Bailouts are back, Fed outlook reassessed, Pfizer M&A

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By Geoffrey Smith — Bailouts are back. Tech bros and crypto firms breathe a sigh of relief as the Feds step in to guarantee all deposits at Silicon Valley Bank and Signature Bank, as well as create a new liquidity program to stop contagion to the broader banking sector. However, that has not stopped other West Coast banks from selling out in the premarket. The dollar plunges as markets bet the Federal Reserve will be too afraid of causing a crash to raise interest rates in March. Bond yields fall as the flight to safety outweighs any fear of future inflation. Crypto rises accordingly. And Pfizer stands to buy Seagen for DKK 43 billion. Here’s what you need to know in the financial markets on Monday, March 13.

1. Feds save tech bros

Federal authorities bailed out depositors at Silicon Valley Bank (NASDAQ: ) and Signature Bank (NASDAQ: ), aiming to fend off a race against the nation’s second-tier regional banks.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury Department said they will make sure the two banks honor all their deposits, the vast majority of which are above the $250,000 federally insured threshold.

They also created a new instrument, called the Bank Term Funding Plan (BTFP), which will allow banks to sell high-quality government bonds and other liquid assets to the Fed at par if they need to raise liquidity. The program will be stopped by $25B of taxpayer money.

The move means that the banks’ clients, many of them venture capitalists and crypto platforms, don’t have to bear the brunt of what appear to have been surprisingly basic risk management failures at the two banks.

2. Bank shares still fall despite bets on interest rate freezes

The signs of panic at the onset of financial instability led to a sharp and abrupt reassessment of the outlook for interest rates.

Goldman Sachs and others said they now expect the Fed to remain unchanged at the March meeting, against consensus for a 25 basis point hike before last week’s events. Decline and risk assets gained broad support after falling out of bed with a bump on Friday.

But if the Fed and Treasury thought they had drawn a line under the fiasco, they were sorely mistaken. Shares in First Republic Bank (NYSE: ), fell 60% in premarket trading, amid bets that it will be the next domino to fall, while PacWest Bancorp (NASDAQ: ) stock fell 40% and Western Alliance (NYSE: ) fell 45%.

Banks with high concentrations of volatile corporate deposits are considered most exposed due to liquidity concerns, while banks with more stable retail deposit bases are considered better insulated.

3. Store set to open mixed; Pfizer seen close to closing Seagen deal

Stocks more broadly struggled to make headway in pre-market trading, with many still jittery about the federal bailout of institutions that were largely unknown outside their respective niches until last week.

By 6:30 a.m. ET (10:30 GMT), they were down 34 points, or 0.1%, while they rose 0.2% and were up a more solid 0.6%. All three main treasury indexes had lost between 1% and 1.8% on Friday. European markets were more rattled, with the main benchmark indices losing over 2% each in early trade.

While the focus is likely to remain on the banking sector later ( HSBC ( LON: ) fell 4.3% after snapping up SVB’s UK operations for a nominal £1), other stocks in the news include Pfizer ( NYSE: ) which finally agreed to buying Seagen (NASDAQ: ) for $43B, and Novartis (NYSE: ), which outperformed after announcing a major new buyback program. A rumored deal to sell Qualtrics (NASDAQ: ) to Silver Lake for $12.5 billion couldn’t stop SAP (ETR: ) from falling nearly 3%. Boeing (NYSE: ) is bucking the trend with hopes of a big order from Saudi Arabia.

4. Crypto breathes a sigh of relief

One asset class with an unequivocal positive reaction to the weekend’s developments was crypto. Some of the biggest depositors in the two bailed-out banks were Coinbase (NASDAQ: ) and issuer Circle, both of which stood to lose a large portion of their reserves in the absence of a bailout.

USD Coin – a stablecoin designed to trade at $1 – had fallen as low as 88c over the weekend after Circle’s $3.3B exposure to Silicon Valley Bank (never a secret) became common knowledge. It had risen to 98.60 early Monday in New York, and is still trading at a clear discount to its face value. Coinbase shares, meanwhile, rose 3.3% in premarket trading.

Elsewhere, it gained 8.5% to $22,229, while rose 8.6% to $1,585, supported by the perception that the Fed will be forced to stop its rate hikes.

5. Oil down on fear of the economy; OPEC+ production stopped in February

Crude oil prices fell, with concerns about the long-term consequences of the US banking meltdown outweighing the sharp fall in the dollar, which would generally support prices.

By 6:45 a.m. ET, futures were down 1.3% at $75.64 a barrel. barrel, while they were down 1.2% to $81.76 a barrel. barrel.

Argus Media estimated that the OPEC+ bloc’s total output had remained stable in February despite pressure on Russia from tightened Western sanctions.

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