14 Mar : Is it SVB or VBS …

Within our South African context we’ve read about the VBS scandal enough to appreciate how 3 letters can make you break out in a cold sweat (mostly due to anger at the blatant corruption and lack of consequences). But this is not just a tale of South Africa, the headlines over the last week has been stolen (pun intended) by SVB (Silicon Valley Bank) a regional bank in the USA that was placed under govenrment control and where the US president promised depositors their money is safe.

Now for the second round of cold sweat… for those in the market long enough, the chaos of 2008 as the world’s banking industry went into a tail spin with the collapse of Lehman Brothers et al in the USA. The core of financial markets is built on trust in the value and safety of financial assets. Governments should provide that trust through policy and regulation, but the oil that keeps this system going is the banking industry that plays the pivotal role in connecting the humans in the street with the ability to access the financial markets.

So the question this morning is, is this the start of another collapse? is the banking industry as a whole more resilient than 2008? Should we be looking at taking our money out and buy hard assets (gold etc.)?.

For one, I’m of the view that as per many market corrections, this is another opportunity to reposition portfolios and look for value, this is not a collapse.

Looking at JPMorgan (JPM) overnight, we see that although the market is pricing banks lower (and this is mostly due to inverted yield curve on the US curve) there is no panic in the banking system as a whole. Below is a 6 month price view of JPM.

So to end with the infamous quote, now is the time to keep your head.

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too

Rudyard Kipling