WTI Extends Gains After Unexpected Large Crude Draw

WTI Extends Gains After Unexpected Large Crude Draw

Oil prices extended gains today with WTI up near $74 as a disagreement between Iraq and Kurdish officials curtailed exports and fears of a banking meltdown receded somewhat.

A recent international ruling has resulted in at least a temporary halt of Kurdish oil exports through Turkey and the Ceyhan pipeline network, said Robbie Fraser, manager, global research & analytics at Schneider Electric, in a daily note. That’s impacting around 400,000 barrels per day or around 0.4% to 0.5% of global supply, he said.

“The ruling determined Iraq’s semi-autonomous Kurdish region could not export crude directly, but most do so with Baghdad’s approval and under the authority of the Iraqi central government,” said Fraser.

In the short-term all eyes will be back on crude stocks (after last week’s modest build while products saw big draws).


  • Crude -6.076mm (+300k exp) – biggest draw since 11/25/22

  • Cushing -2.388mm – biggest draw since Feb 2022

  • Gasoline -5.891mm (-1.6mm exp)

  • Distillates +548k (-1.1mm exp)

Against expectations of another small build, API reported a significant crude draw og over 6mm barrels. Cushing saw stocks fall and Gasoline inventories also drew-down significantly…

Source: Bloomberg

WTI was hovering around $73.40 ahead of the API print and is higher after…

Finally, as Bloomberg notes, while oil has rallied from recent lows as the banking sector stabilizes, it remains on track for a fifth monthly decline amid concerns over a potential US recession and resilient Russian energy flows. Most market watchers are still betting that China’s recovery will accelerate and boost prices later this year as demand rebounds.

Meanwhile, OPEC+ is showing no signs of adjusting oil production when it meets next week, staying the course amid turbulence in financial markets, delegates said. 

We also note that there is the ‘Biden Call’ sitting under the market as at some point he will have to start refilling the SPR.

Tyler Durden
Tue, 03/28/2023 – 16:37

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Culture Of Bailouts Is Destabilizing The Global Financial System

Culture Of Bailouts Is Destabilizing The Global Financial System

Authored by Ruchir Sharma, op-ed via The Financial Times,

A maximalist culture of bailouts and state support is bloating and thereby destabilising the global financial system…

As bank runs spread, it has become clear that anyone who questions a government rescue for those caught underfoot will be tarred as a latter-day liquidationist, like those who advised Herbert Hoover to let businesses fail after the crash of 1929.

Liquidationist is now challenging fascist as the most inaccurately thrown insult in politics. True, it’s no longer politically possible for governments not to stage rescues, but this is a snowballing problem of their own making. The past few decades of easy money created markets so large — nearing five times larger than the world economy — and so intertwined, that the failure of even a midsize bank risks global contagion.

More than low interest rates, the easy money era was shaped by an increasingly automatic state reflex to rescue — to rescue the economy from disappointing growth even during recoveries, to rescue not only banks and other companies but also households, industries, financial markets and foreign governments in times of crisis.

The latest bank runs show that the easy money era is not over. Inflation is back so central banks are tightening, but the rescue reflex is still gaining strength. The stronger it grows, the less dynamic capitalism becomes. In stark contrast to the minimalist state of the pre-1929 era, America now leads a rescue culture that keeps growing to new maximalist extremes.

Today’s troubles have been compared to bank runs of the 19th century, but rescues were rare in those days. America’s founding hostility to concentrated power had left it with limited central government and no central bank. In the absence of a financial system, trust was kept at a personal, not an institutional level. Before the civil war, private banks issued their own currencies and when trust failed, depositors fled.

Had the US Federal Reserve existed at the time, it would not have helped much. The ethos of contemporary European central banks was to help solvent banks with solid collateral — in practice they were tougher, protecting their own reserves and “turning away their correspondents in need”, as a Fed history puts it.

A restrained government was a key feature of the industrial revolution, marked by painful downturns and robust recoveries, resulting in strong productivity and higher per capita income growth. Right into the 1960s and 1970s, resistance to state rescues still ran deep, whether the supplicant was a major bank, a major corporation or New York City.

Though the early 1980s is seen as a pivotal moment of broader government retreat, in fact this era was marked by the rise of rescue culture when Continental Illinois became the first US bank deemed too big to fail. In a move that was radical then, reflexive now, the Federal Deposit Insurance Corporation extended unlimited protection to Continental depositors — just as it has done for SVB depositors.

Recent bank runs have been compared to the savings and loan crisis of the 1980s. Triggered in part by regulation that made it impossible for S&Ls to compete in an environment of rising rates, the crisis was resolved by regulators who wound down more than 700 of these “thrifts” at a cost to taxpayers of about $130bn. The first preventive rescue came in the late 1990s, when the Fed organised support for a hedge fund deeply tied to foreign markets, in order to avoid the threat of a systemic financial crisis.

