Distressed Signature Bank paper up; Credit Suisse drops, reports ‘material weakness’

By Cristal Cody

Tupelo, Miss., March 14 – Banks shook off some losses from the quick collapse Friday of Silicon Valley Bank, though some issuers remained under pressure on Tuesday.

Signature Bank, shut Sunday by New York state regulators, perked up on more than $100 million of bonds trading, a source said.

The bank’s distressed paper was trading about 1½ points to 2½ points higher on handles in the teens to low 20s.

The ease in overall market pressure Tuesday could be seen in the Fear Factor index, which had climbed more than 30% over the prior three sessions.

The CBOE Volatility index declined more than 8% to $24.29 by the end of the session.

Stocks also improved. The iShares iBoxx High Yield Corporate Bond ETF rose 53 cents, or 0.73%, to $73.57.

In economic data released Tuesday, the Consumer Price Index year over year declined to 6% in February from 6.4%, according to the U.S. Bureau of Labor Statistics.

The index rose a seasonally adjusted 0.4% in February after increasing 0.5% in January.

Confluence Investment Management said in a note on Monday it “appeared that the government’s response to the crisis prevented serious contagion to other financial institutions,” and it has seen “little indication of widespread debilitating bank runs.”

The heavy trading in the prior two sessions in SVB Financial Group’s securities amidst the seizure on Friday of the company’s Silicon Valley Bank slowed Tuesday with the paper seen trading about 2 points to over 5 points better in thin supply, a source said.

More than $2 billion of the company’s paper traded at distressed levels on Friday and Monday.

While the government announced plans to protect depositors, and the Federal Reserve Board said it will make available additional funding to eligible depository institutions, the impact from the downfall of three banks, including Silicon Valley Bank, Signature Bank and Silvergate Bank in the span of a week, continued to be felt Tuesday.

“My company's March 15 payroll is still in limbo (and I don't even bank at SVB, my payroll service does),” lamented Yahoo user Andrew on Tuesday.

Moody’s Investors Service said Monday that it changed the outlook on the U.S. banking system to negative from stable.

S&P Global Ratings reported on Tuesday that it “has not seen evidence that the unmanageable deposit outflows experienced at a few banks have widely spread across rated banks.”

Credit Suisse Group AG came under renewed pressure following the company’s annual financial report, and the paper gave back about 4 points to more than 8 points on more than $35 million of trading.

Credit Suisse acknowledged in its 2022 annual report published Tuesday a “material weakness” in its financial reporting as of Dec. 31, 2022.

Signature Bank higher

Signature Bank’s 4% notes due 2030 hit the 19½ bid area, up 2½ points, in one of the most active distressed issues seen on $69 million of volume, a source said.

The bank’s 4 1/8% notes due 2029 rallied 1½ points to 22½ bid on $46 million of paper changing hands Tuesday. The paper was yielding 128%.

The New York-based bank was closed Sunday by state regulators.

The Federal Deposit Insurance Corp. said all deposits in the 40-branch bank were transferred to Signature Bridge Bank, NA.

Credit Suisse declines

Credit Suisse’s paper gave back about 4 points to more than 8 points on more than $35 million of secondary supply on Tuesday, a source said.

The 9¾% perpetual securities dropped about 5 points by the day’s end to the 71½ bid range on $21 million of secondary trading on Tuesday, a source said.

Credit Suisse’s 5¼% perpetual securities (B1/B) declined more than 6 points to 52½ bid on $3.4 million of volume.

Credit Suisse said Tuesday in its 2022 annual report that net profit was down 7% from 2021, while customer deposits declined 28% in 2022. Assets under management also fell 13.4% in the prior year.

The Zurich-based financial services company has been underway with a restructuring of its investment bank since October.

Distressed index soft

S&P U.S. High Yield Corporate Distressed Bond index one-day returns opened the week soft at minus 0.82%.

Returns were up from minus 0.9% on Friday but remain down from the 0.57% gain posted in the same session a week ago.

Month-to-date returns declined to minus 2.17% from minus 1.36% ahead of the weekend.

Quarterly and year-to-date total returns decreased to 6.74% at the start of the week from 7.62% on Friday.

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