Nothing New
Williams Nicolson Chairman Nick Bowers was formerly Head of U.K. Equities at Goldman Sachs, and Head of Corporate Broking at Credit Suisse and Deutsche Bank. Nick shares his thoughts on a tumultuous fortnight in the financial markets.
The rapid rise in global interest rates to control inflation and the ending of quantitative easing has inevitably created challenges for financial markets and institutions.
The response by central banks to a brewing crisis has been speedy and impressive. In the US the depositors and assets of the stricken Silicon Valley Bank were protected and new owners found. Liquidity has been provided to other institutions.
The merger of two giants UBS and Credit Suisse was conducted over a weekend by the Swiss authorities. Communication by central banks and governments has been clear and decisive.
A difficult period lies ahead.
What kind of crisis is this ? How will it impact the real economy? It is probable that this is not another 2008. Banks are well capitalised and confidence has been buttressed. Some compare this period to the US Savings and Loans crisis of the late 80s and early 90s. Smaller savings banks suffered as interest rates rose and institutions had to be bailed out over a multi-year period. This time there is speculation there will be a tougher environment for real estate and venture capital.
The investor who so successfully executed the Big Short, Michael Burry, sees this as akin to The Panic of 1907 when the individual Mr. J P Morgan stood behind the US financial sector and a collapse of confidence was relatively quickly averted. A series of rolling problems thereafter led to the creation of the Federal Reserve.
The expectation of less lending to corporates driven by higher capital and liquidity requirements for banks has increased fears of slower growth and it is likely corporates will use capital markets to raise funds.
Looking at the history of financial markets though there is perhaps nothing new under the sun. The growth drivers of the technology revolution and global competition will continue to power the world forward. Clear communication in this uncertain - but undoubtedly opportunity rich - environment remains at a premium.