WeeklyWatch – Another US bank failure takes the shine off strong earnings elsewhere

3rd May 2023

Stock Take

Mixed messages for investors

Investors received good and bad news last week, as strong earnings from a number of large companies stood in contrast to the failure of another US bank.

First Republic Bank became the second largest bank to fail in US history, as well as the third bank to collapse since March, hot on the heels of Silicon Valley Bank and Signature Bank. JPMorgan Chase has agreed to buy First Republic’s assets and deposits, which may mitigate some of the wider harm that could have resulted from the bank’s failure.

Unsurprisingly, local US banks are now facing mounting pressure. The increasing interest rates over the past year – although helpful in tempering inflation – have added to the strain on borrowers. The recent bank failures in such a short period of time have also made investors and savers nervous about smaller US banks. A significant drop in deposits following the downfall of SVB was part of the problem for First Republic.

That said, Mark Dowding of BlueBay suggests that the root of First Republic’s issues was a mismatch between the maturity of assets and liabilities, leaving the bank vulnerable. However, he says:

“We would note that, generally speaking, banks are in a healthy position and are supported by solid interest margins and a relatively benign backdrop for credit quality. From that standpoint, it may be that issues pertaining to a small number of institutions need to be resolved, but we would disagree with any notion that we are witnessing developments which are more broadly systemic, in the way we observed with the Great Financial Crisis in 2008.”

Considering these difficulties, many experts are predicting that tougher rules will be implemented in response.

Other banks deliver strong results

Despite these pressures and failures, other large banks and financial institutions posted strong results last week, including Deutsche Bank, Barclays and Santander.

Eoin Walsh, Partner at TwentyFour Asset Management, noted:

“One of the more pleasing aspects of the earnings is that many of the banks did well because of increasing net interest margins, driven by higher rates – taking deposits and lending being the bread-and-butter business for most banks. Net interest income is stable and repeatable, which is why it is so important.”

Given the recent failure of Credit Suisse, strong results from its European peers will have buoyed investors.

The Fed’s meeting agenda plays out

Positive outcomes were not confined to banks and financial markets, however. Several large US technology companies reported strong earnings that boosted the tech-heavy NASDAQ by 1.28%. Despite the issues with First Republic Bank, the S&P 500 managed to record positive numbers for the week. The full effects of the bank’s failure and subsequent acquisition by JPMorgan Chase may be felt in the coming days, as the events occurred towards the end of the previous week and the beginning of this week.

Recent events will have given the Federal Reserve much to ponder ahead of this week’s monetary policy meeting. A 0.25% increase in rates has long been expected, but markets will be keen to gain any clues on where the Fed will go from here.

Local elections unlikely to move UK economy

In the UK, the FTSE 100 fell marginally due to economic concerns. Local elections are scheduled for later this week, and political leaders are currently releasing soundbites to try and improve their positions. Although locals will no doubt be keeping a keen eye on the results, Martin Walker, Invesco Head of UK Equities, suggests these elections may not hold much of note from an investment point of view:

“The outcome of the May election in Barnsley will have no discernible effect on the prospects for AstraZeneca’s world-leading immuno-oncology pipeline; the size of the swing in North Tyneside will not affect sales of Unilever in Indonesia. Yet together, these two companies alone comprise almost 12% of the FTSE All-Share Index.”

Wealth Check

Your family is priceless, but the fact remains that there’s a cost associated with raising a child. Recent numbers have revealed that raising a little one from birth to 18 in 2022 in the UK, including household and childcare costs, stood at £157,562 for a couple and £208,735 for a lone parent.1

Many parents are currently feeling the pinch due to the costs of raising a child and the increasing cost of living, making it difficult to think about funding future expenses like a car, university or a house deposit. However, building a nest egg for your child’s future doesn’t have to be expensive and can have a significant impact on their future.

Parents, grandparents and other family members can lay the groundwork for a child’s future financial security by starting to save early. Like the proverbial early bird, the earlier you invest, the more time your money has to grow.

What’s more, teaching children about saving and investing for the long term from an early age can encourage responsible habits that they will carry into adulthood. Remember that financial education in schools can be inconsistent, so the onus is very much on families to do the teaching.

Technically, children are liable to pay tax on savings, as they have the same income tax allowance as adults. It’s uncommon, though, as their savings don’t tend to earn enough interest to exceed any tax thresholds.

Like adults, children in the UK are entitled to a tax-free personal allowance of £12,570 in the 2023/24 tax year. If this income is from savings interest, there are extra tax-free allowances in addition to the personal allowance, allowing a child to potentially earn up to £18,570 tax-free in the 2023/24 tax year. This could be increased if you include the dividend allowance of £1,000.

Help to set your children up for a life of financial well-being by finding out about the smartest ways to save for them with the help of a financial adviser. Get in touch with us today!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.


1 Child Poverty Action Group, 2022

In the Picture

Different funds can offer notably different performance over the long term. However, it’s important to remember that they may have different objectives and goals.

Source: Financial Express. Bid to bid basis. Data as at 28 March 2023.

Please be aware past performance is not indicative of future performance. The value of an investment may fall as well as rise. You may get back less than the amount invested.

The Last Word

“Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

Martin Coleman from the Competition and Markets Authority explains why the CMA blocked Microsoft’s $68.7 billion acquisition of games publisher Activision.

BlueBay, TwentyFour Asset Management and Invesco are fund managers for SJP.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP Approved 02/05/2023