‘The Big Short' investor Michael Burry, who made millions of dollars for his investors by accurately predicting the housing crisis, has voiced his take on the ongoing situation in the U.S. banking industry.
"This crisis could resolve very quickly. I am not seeing true danger here," he said in his now-deleted tweet.
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Price Action: Burry's statement comes at a time when banking and financial stocks are taking a hard beating despite assurances from President Joe Biden himself to do whatever it takes to address the threat to the banking system. JPMorgan Chase & Co JPM shares closed 1.8% lower, Bank of America Corp BAC lost 5.81% while Morgan Stanley MS shares ended 2.29% lower. Western Alliance Bancorporation WAL shares lost 47.06% while PacWest Bancorp PACW lost 21.05%.
The magnitude of concerns is accurately reflected in the share price movement of First Republic Bank FRC. Shares of the lender closed 61.83% lower on Monday despite the bank releasing a statement the day before asserting it has strengthened its liquidity position.
FRC had said it enhanced and diversified its financial position through additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. First Republic's total available, unused liquidity to fund operations currently stands at over $70 billion, it added.
The crisis commenced with the winding down of the Silicon Valley Bank last week following which Signature Bank was closed by New York regulators. However, the pain seems to be far from over as is reflected in news from other quarters. Charles Schwab Corporation SCHW on Monday reported a 28% fall in average margin balances and a 4% drop in total client assets for February, increasing pressure on the company amid fears over the fallout from Silicon Valley Bank’s collapse, reported Reuters. Shares of the company closed 11.57% lower on Monday.
The Dilemma: Whether the crisis will be contained or will it spiral into something more sinister is yet to be seen. One thing is for sure – if the consumer price inflation comes in higher than expected, the Federal Reserve will find itself in a big dilemma. The question then would be whether to prioritize the inflation fight and hike rates or hold its rate hike for the time being in the wake of the banking crisis.
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