout fee in isolation. Compared with what would have likely occurred without a bailout, it isn't bad at all. Most estimates I've seen of what would happen if Cyprus were forced to leave the euro and return to its old currency predict a devaluation of 40% to 60%. The country was in a terrible position with no easy solutions. It took the least bad option.

The other takeaway is that when it comes to cash, the difference between inflation and a direct levy is minimal. Most don't think of inflation as a fee because they don't see money being directly removed from their bank accounts. But the effect on wealth is the same in the end. Sheila Bair is right that no one has ever directly lost a penny on FDIC-insured deposits. But an untold amount of deposit wealth has been lost to inflation.

I'm neither a conspiracy theorist nor a goldbug, and this is not an anti-Fed rant. There will always be inflation, and dealing with it is more useful than grumbling about it. There are plenty of options to invest money at rates of return above inflation. Charlie Munger once said: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not."

The problem is that so many investors have willingly made themselves subject to inflation's mercy, plowing into cash and bonds that yield less than inflation. They are subjecting themselves to their own mini-Cyprus bailout fee year after year.

What's unfortunate is that they may not even know it. Cypriots are well aware of their fee. They see the headlines. They'll see the withdrawals. Money here today will be gone tomorrow. Other people around the world who invest in the comfort of FDIC-insured cash and bonds yielding nothing, I'm afraid, are much less aware.

http://www.fool.com/investing/general/2013/03/18/cyprus-unprecedented-bailout-more-common-than-you.aspx

Spain's banks hold billions of euros in properties that will be tough to sell

The Real Threat Facing Spanish Lenders

Spain's banks hold billions of euros in properties that will be tough to sell

One analyst estimates it could take 40 years for banks to unload their holdings Denis Doyle/Bloomberg

While Europe’s sovereign debt crisis grabs all the headlines, distressed real estate may pose a bigger threat to the Spanish banking system. The country’s lenders hold about £30 billion ($41 billion) of unfinished homes and land that’s “unsellable,” according to Pablo Cantos, managing partner of MaC Group in Madrid. MaC Group is a risk adviser to several leading Spanish banks. “I’m really worried about the small and medium-size banks whose business is 100 percent in Spain and based on real estate growth,” says Cantos. He adds that only bigger, more diversified lenders such asBanco Santander (STD), Banco Bilbao Vizcaya Argentaria (BBVA), La Caixa, and Bankia are strong enough to survive their real estate losses: “I foresee Spain will be left with just four large banks.”

Spain’s central bank tightened rules last year to force lenders to set aside more reserves against property seized in exchange for unpaid debts and is pressing them to sell assets rather than wait for the market to recover from its four-year decline. Yet unloading the real estate may be difficult or impossible. Bank-owned land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos predicts. Fernando Rodríguez de Acuña Martínez, a consultant at Madrid-based adviser RR de Acuña & Asociados, has a more dire view. About 43 percent of unsold new homes are in exurbs far from city centers, he says, and “if you take into account population growth for these areas, there’s no demand for them. Not now or in 10 years.”

Dozens of Spanish banks have failed or been absorbed since the economic crisis ended a debt-fueled property boom in 2008. The cost to taxpayers of cleaning up the industry’s books has come to £17.7 billion so far. Banks may face increased pressure following Nov. 20 national elections that propelled the conservative People’s Party to power. Its leader, Mariano Rajoy, has said the “cleanup and restructuring” of the banking system is his top priority.

“Stricter provisioning rules for land need to be implemented,” says Luis de Guindos, director of PricewaterhouseCoopers and IE Business School Center for Finance. De Guindos has been named by newspapers as a contender for finance minister in a Rajoy government. “Many banks will be able to deal with it, but others won’t.”

Idealista, Spain’s largest real estate website, currently advertises 45,912 bank-owned homes there, up from 29,334 in November 2010. In 2008 it didn’t list any.

Spanish home prices have fallen 28 percent, on average, from their peak in April 2007, according to a Nov. 2 joint report by Fotocasa.es, a real estate website, and the IESE Business School. Land values fell 33 percent nationwide. Fernando Acuña Ruiz, managing partner of Taurus Iberica Asset Management, a Spanish mortgage servicer, expects the slide in home prices to continue. “Spain has 1 million new homes that won’t be completely absorbed by the market until the middle of 2017,” he says. “Prices will fall a further 15 percent to 20 percent in the next two to three years.”

Banks are reluctant to acknowledge the size of the declines. There is an “enormous” gap between prices offered by lenders and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos says. He estimates that prime assets can be sold at a 30 percent discount, while portfolios comprising land, residential, and commercial real estate may sell only after 70 percent discounts. “Therein lies the problem,” he says. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium-size banks can take such a hit?”

The bottom line: With home prices down 28 percent from the peak, real estate losses may swamp smaller lenders, leaving Spain with four big banks.

Smyth is a reporter for Bloomberg News.

Regulators Shut Small Minnesota Bank

May 21, 2010
Regulators Shut Small Minnesota Bank

By THE ASSOCIATED PRESS
Filed at 6:28 p.m. ET

WASHINGTON (AP) -- Regulators have shut down a small bank in Minnesota, bringing the number of U.S. bank failures this year to 73.

The Federal Deposit Insurance Corp. on Friday took over Pinehurst Bank, based in St. Paul, Minn., with $61.2 million in assets and $58.3 million in deposits. Coulee Bank, based in La Crosse, Wis., agreed to assume the assets and deposits of the failed bank.

The failure of Pinehurst Bank is expected to cost the deposit insurance fund about $6 million.

http://www.nytimes.com/aponline/2010/05/21/business/AP-US-Bank-Closures.html?_r=1&src=busln