Those rescues pale next to 2008 and 2020, when the Fed and Treasury smashed records for trillions of dollars created or extended in loans and bailouts to thousands of companies across finance and other industries at home and abroad. In each crisis, rescues held down the corporate default rate to levels that were unexpectedly low, compared with past patterns. They are doing the same now even as rates rise and bank runs begin.

The hazards are not just moral or speculative, as many insist — they are practical and present. The rescues have led to a massive misallocation of capital and a surge in the number of zombie firms, which contribute mightily to weakening business dynamism and productivity. In the US, total factor productivity growth fell to just 0.5 per cent after 2008, down from about 2 per cent between 1870 and the early 1970s.

Instead of re-energising the economy, the maximalist rescue culture is bloating and thereby destabilising the global financial system. As fragility grows, each new rescue hardens the case for the next one.

No one who thinks about it for more than a minute can wax nostalgic for the painful if productive chaos of the pre-1929 era.

But too few policymakers recognise that we are at an opposite extreme; constant rescues undermine capitalism. Government intervention eases the pain of crises but over time lowers productivity, economic growth and living standards.

*  *  *

The author is chair of Rockefeller International

Tyler Durden
Tue, 03/28/2023 – 16:20

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Banks & Big-Tech Breakdown, Credit Calm, Bitcoin & Bullion Bounce

Banks & Big-Tech Breakdown, Credit Calm, Bitcoin & Bullion Bounce

Yesterday’s early exuberance gave way to reality today as macro data and politics were back.

Consumer confidence lifted modestly today despite weakening home prices (7 straight months of declines), wholesale and retail inventories on the rise again (maybe consumer not so strong after all), and plunging Richmond Fed Business Conditions.

That all pushed the market dovishly, pricing in a 54% chance of a ‘pause’ by The Fed in May…

Source: Bloomberg

Regional Banks were dumped today as the Washington hearings on bank failures offered nothing but more regulation and more laws and tighter credit and tighter margins… and no bailouts…

With First Republic and PacWest spanked again…

As Bloomberg noted, the $30 billion Financial Select Sector SPDR Fund (XLF), which holds the financial-related components from the S&P 500 Index, is testing its highs from nearly 16 years ago, along with its lows of the past 18 months

Source: Bloomberg

“Triple bottoms are pretty rare, but the more times you test a given level, the more likely it is to break,” Jonathan Krinsky, chief market technician at BTIG, said.

“What has surprised a lot of people, including myself, is that the weakness in financials was a benefit to tech because a lot of funds went into technology. If you’re a long-only money manager with a cash mandate where you have to be fully invested and have been selling a lot of financials and cyclicals, you have to put your money somewhere. That’s part of the reason why tech has done well.”

And in case you thought that Europe was fixed, bank credit spreads remain notably more elevated than immediately after the CS bailout…

Source: Bloomberg

Broadly speaking, the US majors were all lower on the day, with Nasdaq leading the drop. The S&P joined Nasdaq in erasing all of yesterday’s gains. Small Caps remain the leader this week And The Dow is holding on to gains…

There was a last second jump in stocks on headlines (from Charlie Gasparino – so consider the source) that FRC is no longer for sale…

The S&P 500 fell back to its 100DMA…

The Dow was glued around its 200DMA…

No real attempt at a squeeze in the indices today as ‘most shorted’ stocks faded most of the day…

Source: Bloomberg

Interestingly, while banks were monkeyhammered, Office REITs/CRE stocks squeezed notably higher this afternoon…

Source: Bloomberg

Value has outperformed Growth for 3 straight days… but note where the reversal happened (this is Russell 1000 Value / Russell 1000 Growth)…

Source: Bloomberg

The market is pricing in a lot of uncertainty around this week’s PCE print…

Source: Bloomberg

Treasury yields ended the day higher but it was a very different day than we have seen recently with the long-end very quiet relative to recent chaos. The short-end was uglier but the belly was worse today, also again not quite so much panic selling (or buying)…

Source: Bloomberg

One thing of note was that today 5Y auction was strong – as opposed to yesterday’s ugly 2Y auction.

Also we note that while issuance has been non-existent since the start of March, yesterday saw a metric fuckton of European and US corporates issuing USD bonds (which helps explain the near vertical ramp across the curve from the middle of Friday’s session) as windows opened… and why today, without that rate-lock flow and corporate supply, yields actually traded in a narrow range…

Source: Bloomberg

One stand out on the curve that we haven’t discussed too much is the 3m2Y spread, which hit an all-time record low (inverted) this week at (-92bps)…

Source: Bloomberg

The dollar leaked lower for the second day in a row, back near post-FOMC lows…

Source: Bloomberg

After the Binance buggering yesterday, Bitcoin bounced back above $27,000…

Source: Bloomberg

But Ethereum really jumped, back above yesterday’s highs…

Source: Bloomberg

Gold gained on the day, finding support around $1950…

Oil prices rallied again today, with WTI within a tick of $74 ahead of tonight’s API inventory data…

Finally, we note that the market remains dramatically decoupled The Fed’s Dot-Plot (around 90bps more dovish)…

Source: Bloomberg

If The Fed is forced to cut rates that hard, it is not something to be ‘buy buy buy’-ing stocks over – either ‘hard landing’ or ‘banking crisis’ or both…

Tyler Durden
Tue, 03/28/2023 – 16:01

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Federal Agencies Keep Failing To Legally Interpret the Clean Water Act

A muddy stream flows through a field

Whether the Clean Water Act gives the federal government the power to regulate dry riverbeds, isolated streams, and land next to wetlands remains clear as mud, as a recent federal court decision illustrates.

