The Banking Crisis Saw Major Banks Emerge As The Victors


The collapse of Silicon Valley Bank and the subsequent US regional banking crisis earlier this year had significant economic and regulatory implications for financial institutions worldwide. Some of these consequences may continue to affect the industry for years. However, with the immediate crisis abating, certain institutions have emerged as clear winners.

Shares of UBS (UBS) have surged by approximately 20% since they rescued Credit Suisse from potential collapse. Just last week, UBS reported a record-breaking quarterly profit of $29 billion, primarily attributed to the difference between Credit Suisse’s balance sheet value and the $3.8 billion UBS paid to acquire the bank.

JPMorgan Chase (JPM) has seen its shares rise by over 6% following its acquisition of First Republic Bank, with the bank also reporting record-high profits after the merger.

Despite UBS facing the substantial and risky challenge of integrating a bank once considered “too big to fail,” what initially appeared to be altruistic actions by major financial institutions to stabilize the banking system have turned into substantial victories for some of the world’s largest banks.

In a discussion with David Kotok of Cumberland Advisors, an investment advisory firm with approximately $2.2 billion in stock holdings, the topic shifted to identifying winners and losers in the banking sector following the recent regional banking crisis:

David Kotok: There’s no doubt that the global systemically important banks (G-SIBs) emerged as winners, while mid-sized banks, those with assets ranging from $50 billion to $250 billion, suffered losses. There are proposals for mid-sized banks with assets of $100 billion or more to issue debt to bolster their capital, and this has encountered opposition. Additionally, there’s an ongoing effort to revise G-SIB rules, introducing uncertainty into the majority of assets in the banking system.

Given these uncertainties, prudence dictates avoiding the banking sector, which is why our portfolio contains no bank ETFs.

UBS and JPMorgan Chase have both seen significant success after their respective acquisitions during the regional banking crisis. Jamie Dimon, the CEO of JPMorgan Chase, played a pivotal role in resolving the crisis, and now the bank is benefiting even more than anticipated.

JPMorgan is a unique institution with the highest G-SIB rating among the eight in the United States. It has historically played a crucial role in maintaining financial stability and continues to do so today.

However, despite these developments, banking stocks are not currently attractive investments due to the challenges they face.

Regarding consolidation of regional banks:

Consolidation has been a long-term trend in the banking industry, with periodic pauses and new rounds of consolidation. Entry for new banks becomes more difficult, and big banks continue to grow larger, resulting in fewer players. This trend has persisted for decades and is expected to continue, as the trajectory is not linear but rather characterized by step functions. Despite political discussions, the concentration and consolidation of the banking sector are likely to persist.