The race for bank deposits

One thing to start: Rupert Murdoch’s Fox has agreed to pay $787.5mn to settle a landmark defamation case in which it was accused of broadcasting false accusations of US election fraud, according to a lawyer for voting machine maker Dominion.

In today’s newsletter:

• Banks capitalise on fleeing depositors

• Biotech M&A makes a breakthrough

• Telling private bankers to be discreet

Wall Street’s battle for bank deposits

When the Federal Reserve increased interest rates from 0 per cent to nearly 5 per cent, the move began to eat up the cash that leveraged companies and commercial property groups loaded up with floating rate debt generated.

But for many on Wall Street, the big surprise of 2023 is that higher base rates have caused a slow-motion banking crisis well before an expected wave of corporate distress emerged.

Big banks have been steadily losing deposits for the past year as customers rerouted their cash to higher-yielding products such as money market funds. It has led to an existential issue for some large US regional lenders.

After the collapse of Silicon Valley Bank exposed the pressure banks face as rates normalise, billions more in deposits fled smaller lenders, kicking off a high-stakes race on Wall Street to hoover up the extra liquidity. JPMorgan Chase led the pack with $37bn in new deposits in the first quarter, bringing total deposits to $2.38tn.

“The number one, two or three things to watch this quarter are deposits, deposits, deposits,” Jason Goldberg, a research analyst at Barclays, told the FT earlier this month.

It’s not just regional lenders that have bled deposits. America’s largest brokerage Charles Schwab has been hit by a strategy of investing customer deposits in secure, long-dated bonds and mortgage-backed securities that have since lost billions in value.

GQG, one of Schwab’s biggest investors disclosed this week that it had sold its entire $1.4bn stake as concerns over paper losses on its bond portfolios spiked last month.

Though JPMorgan is pulling in cash during yet another crisis, its longtime boss Jamie Dimon isn’t getting too comfortable, warning investors on Friday that potential “storm clouds” are gathering as inflation threatens to tip the US into a recession.

Still, he has more to celebrate than his Wall Street counterpart David Solomon, head of Goldman Sachs, who must unwind strategic mistakes and navigate the economic turmoil.

Solomon has followed up an aggressive cost-cutting campaign with lacklustre earnings punctuated by an 18 per cent slump in the bank’s first-quarter profits because of poor fixed-income trading results.

Solomon has also slapped a “for sale” sign on home improvement lender GreenSky just 13 months after he steered its purchase for $2.2bn. It’s another step in paring back Goldman’s consumer banking ambitions.

Goldman’s latest collaboration with Apple has come at an opportune time, though, as US depositors explore greener pastures. On Monday, the duo launched a new savings account yielding 4.15 per cent a year, more than 10 times the national average rate.

Goldman has a chance to succeed in its newest push for deposits, but it will be a zero sum outcome. The money will have fled a bank or brokerage elsewhere in the financial system, underscoring that the havoc of rising rates still hasn’t fully filtered through Wall Street.

Biotech M&A on the mend

In the latest sign that the pharmaceutical market is warming up, GSK has agreed to buy Canadian biotech Bellus Health for $2bn. 

Bankers have been hoping that the diving valuations in the biotech sector, after a sell-off that started in 2021, would lead to a boom in M&A. Tempted by good deals, Big Pharma would seek drugs to restock pipelines.

But the past few months have shown that large drugmakers aren’t looking to scoop up undervalued assets. Rather, they are happy to pay a premium for companies with drugs that are in late-stage trials or already on the market.

GSK paid a more than 100 per cent premium for Bellus. And earlier this week, New Jersey pharma titan Merck paid a 75 per cent premium on its $10.8bn deal to buy Prometheus Biosciences.

There’s a method to Merck’s madness. The company could lose exclusivity over its best-selling cancer drug five years from now, and making expensive dealmaking bets has become a critical survival mechanism for industry heavyweights, Lex notes.

The deal comes just a few weeks after Pfizer spent $43bn on SeaGen, a cancer treatments maker previously pursued by Merck.