This past Monday, the U.S. District Court for the Southern District of Texas issued a preliminary injunction against the recently finalized clean water regulations issued by the Environmental Protection Agency (EPA) and Army Corps of Engineers.

Judge Jeffrey Vincent Brown found that plaintiffs—the state governments of Texas and Idaho plus a long list of national trade associations—would likely prevail in their argument that the new rules amount to illegal and/or unconstitutional federal overreach.

The ruling makes the Biden administration the third presidential administration in a row to try and fail to establish a workable definition of which waters and properties are, in fact, governed by the 1972 Clean Water Act.

“We’ve been in this never-ending game of regulatory pingpong,” says Charles Yates, an attorney with the Pacific Legal Foundation (PLF). “The EPA and the Army Corps are batting zero on legally interpreting the” Clean Water Act.

That 1972 law requires that anyone discharging pollutants into “navigable waters”—defined as a territorial sea and the “waters of the United States” (WOTUS)—must first obtain a federal permit. Territorial seas are defined in the statute, but “waters of the United States” are not. It’s up to federal regulatory agencies and the courts to figure out what exactly that phrase means.

Environmentalists and successive Democratic administrations have pushed for an expansive WOTUS definition that would include almost every body of water, including small streams, ditches, and even land that’s only intermittently wet. The theory is that even discharges into tiny streams will eventually work their way into larger, navigable bodies of water. Therefore, they should be covered by the Clean Water Act’s regulations.

A long list of regulated industries, Republican-run state governments, and property rights advocates have all argued that this interpretation of the Clean Water Act would effectively give the federal government regulatory power over every piece of property in the country. That, they say, goes beyond the statute’s intent, as well as the Constitution’s limits on federal power.

Complicating things is a confusing 2006 U.S. Supreme Court ruling in the case Rapanos v United States in which no clear majority was able to establish a definition for “waters of the United States.”

In a plurality opinion in that case, Justice Antonin Scalia suggested a property would have to have a continuous surface connection to navigable waters in order to trigger the Clean Water Act. In a concurring opinion, Justice Anthony Kennedy suggested a broader, more convoluted “significant nexus” test that would cover wetlands if they “either alone or in combination with similarly situated lands in the region, significantly affect the chemical, physical, and biological integrity of other covered waters more readily understood as ‘navigable.'”

Since that case, it’s been an open question as to which test should apply. Regulatory agencies have also done their best to stretch the scope of the law.

The Obama administration published its own expansive Waters of the United States rule in 2015 that very quickly attracted a flurry of lawsuits. Judges in North Dakota, Texas, Georgia, and Oregon issued rulings staying the rule’s implementation in 27 states.

When the Trump administration tried to delay the implementation of the rule to 2020, the courts stopped that too, so the rule went into effect in 22 other states. (There was an open question over whether an injunction applied to New Mexico.)

In 2020, the Trump administration finalized its own replacement for the Obama administration’s rule. That rule was then vacated by a federal court in August 2021. By that time, the Biden administration was already working on reviving and tweaking the preexisting Obama rules.

That happened in January, precipitating the lawsuit from Texas, Idaho, and various trade association representing homebuilders, agricultural interests, and more. Last week’s ruling enjoins the new Biden rule in just Texas and Idaho.

The preliminary injunction is “a recognition from the court that what the agencies are doing here is not faithful to the text of the statute,” says Yates. “Guidance from the Supreme Court is really necessary before they can put together a rule that will survive judicial review.”

That guidance might soon be forthcoming.

Last year, the U.S. Supreme Court heard oral arguments in a potential landmark Clean Water Act case, Sackett v. EPA. The plaintiffs, Michael and Chantell Sackett, (who are represented by PLF) have been trying to build a home on their property in a residentially zoned, built-out subdivision in Idaho for 16 years.

Standing in their way has been the EPA, which says their landlocked property is a navigable water because it’s close to a stream that runs into a nearby lake and, therefore, meets Kennedy’s “significant nexus” test.

The agency insists that the couple needs a permit to move ahead with construction. Getting that permit could cost as much as $250,000. Preceding without a permit could see the Sacketts hit with daily fines of up to $75,000.

The Sacketts already won one Supreme Court case securing their right to sue the EPA.

