Power Lunch - Bank Blowup 3/13/23

Episode Date: March 13, 2023

We’re covering all of the angles of the Fed’s move to backstop depositors of the failed Silicon Valley Bank.We’ll look at what’s happening with other regional banks, and the impact on bond yields, mortgage rates, crypto, China & more.Plus, if failing banks get government backup, does that encourage the behavior that led to these issues in the first place? We’ll debate.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello, everyone. What a busy Monday it is. Welcome to Power Lunch alongside Kelly Evans. I'm Tyler Matheson, and we have a big show lined up for you with all the angles of the Fed's move to backstop the depositors of Silicon Valley Bank and others. We'll look at what's happening with other regional banks, the impact on bond yields and mortgage rates, bust a ripple through crypto, biotech, and even China. Plus the moral hazard question front and center. If failing banks get government backup, does that encourage the behavior that caused these problems? in the first place. Before that, let's get a check on the markets, which are impressively green, despite the tremendous pressure we're seeing on regional banks as well. That's why the Russell 2000s are down 1%. But the Dow is up 123 points right now, the S&P half a percent, the NASDAQ, more than 1%. We've got Dom Chu and Christina Parts in Evelace looking at all angles of the market action. Let's begin with Dom. Dom? All right, so Tyler Kelly, by far, no surprise. The worst performing sector in the S&P 500 is the financials, and banks are a big part of that.

story. If you look at what's happening now, we do have the biggest laggard by far in the S&P 500 as First Republic Bank. The shares are down 60% right now, but what you're seeing doesn't really tell the whole story of today's action because we've seen it stop and start and stop and start trading more times than I can count at this point. So the downside volatility is still there with what many consider to be now in the wake of Silicon Valley Bank and signature, the real epicenter for a lot of those ripple effects for banking possible contagion. So First Republic in the focus there. Also, other regional banks, as Tyler points out, very much indiscriminate almost at this point.

If you take a look at Pac-West, that's one of the names that we had talked about with regard to being on the West Coast, kind of geographically, more business-centric to what we've seen at First Republic. Western Alliance is well down 46 percent. Bank of Hawaii is down 18 percent. And even brokered Charles Schwab earlier today had to issue its own kind of statement on the record about its financial position being better than what some people are speculating it to be. So watch those names. And by the way, not just the regional banks and some of these brokerages. We're talking even the Money Center banks feeling the pain right now. Check out JPMorgan Chase, the bout performer, if you will, only down one and a third percent.

Bank of America is down nearly 4 percent. Morgan Stanley down one and a half percent and even Wells Fargo down close to 6 percent. So watch those banks, a big part of the story. Now let's send it over to Christina Parts and Evelas. What are you watching from the NASDAQ? Biotech surprisingly. And there's a lot of movement today, starting with Siegens, surging almost what? It's 16% right now after Pfizer agreed to buy the company for $43 billion.

Pfizer CEO was on our airways just earlier today and said, C-GIN has one of the greatest technologies to battle cancer. Another biotech name also making waves, Illumina, is leading the S&P 500 after news that activist investor Carl Icon is looking for a proxy fight. Icon wants to nominate at least three people to the company's board. And so that's why you're seeing the stock price up surge above 20% right now, tracking for its best day since 2012. but still down about 20% or over 20% just over the past year or so. And then last but not least, you spoke, Tyler, about the ripple effect. Well, SBB Bank will be removed from the S&P 500 after the close tomorrow. So that's Tuesday.

And will be replaced by Insulate Corporation. That's in insulin medical device room. And that's why you're seeing Insulate Corp shares up over 8.5% on the news. All right, Christina, thank you very much. Christina parts in Evelace. Now, we begin with the collapse of Silicon Valley Bank and what brought us to this very moment. SVB provided banking services and more to nearly half the country's venture capital-backed technology and life sciences firms. Now, the institution took their cash deposits and then invested them in longer-term debt securities, i.e. bonds, i.e. treasury bonds, mostly.

but that investment became overexposed amid Fed rate hikes and rising interest rates. A lot of those bonds were longer term in nature losing value as rates rose. As signs of turbulence, depositors began pulling money from the bank, leading to the largest bank failure since 2008. Contagent fears as a result of this collapse were widespread until the Federal Reserve then stepped in to backstop the deposits, which they did dramatically last night. Steve Leesman joins us now with more on those efforts.

