Mar 30, 2023
Blackstone’s Schwarzman Says US Banking Crisis Mostly ‘Solvable’
(Bloomberg) -- Blackstone Inc.’s Steve Schwarzman expects most US banks to withstand the current industry turmoil, blaming it on the after-effects of the pandemic and technology rather than a wave of bad loans.
The billionaire chief executive officer of the New York-based alternative asset manager said mobile phone apps that have enabled people to communicate and move their money quickly, coupled with a massive increase in deposits after the global coronavirus health crisis, led to the current tumult.
“The banking system is not in any type of conventional crisis,” Schwarzman said in an interview in Tokyo on Thursday. “We have just an interim issue with interest rates being up and we have a deposit issue caused by technology. And these are both solvable problems for the vast number of banks.”
Schwarzman is the latest executive to point to the role played by mobile banking, joining others including Citigroup Inc. CEO Jane Fraser who’ve weighed in on advancements that allow depositors to move millions of dollars with a few clicks of a button.
The rapid collapse of Silicon Valley Bank this month and two other regional US lenders has fueled concerns of contagion. The Federal Deposit Insurance Corp., facing $23 billion in costs from the failures, is considering steering a larger-than-usual portion of that burden to the nation’s biggest banks, Bloomberg News reported.
“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble,” the Blackstone co-founder said. “They responded with huge withdrawals in a very short period of time, collapsing the bank.”
While rising interest rates have decreased the value of bonds held by banks, most of them “are government securities so if you wait long enough, they will be repaid,” Schwarzman said. Loans are “in good shape” and lenders have much bigger capital buffers than 15 years ago, he added.
Read how rumors about SVB’s health quickly spread
Separately, European Central Bank Executive Board member Isabel Schnabel sounded upbeat at an event in Washington Wednesday, saying euro zone banks have not seen a loss of deposits despite the turbulence.
“We’ve seen some shift from overnight deposits into time deposits, but we’ve not seen a general deposit outflow of the banks,” she said. “For now the banking sector looks rather resilient.” She did warn that they would need to take a disinflationary effect into account, though it’s unsure how big that will be.
Read Schnabel’s comments here
However, Barclays Plc strategist Joseph Abate expects another wave of deposit outflows as rising interest rates make money-market funds more attractive.
The “recent tumult regarding deposit safety may have awakened ‘sleepy’ depositors and started what we believe will be a second wave” he wrote in a research note.
Charles Schwab Corp.’s clients are pulling cash out of the firm’s low-interest-rate bank accounts into money-market funds at a rate of $20 billion a month, Morgan Stanley analyst Michael Cyprys wrote in a report Thursday.
Restricted to Banking
In his Tokyo interview, Schwarzman made a distinction between banks and financial firms that don’t handle deposits.
“It’s important to understand that the risk is really restricted to the banking system because of the deposits, and has almost nothing to do with other types of financial institutions which don’t have the requirement to give people their money instantly.”
His firm’s flagship private real estate investment fund, Blackstone Real Estate Income Trust Inc., has also faced pressure from investors to pull out funds, leading to the restriction of withdrawals for four months.
But Schwarzman said Blackstone’s property investment is in good shape, noting that it has slashed investment in office buildings while other markets such as warehouses are doing well.
Schwarzman said he’s carefully watching whether the banking issues and higher interest rates will weaken global growth. It’s “logical” for the Federal Reserve’s rate hikes to slow the economy, putting pressure on asset valuations, he said.
That would provide buying opportunities for Blackstone, which had $187 billion in dry powder at the end of 2022.
“There will be a right time to be deploying a lot of that money,” he said.
--With assistance from Adam Haigh.
(Updates with comments by ECB’s Schnabel in eighth paragraph.)
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