Their second case argues that the scope of the Clean Water Act should be narrowed to exclude their landlocked property. They’ve suggested Scalia’s opinion in Rapanos requiring a continuous surface connection should be the standard.

The U.S. Court of Appeals for the 9th Circuit ruled against the Sacketts in an opinion that held that Kennedy’s “significant nexus” test should be the controlling standard for whether a property is subject to the Clean Water Act.

During oral arguments last October, conservative justices seemed pretty skeptical of the significant nexus test. Bloomberg Law reports that they didn’t seem fully on board with Scalia’s surface connection test either.

While the Sacketts’ case precedes the Biden administration rule, it could still upend the new regulations.

“If the Supreme Court were to enter a decision creating precedent that the significant nexus test was illegal, then substantial revisions would need to occur to the Biden rule because it would not pass muster,” says Yates.

In his opinion from last week, Brown wrote that the new EPA rule “ebbs beyond the already uncertain boundaries” of the significant nexus test. He also criticized the administration’s claim of Clean Water Act jurisdiction over all interstate waters, regardless of whether they’re navigable.

We’re still waiting on an opinion in the Sackett case. Yates says a ruling is essential to give landowners some clarity.

“Absent definitive guidance from the Supreme Court, a lawful and durable definition of navigable waters is going to remain elusive,” says Yates. “It’s ordinary landowners like the Sacketts, farmers, ranchers, people trying to use their land productively that have been stuck in the middle.”

The post Federal Agencies Keep Failing To Legally Interpret the Clean Water Act appeared first on Reason.com.

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Small Float SPACs Use Meme Playbook For Crazy Swings

Small Float SPACs Use Meme Playbook For Crazy Swings

By Bailey Lipschutz, Bloomberg ECB Watch reporter

The ailing SPAC market is getting wildly volatile as speculators pour into and out of low-float companies, ripping off the strategy that brought meme-stock mania to the masses.

The special-purpose acquisition company that merged with Ambipar Emergency Response spiked as much as 411% after its deal won shareholder approval on Feb. 28, only for Ambipar to slump below $10 after the tie-up was  completed. Lionheart III Corp. followed a similar trajectory in its merger with SMX Security Matters on March 7, while JATT Acquisition Corp. slumped before its tie-up with Zura Bio Ltd. and then soared after it.

“For the retail guy, it’s the same playbook that they have grown to know and love over the past three years: Find something that’s a low float, put it on a screener, once it starts to move tweet it out to your closest followers,” said Matthew Tuttle, CEO and CIO of Tuttle Capital Management. “Move a little bit, and all their followers will jump in.”

The volatility is being fueled by the low floats of many SPACs, with shareholders this year redeeming an average of almost 90% of their shares before any merger is completed. Holders in the two SPACs that merged with Ambipar and SMX Security cashed in more than 95% of their stock, leaving the blank-check companies with just 918,000 and 303,000 shares, respectively.

Data as of March 24 close

The volatility is reminiscent of meme-stock mania two years ago, where wild swings in stocks such as GameStop Corp. became commonplace. The video-game retailer’s market value rose more than 18 times in January 2021 to become larger than almost half of the companies in the S&P 500 Index — before it crashed.

Buying SPACs has become an equally profitable, and risky business. Take Intuitive Machines Inc., for example. The stock soared 1,200% in a raucous stretch early in the year to become the best performing ex-SPAC of 2023, before slumping roughly 92% from an intraday high of $136 on Feb. 22.

All told, 26 companies have gone public this year via SPAC merger, according to data compiled by Bloomberg. Of those, the median de-SPAC has shed one-third of its value, underperforming the S&P 500’s 3.6% gain.

“It’s the nature of the beast,” Tuttle said. “One day a stock can be the play, and once those guys leave, ka-boom, the stock tanks. Back in the old days when you saw a stock up big there it could be takeover speculation, there could be something real. And now you see stuff rallying based on air, and the last thing you want is to be the last guy in.”

Tyler Durden
Tue, 03/28/2023 – 15:45

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Baltimore City Mayor Blocks Toxic Ohio Train Waste From Being Dumped Into Treatment System

Baltimore City Mayor Blocks Toxic Ohio Train Waste From Being Dumped Into Treatment System

We have been following this developing story since Friday regarding the Biden administration’s Environmental Protection Agency (EPA) decision to transport toxic water from East Palestine, Ohio, to a water treatment facility in Baltimore. On Monday, local lawmakers from both Democratic and Republican parties united in expressing their concerns about the EPA’s strategy and how it would be devastating for the Chesapeake Bay. Now, the mayor of Baltimore has found a way to block the EPA’s plan. 

According to Fox Baltimore, Clean Harbors Environmental in Baltimore is set to receive the 675,000 gallons of the contaminated water as early as Thursday. They plan to flush the water into the city’s sewer lines, where it would then flow to the troubled Back River Wastewater Treatment Plant for processing.

