A construction site security guard outside a bank branch of Credit Suisse Group AG in Bern, Switzerland, on Monday, March 20, 2023.
Stefan Wermuth | Bloomberg | Getty Images
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The planned takeover of Credit Suisse by UBS calmed the market somewhat. However, broader market conditions still look unstable.
- Another big loser: owners of Credit Suisse’s so-called additional tier 1 bonds, which were worth 16 billion Swiss francs ($17 billion) – but are now worth nothing. Unsurprisingly, bondholders are not happy about it.
- PRO UBS’ acquisition of Credit Suisse could bring it big profits — and other major US banks could benefit, analysts say. As Wells Fargo’s Mike Mayo put it, “Goliath is winning.”
Named after the economist Hyman Minsky, the “Minsky moment” is a sudden collapse of the market after a long period of aggressive speculation caused by easy money. Markets could soon experience a Minsky moment, warned Marko Kolanovic, JPMorgan Chase’s chief market strategist and co-head of global research.
The markets have not collapsed. Some bank stocks are in the doldrums, yes, but the SPDR S&P Regional Banking ETF, a fund of regional bank stocks, rose 1.11% on Monday. Major indices also rose yesterday. The Dow Jones Industrial Average gained 1.2%, the S&P 500 was up 0.89% and the Nasdaq Composite was up 0.39%.
But there are signs that market instability is increasing. The banking crisis is causing regional banks — which account for about a third of all lending in the United States — to reduce their lending, said Eric Diton, president and general manager of The Wealth Alliance. In other words, the availability of money in the economy decreases even without the Federal Reserve raising interest rates.
Speaking of interest rates, analysts seem to think there is no right way forward for the Fed. A rate hike “would be a mistake,” MKM Partners chief economist Michael Darda told CNBC. On the other hand, a pause would trigger “panic reactions from stock and bond investors,” according to Nationwide’s Mark Hackett. This suggests that the markets are already so jittery that whatever the Fed does, even if it’s nothing, could increase instability.
With that in mind, investors should perhaps heed Kolanovic’s warning that a Minsky moment could be on the horizon.
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