And while Pfizer only paid a 35 per cent premium to SeaGen’s previous Friday closing price, that’s just because the oncology-focused biotech had been in talks with buyers for several months. Pfizer’s price of $229 a share was far higher than Merck’s offer of $200 a share last summer, according to people familiar with the matter.

Flush with cash, pharma’s internal business development teams may be less interested in nabbing a bargain than ensuring their own job security, people familiar with the matter tell the FT’s Hannah Kuchler.

So instead of following the money, follow the clinical data: as assets get derisked, more bidding wars could ignite.

Private bankers, keep quiet

Three times a year, executives from some of the world’s biggest private banks — including JPMorgan, UBS and Citigroup — sit down with regulators in Singapore to discuss the city-state’s booming industry of private wealth management.

The forum, known as the Private Banking Industry Group, has been meeting for more than a decade. But the context has changed significantly in recent years as the super-wealthy — many of them from China — have poured larger and larger sums into Singapore.

The city-state has been trying hard to establish itself as a hub for private wealth. One banker based in Singapore said inflows from China “are probably overrunning” the “best expectations of what was going to happen”, DD’s Kaye Wiggins and the FT’s Mercedes Ruehl and Leo Lewis report.

That growth has brought difficulties. Singapore is trying to tread a careful path as a neutral financial centre at a time of rising tension between Washington and Beijing. An influx of Chinese money risks sparking a domestic pushback, widening the income gap as rents soar.

Multiple people who attended the meeting or were briefed on its contents told the FT that the Monetary Authority of Singapore gave a clear message: it wanted banks to avoid public discussion of the origins of the cash that has been flooding in.

That Singapore would send this message to private bankers, a group not known for high levels of transparency and disclosure about their work, is a sign of just how sensitive the issue has become.

After the FT’s story came out, the MAS published a statement on its website saying it “has not issued any directive to banks — tacit or otherwise — to avoid discussing the origins of wealth inflows into Singapore”. Which means, presumably, we can look forward to detailed disclosures from now on.

Job moves

• Hambro Perks chief and co-founder Dominic Perks has abruptly resigned from the venture capital firm and its listed investment vehicle, London’s first special purpose acquisition company.

• Deutsche Bank’s most senior retail banker and deputy chief executive Karl von Rohr is leaving in October.

• Bank of America plans to cut as many as 4,000 jobs before the end of June.

• Abrdn is axing about a fifth of its multi-asset team.

• Investec has hired Jefferies’ head of general industrials M&A Marc Potel as head of industrials M&A.

• Eversheds Sutherlands has poached Herbert Smith Freehills’ infrastructure M&A finance lead David Wyles as global co-head of energy and infrastructure finance.

• Law firm Covington & Burling has hired Megan Gates as a partner in its securities and capital markets practice. She joins from Mintz.

Smart reads

Wealth for the win Andy Saperstein was a long-shot to replace Morgan Stanley’s James Gorman. But the wealth boss is a safer bet in a market that has humbled Wall Street’s risk-takers, Bloomberg reports.

Balancing act Since George Osborne’s “twin peaks” regulation overhaul in 2013, the UK’s financial regulators have walked a political tightrope between risk and forging a post-Brexit future, the FT’s Laura Noonan writes.

Old habits die hard Despite a clampdown on betting sponsorships, UK football’s gambling ties will be hard to shake, the FT reports.

News round-up

Jamie Dimon to be questioned by Jes Staley’s counsel in Epstein case (FT)

THG boss says company will ‘double down’ on profits focus after annual loss widens (FT)

HSBC accused by top investor of ‘exaggerating’ break-up risks (FT)

Shipping group CMA CGM in talks to buy Bolloré Logistics (FT)

Liontrust among suitors for Zurich-listed asset manager GAM (Sky News)

Trump Spac pays $15,000 a month for office in Caribbean home (FT)

Pension fund Calstrs braced for writedowns in $50bn property portfolio (FT)

Former NFL player to acquire $7bn ETF shop (FT)