However, the EPA’s grand plan might be put on hold after Baltimore City Mayor Brandon Scott said he found a way to block the toxic water from entering Baltimore: 

After legal review, the City’s Law Department has determined that the Department of Public Works has the authority to modify discharge permits in an effort to ‘safeguard Publicly Owned Treatment Works (POTW) from interference, pass-through, or contamination of treatment by-products.’ As such, I have directed DPW to modify Clean Harbor’s discharge permit to deny their request to discharge processed wastewater from the cleanup of the Norfolk Southern Railroad derailment into the city’s wastewater system after processing at a Clean Harbors facility. Clean Harbors has facilities across the country that may be better positioned to dispose of the treated wastewater, and we urge them to explore those alternatives.

The mayor continued:

Make no mistake – I stand against any efforts that could comprise the health and safety of our residents, and the environment.

In recent days, Baltimore lawmakers have issued statements highlighting that the treatment facility has had a history of numerous mishaps.

What’s alarming is that Biden’s EPA, supposedly committed to environmental justice, wants to send the toxic water to a troubled treatment plant and then release it in the Chesapeake Bay, the largest estuary in the US — something about this administration doesn’t pass the sniff test. 

Tyler Durden
Tue, 03/28/2023 – 15:25

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Fearing Credit Crunch, Hedge Funds Flee Petroleum

Fearing Credit Crunch, Hedge Funds Flee Petroleum

By John Kemp, Senior Market Analyst at Reuters

Portfolio investors sold oil-related futures and options contracts at the fastest rate for almost six years as traders prepared for the onset of a recession driven by tighter credit conditions in the aftermath of the banking crisis. Hedge funds and other money managers sold the equivalent of 142 million barrels in the six most important contracts in the seven days ending on March 21, after selling 139 million barrels in the week to March 14.

Total sales over the two weeks were the fastest for any fortnight since May 2017, according to records published by ICE Futures Europe and the U.S. Commodity Futures Trading Commission.

Fund managers have slashed their combined position to just 289 million barrels (6th percentile for all weeks since 2013) from 570 million (46th percentile) on March 7.  The fund community liquidated 163 million barrels of previous bullish long positions in the two most recent weeks, while establishing 115 million barrels of new bearish short ones.

As a result, the ratio of bullish longs to bearish shorts slumped to 2.16:1 (16th percentile) on March 21 from 5.38:1 (71st percentile) on March 7.

The most recent week saw heavy sales across the board, including Brent (-63 million barrels), NYMEX and ICE WTI (-48 million), U.S. gasoline (-15 million), U.S. diesel (-6 million) and European gas oil (-10 million).

In absolute terms, the change in positions over the two most recent weeks is one of the largest to occur in either direction in the last decade, three times more than average, implying a fundamental change in the outlook.


The banking crisis, which has resulted in the failure of several U.S. regional banks and the enforced rescue of Credit Suisse by UBS, is expected to result in a marked tightening of credit conditions.

Even before the crisis, economic growth in North America and Europe was expected to slow in response to persistent inflation, rising interest rates, and the squeeze on household and business spending. 

But credit creation and loan growth is now expected to decelerate more abruptly as financial institutions, especially smaller ones, attempt to fortify their balance sheets hurriedly to reduce the risk of runs. At the same time, Russia’s crude and diesel exports have continued uninterrupted, despite sanctions imposed by the United States and its allies, contributing to near-term supply in crude and product markets.

Doubts have also emerged about the speed of China’s rebound as the country’s manufacturers and service suppliers deal with cautious consumers following the lifting of coronavirus controls.

Crude has been hit hardest while contracts for refined fuels have held up more strongly because of the current low level of inventories and limits on refining capacity. The previously expected tightening of the production-consumption balance has been pushed further back into the second half of 2023.

Funds now anticipate a much larger surplus in the meantime, leading many to abandon bullish positions and create bearish ones, at least for the short term.

US Gas Positions

Hedge funds and other money managers increased their net position in U.S. Henry Hub natural gas futures and options for the sixth time in seven weeks over the seven days ending on March 21.

Working gas inventories remain well above the seasonal average, but with prices already close to the lowest level in real terms for three decades, the surplus is expected to erode over the remainder of 2023.

Ultra-low prices are likely to compel a slowdown in new drilling and well completions as well as encourage more gas-fired power generation at the expense of the remaining coal units.

The restart of exports from Freeport LNG following repairs and safety checks should also tighten the production-consumption-exports balance.

Anticipating the erosion of the surplus, funds have bought the equivalent of 774 billion cubic feet in the last seven weeks.

As a result, the fund community’s overall net position has been trimmed to 287 billion cubic feet (25th percentile for all weeks since 2010) from 1,061 bcf (9th percentile) on January 31.

