FirstFT: Options trading surges as turmoil looms

Options trading is surging as investors brace for a fresh round of financial turmoil in US regional bank stocks, with lenders preparing to reveal how badly their earnings have been squeezed by the troubles that took down Silicon Valley Bank.

Since SVB’s collapse and the massive mid-March slide that came as a result, regional bank share prices have stabilised. Now, traders are buying record amounts of options tied to midsized lenders that had some of the highest volatility, according to Bloomberg data.

And several banks that were badly hit in the recent volatility — such as Citizens Financial, Charles Schwab and Keybank — have seen options interest hit record levels, while many more are at multiyear highs.

Pricing of the contracts suggests investors expect stock swings for some banks to be up to three times normal levels, according to analysis by RBC Capital Markets.

The interest in lenders including Citizens Financial and KeyBank, as well as Charles Schwab, an investment group with a banking licence, reflects the trouble facing midsized lenders: they have long played an outsized role in the US economy but face a diminished profit outlook, deposit outflows and tighter regulation that could test their ability to thrive.

Analysts at Morgan Stanley recently cut earnings estimates for regional banks by 20 per cent this year and nearly 30 per cent for 2024.

“The profitability of the sector has gotten a lot harder in the past month,” said Chris McGratty, who follows regional banks for KBW and expects the recent crisis will result in more mergers. “Bank boards are going to have to discuss whether it still makes sense to be an independent company.”

Here’s what I’m keeping tabs on today:

• Easter Monday: Many financial markets in Europe, Canada, and Hong Kong are closed today for the second day of Easter.

• Economic Data: Turkey releases its employment rate data for February today.

• Northern Ireland: The UK celebrates the 25th anniversary of the signing of the Good Friday Agreement that ended 30 years of conflict in Northern Ireland and set up the region’s current power-sharing agreement.

PS We’re launching a new newsletter on April 17: One Must-Read. The newsletter will bring readers the most exceptional story from the FT each weekday. Sign up by clicking here.

Five more top stories

1. Tesla plans to build a factory in Shanghai to produce its Megapack energy storage system, as chief executive Elon Musk resists rising opposition in Washington to US technology companies investing in China.

2. China holds a second day of military drills after Taiwan president Tsai Ing-wen’s US trip. The manoeuvres, which are said to run through Monday, began after Tsai returned late on Friday from the trip.

3. A Saudi delegation has arrived in Yemen for talks to end the war. The delegation, and a team from Oman which had mediated negotiations, are due to meet a top rebel leader in the Houthi capital Sana’a in the coming days.

4. Japanese pharma boss rules out an exit from China after executive’s arrest. Astellas chief executive Naoki Okamura said the company will diversify its supply chains, in the first comments since a local executive of the company was detained last month.

5. The Biden administration vows to fight a Texas judge’s ruling on abortion pills. Health secretary Xavier Becerra says “all options” are being considered to guarantee the availability of the abortion drug mifepristone.

The Big Read

After a painful 12 months, Warner Bros Discovery CEO David Zaslav is once again on the charm offensive. Hoping to repair ties with Hollywood’s talent community and improve morale among Warner staff — already bruised after several tumultuous years under AT&T’s leadership — he is promising to revive big Warner film franchises and prioritise full cinematic runs before moving to streaming services. Can he win back Hollywood?

We’re also reading . . . 

• Will AI solve my midlife crisis? The answers from a chatbot career coach are mind-numbingly obvious and matter-of-fact. But they may entice people to be more open, writes Emma Jacobs.

• Yotam Ottolenghi: The Israeli-born British chef talks about his unusual education, running his business like a kibbutz, and why he’s taking his brand to Paris in this week’s Lunch with the FT.

• DIY spirituality: With the decline of organised religion in the west, we are seeking solace in the strangest places, writes Camilla Cavendish.

Chart of the day

According to the Uzbek central bank, deposits in the country grew by UZS 60.5tn ($5.3bn) in 2022, twice as fast as the previous year, hinting at how Russians have retained access to international commerce despite international sanctions. Read the full story here.

Take a break from the news

Japanese photographer Mikiko Hara holds her camera — a 1930s German-made Ikonta — at chest height. She never uses a viewfinder. It’s as though she doesn’t want her eye to be too involved. Or at least to not let it overpower the moment itself. See more from Small Myths, her book of previously unpublished photographs, in this week’s FT Magazine.

Additional contributions from Tee Zhuo, Emily Goldberg and Vita Dadoo Lomeli