Tyler Durden
Tue, 03/28/2023 – 15:02

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How The Collapse Of SVB Led To A $16 Billion Taxpayer-Funded Gift For One Bank

How The Collapse Of SVB Led To A $16 Billion Taxpayer-Funded Gift For One Bank

Something remarkable happened yesterday: just after midnight on Sunday night, the FDIC announced that a small bank which almost nobody had heard of before, First-Citizens Bank & Trust (FCNCA) would scoop up the remaining assets of the now defunct Silicon Valley Bank,which imploded on March 9 following a furious bank run, that saw $42BN in deposits drained in hours (and where another $100 billion in deposits were about to be yanked on Friday, which is why the FDIC stepped in and shuttered the bank before market open on Friday March 10)…

… and what happened next shocked everyone” FCNCA stock almost doubled, soaring to the highest on record.

But why would the value of the Raleigh, North Carolina-based First Citizens double in seconds if all it did buy assets which until just a few weeks ago were viewed as worthless. 

Well, because they were not worthless. Yes, SIVB certainly had its sahre of massive MTM losses on its HTM book (consisting primarily of Mortgage Backed Securities), but it also had solid loans and it is these loans that First Citizens bought for a song.

As the following chart annotated by Wasteland Capital shows, the deal that First Citizens inked was nothing short of spectacular and explains how the small bank managed to double its stock price overnight. Here is what happened:

  • In exchange for a discount bid of $16.5 billion, First Citizens acquired total assets of $110.1BN (including $35.3BN in cash), and $93.6BN in liabilities, including $56.5BN in deposits and $34.6BN in assumed borrowings.
  • More importantly, none of the $90BN in underwater HTM “investment securities” that sparked the crisis in the first place were acquired; no the US taxpayers got to keep those courtesy of the FDIC.
  • There’s more: to further sweeten the deal, the FDIC pledged even more taxpayer funds to “incentivize” First Citizens not to walk away, and it did so by signing a five-year loss share agreement according to which the FDIC will reimburse First Cititzens for 50% of losses on commercial loans in excess of $5 billion.

Source: https://twitter.com/ecommerceshares

Bottom line: virtually no risk – and what little risk is left after acquiring this portfolio of deeply discounted loans is shared 50-50 with US taxpayers – and only upside.

And how much did this sweet taxpayer-funded deal cost First Citizens? Why a “whopping” $500 million… when when netting out the actual asset bid of $16.5 billion means that First Citizens “paid” a negative $16 billion. Confused by the double negative? Here’s the bottom line: courtesy of US taxpayers (who ended up getting stuffed with the toxic garbage on Silicon Valley Bank’s balance sheet), First Citizens got $16 billion (and arguably much more) in assets for free. What’s more, FCNCA not only got $16BN in assets for free, but the combination of the two banks creates a $143 billion loan portfolio and turns the little-known North Carolina bank into one of the country’s largest lenders to the venture capital and private equity industries. It also means First Citizens will now be one of the top 15 US banks, with more assets than the likes of Morgan Stanley or American Express Co., according to Federal Reserve data!

One can see why the bank’s market cap doubled instantly (and has a lot more to go once the bank crisis fizzles, once rates are cut and once loan prices resume their climb).

To be sure, one could argue if this was such a sweetheart deal for First Citizens, why did other banks not join the bidding process. The answer to that has to do with the unique expertise of the bank’s CEO Frank B. Holding Jr., who has now scooped up at least a dozen failed banks since 2008.

“Let me say that this acquisition is compelling financially, strategically and operationally,” Holding, the 61-year-old chief executive officer of First Citizens and one of its largest individual shareholders, told analysts on a conference call on Monday. First Citizens’ stock soared after the announcement. “It is also a great illustration of regulators and banks working together to protect depositors.”

Frank B. Holding Jr.

Alternatively, it is a great illustration of how clueless government regulators use taxpayer funds to backstop deals that make billionaires even richer and while Elizabeth Warren still hasn’t figured out what happened here, she “native American” will sooner or later, at which point we will get countless kangaroo court hearings seeking an explanation from the FDIC how this wealth transfer was allowed to happen.

And while we wait, here is a snapshot of First Citizens’ unique history courtesy of Bloomberg:

First Citizens got its start with $10,000 in capital as the Bank of Smithfield in 1898, primarily serving North Carolina’s Johnston County. In 1935, Frank Holding’s grandfather R.P. Holding took over as president and chairman, leading the company until his death in the 1950s.

At that point, leadership of the bank transferred to his three sons, Robert Holding, Lewis R. Holding and Frank B. Holding. In the 1970s, the firm moved its headquarters to Raleigh as assets surpassed $1 billion for the first time, according to the company’s website.

It wasn’t until 1994 that First Citizens began opening branches outside its home state after acquiring a bank in West Virginia. A few years later, the company added a federal thrift subsidiary, allowing it to expand further across the country.

Frank B. Holding Jr. was named CEO of First Citizens in 2008, then chairman the following year, at the height of the global financial crisis. A handful of other bank executives – including Vice Chairman Hope Holding Bryant and President Peter Bristow – are also Holding family members.

“He sort of does look like the family banker,” said Lawrence Baxter, a Duke University School of Law professor who once was a First Citizens customer himself and regularly sees Holding in ads that are part of the bank’s PBS North Carolina sponsorship.

Family banker or not, Holding certainly is experienced in quickly assessing and scooping up distressed assets: since the global financial crisis, First Citizens has acquired lenders in a series of deals from Washington state to Wisconsin and Pennsylvania.

“First Citizens has a history of troubled banks,” said Herman Chan, an analyst with Bloomberg Intelligence. “It’s a strategy to grow the bank when times are difficult — to conduct M&A at advantageous prices.”

Like now.

Growth has come not only from failed-bank deals though: First Citizens last year completed the acquisition of the formerly high-profile CIT Group in a deal valued at more than $2 billion.

“In the long run, what you’ll get is more — more services, more ways to manage your money, more places to find us,” Holding told customers in a video announcing the takeover. “We’re not just making a bigger bank, we’re making an even better bank.”

The moves have meant First Citizens is now a national player, with more than 500 branches and private-banking offices spread across states as far away from its headquarters as Hawaii. With more than 10,000 employees, the lender offers the traditional businesses of banking to individual consumers and companies, and is also one of the largest lenders to the rail industry — even owning a fleet of rail cars and locomotives that it leases to railroads and shippers.

* *  *

While nowhere near close to Monday’s multi-billion gift, Frank Holding had already taken advantage of SVB’s collapse by joining other regional bank executives in snapping up shares of their companies. He spent $260,000 buying up First Citizens stock in early March for $650 a share, 30% below the company’s current share price of $910.

Some younger members of the Holding family are already working for the bank. Perry Bailey, Frank’s daughter, earned $224,082 working at First Citizens last year, while her cousin and Frank’s nephew John Patrick Connell pocketed $105,116 during the same period, according to regulatory disclosures.

Not surprisingly, Holding and his relatives have became part of the world’s ultra-rich through their banking business, becoming a billionaire finance dynasty split across at least five branches.

Like other billionaire dynasties, such as the Murdochs, the family has maintained a tight grip on the direction of their major asset, even though they don’t hold a majority of its equity, by employing a dual-class share structure. Frank Holding and his relatives hold Class B shares with 16 voting rights each, compared with the single vote for each of the Class A shares the banking dynasty also holds, and they’ve passed down their wealth generation to generation by shifting stock to scores of trusts.

Frank Holding and relatives listed as First Citizens shareholders oversee a stake worth more than $1.7 billion in First Citizens after the company’s shares surged 54% on Monday, erasing their sudden wealth slump from SVB’s collapse, according to the Bloomberg Billionaires Index. They’ve also received at least $35 million through dividends and share sales over the past four decades and diversified their fortunes into commercial real estate, farming and philanthropy.

And now, courtesy of the SIVB collapse, they are about to become even richer.

Tyler Durden
Tue, 03/28/2023 – 14:40

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Prof Suspended After Declaring It’s “More Admirable” To Shoot Down Than Shout Down Conservative Speakers

Prof Suspended After Declaring It’s “More Admirable” To Shoot Down Than Shout Down Conservative Speakers

Authored by Jonathan Turley,

A professor at Wayne State University in Detroit, Michigan, has been suspended after posting threatening statements on social media posts that suggested that people would be justified in killing speakers who hold opposing views on issues like transgender policies.

Wayne State University President M. Roy Wilson released a statement saying that an unnamed professor in the school’s English department made a social media post that is “at best, morally reprehensible and, at worst, criminal.” 

College Fix identified that professor as Steven Shaviro, who writes in the areas of film, music videos, and science fiction literature.

Wilson stated

“This morning, I was made aware of a social media post by a Wayne State University professor in our Department of English. We have on many occasions defended the right of free speech guaranteed by the First Amendment to the U.S. Constitution, but we feel this post far exceeds the bounds of reasonable or protected speech. It is, at best, morally reprehensible and, at worst, criminal.”

On one level, a suspension could be viewed as a necessary proactive step to guarantee that there is no real danger in this circumstance. Indeed, we have seen a strikingly different treatment given to academics on the right as opposed to the left in such actions.

Many conservative or libertarian professors find themselves suspended or under investigation for controversial tweets or jokes. Conversely, it is comparably rare to see such action against those on the left who use inflammatory language including professors advocating “detonating white people,” denouncing policecalling for Republicans to suffer,  strangling police officerscelebrating the death of conservativescalling for the killing of Trump supporters, supporting the murder of conservative protesters and other outrageous statements.

The most analogous case is that of University of Rhode Island professor Erik Loomis, who defended the murder of a conservative protester and said that he saw “nothing wrong” with such acts of violence. Yet, those extreme statements from the left are rarely subject to cancel campaigns or university actions.

I have generally supported academics on both sides on free speech and academic freedom grounds.

Loomis and Shaviro are examples of the violent rhetoric and intolerance of some in academia.

However, as will come as little surprise to many on this blog, I have concerns over more than a temporary suspension to investigate the matter. The intent of Dr. Shaviro is actually less clear than has been suggested in the press.

At the start, Shaviro insists that he does not advocate “violating federal and state criminal codes.” He then makes the violent reference as being better than shouting down opposing speakers. He warns that the left is being attacked for cancelling speakers when the debate should be over what Shaviro calls their own “reprehensible views.” He insists that these are efforts to trigger such responses to provoke an incident that discredits the left.”

Shaviro makes the extreme argument that “it is more admirable to kill a racist, homophobic, transphobic speaker than to shout them down.” He then makes this point even more menacing by referencing the assassination of Symon Petliura by Jewish anarchist Sholem Schwarzbard in 1926. Petliura was blamed for the killings of thousands of Jews during pogroms and Schwarzbard was acquitted.

Shaviro’s main point appears to be that the continued use of “deplatforming” or cancelling conservative speakers is ill-advised. He notably does not oppose such anti-free speech efforts as inimical to higher education, but only because they backfire in the press. In that sense, Shaviro appears no ally to free speech.

However, his rhetoric may be more reckless than intentional in encouraging violence.

The question is how the university should handle such extreme and chilling language.

This was not expressed in class and was done through Shaviro’s personal social media. 

Like Ilya Shapiro at Georgetown, it was a poorly considered tweet, though (unlike Shapiro) Shaviro has not taken down the tweet. In Shapiro’s case, he was put through a long investigation and the university effectively forced him off the faculty.

There is one difference between Shapiro and Shaviro (beyond a single letter):

Wayne State University is a state school and subject to the full weight of the First Amendment.

Shaviro could challenge the action as a denial of his free speech rights.

Once again, I believe an initial suspension could be upheld as the university assesses a danger. However, Shaviro does not appear a direct threat to others. Moreover, he can point to his precatory language on complying with state and federal law as negating the violent interpretation of his critics. He can also point to the word “more” as reflecting his point. He says it is “more admirable” than shouting down speakers. That does not mean that it is admirable or commendable (though his reference to Schwarzbard remains concerning). He was engaging in what I have called in my academic writings “rage rhetoric.” In my view, this is protected speech.

Shaviro’s words are worthy of our condemnation. However, a federal court could well order reinstatement if anything other than a temporary suspension for investigation is ordered by the university.

Tyler Durden
Tue, 03/28/2023 – 14:20

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Sotomayor Grills Government Lawyer Over Law ‘Criminalizing Words Related to Immigration’

US Supreme Court Justice Sonia Sotomayor

The U.S. Supreme Court heard oral arguments yesterday in United States v. Hansen, a case that asks whether a federal law that criminalizes the act of encouraging or inducing unlawful immigration violates the First Amendment. In the run-up to the oral arguments, free speech advocates lined up overwhelmingly against the law, with the Foundation for Individual Rights and Expression, the Cato Institute, and the Electronic Frontier Foundation among the groups who filed amicus briefs urging the law’s invalidation. Alas, judging by the tenor of the oral arguments, a majority of the Court seemed disinclined to adopt that sort of broad free speech stance in this case.

At least one justice, however, did seem quite open to overruling the law as an overbroad restriction that violated freedom of speech. “Under this statute,” observed Justice Sonia Sotomayor, “we’re criminalizing words related to immigration. And I thought there were only certain statutes that were immune to First Amendment challenges,” such as laws governing “obscenity” or “fighting words,” she said. “Otherwise, everything else is subject to the First Amendment and strict scrutiny. So why should we uphold a statute that criminalizes words?”

Sotomayor then pressed Principal Deputy Solicitor General Brian Fletcher to explain whether the federal government’s position would criminalize speech by U.S. citizens who tell their unlawfully present family members they are welcome to live with them. What about “the grandmother who lives with her family who’s illegal,” Sotomayor asked. “The grandmother tells her son she’s worried about the burden she’s putting on the family, and the son says, Abuelita, you are never a burden to us. If you want to live here—continue living here with us, your grandchildren love having you….Can [the government] prosecute this?”

Fletcher started to say, “I think not,” when Sotomayor swiftly cut him off. “Stop qualifying with ‘think,'” the justice told the government lawyer, “because the minute you start qualifying with ‘think,’ then you’re rendering asunder the First Amendment.” In other words, in the face of a broadly written law that seemingly criminalizes all sorts of lawful speech, why should anybody trust the government to act leniently?

This statute “criminalizes words,” Sotomayor stressed yet again. “Shouldn’t we be careful before we uphold that kind of statute?”

It was exactly the right question to ask. Regrettably, Sotomayor may soon find herself writing the right answer in dissent.

The post Sotomayor Grills Government Lawyer Over Law 'Criminalizing Words Related to Immigration' appeared first on Reason.com.

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