We have not seen anything like this, Steve, in a long time. No, but, Tyler, that was an excellent explanation. And while the worst has been avoided, it appears, both banking stocks and fixed income markets trading with continued uncertainty, continued concern over whether enough has been done to fix the financial system. Krishna Guja of Evercore ISI writing today,

banks will remain under pressure from less states, and more expensive deposits. Attention will also turn to other parts of the financial system, including insurers and bank interest rates swap counterparties, carrying large, unrealized mark-to-market losses. Concern about the economic and financial fallout of SVB's demise showing up in a massive fall in the outlook for Fed rate hikes, the year-end funds rate, now trading around 4%.

Folks, last week it traded as high as 570, So 170 basis points of expected easing has now come to the into the market. Here's what's been done just to underscore what Tyler said. They guaranteed deposits at SVB, including the uninsured deposits, creating an implicit but not an explicit guarantee for other uninsured depositors at banks. They shut down signature, created a new fund at the Fed to finance bank assets, and they ease lending rules at the Fed's emergency discount window. So there are two opposing impacts on the economy.

Lower rates, including lower mortgage rates and higher valued bank collateral, could be inflationary, could help economic activity, but a need for banks to pay higher interest rates and depositors and overall uncertainty in the financial system could dampen the economy. Tyler? You know, Steve, one of the great lessons of investing always is to diversify. But this seems to be a bank whose corporate treasury did not diversify sufficiently. In other words, they had too much of one kind of security, and that would be long-dated treasuries at precisely the wrong time.

Is that at – that is one of the things, but not the only thing that it's at the heart of this debacle. Tyler, I hate to correct you in an amusing, somewhat amusing way, because they also had long-dated mortgage-backed securities, a lot of that, too. So they made two mistakes. But long-dated securities. as well. Long data security. I just wanted to add that it was also mortgage backs and treasuries. And the importance is they didn't have a diversified depositing base, depositor base.

They did not hedge the risk. And they also had, you know, a large percentage of their deposits were uninsured. So very flighty deposits. There were at least four things that went wrong. It's unclear to me why so many companies kept so much uninsured money at this account. The question is whether or not having the Fed's blessing and the Fed not saying anything or the supervisor not saying anything made people feel confident in this bank. It was indeed the 16th largest, had $209 billion of assets. Everybody did banking there. If you were, as you said at the top of the segment, Tyler, if you were in the business, you did your banking at Silicon Valley. All right, Steve Leesman. Thanks very much. We appreciate it.

President Biden this morning discussing the Silicon Valley Bank situation. Kayla Taushy joins us from Washington with those comments and the reaction across Washington, Kayla. Kelly, President Biden spoke this morning with the goal of restoring confidence that Main Street depositors do not have to move their money to a big bank and to restore confidence on Wall Street that regional and smaller banks won't see similar deposit outflows that would challenge their capital. Here's the president in his own words. Look, the bottom line is this. Americans can rest assured that our banking system is safe. your deposits are safe. Let me also assure you we will not stop at this. We'll do whatever is needed.

But despite that pledge in the $200 billion of capital already being deployed from the Federal Reserve, the government's deposit insurance fund, and J.P. Morgan Chase, the financial sector stocks are still deteriorating, and there are fears that there's more to come. After all, the Fed's usage of a crisis era systemic risk exception to take this rare action ends up sending the mixed message that, yes, systemic risk is or would have been possible from what happened. President Biden took responsibility for the action that the government has taken thus far after regular briefings from his chief of staff, NEC director, and Treasury Secretary throughout the weekend, according to officials.

Mr. Biden also spoke to California Governor Gavin Newsom on Saturday as he tried to address this situation. The question now is how Washington responds if the weakness spreads And in order to implement more effective regulations, the banking industry is already discussing what the policy response could be. But ultimately, Tyler and Kelly, it is still very early days on that front. Do you know, Kayla, is there a number? You know, some have seen $25 billion, for instance, in terms of the commitment here to backstop deposits. Because a number of that size, people would say it would be almost potentially laughably small. But if it's unlimited, it could be laughably large.

Well, Kelly, you know, what we've heard so far is just the, the, big ticket numbers, the general numbers about what the government's firepower is at this moment. The deposit insurance fund, which is what is being used to backstop all deposits at Silicon Valley Bank, that has give or take $100 billion. The Federal Reserve for its general banking facility that's going to be making collateralized high-quality loans to banks over the next year, that has about $25 billion. And then, of course, there's the additional $70 billion that the government in J.P. Morgan Chase are putting specifically into First Republic. So already you have some pretty high totals

and it's unclear exactly how the government could do more and what they would see that total ballpark figure being in the future. Right. Absolutely. Kayla, thank you. Kayla Taushy. Sure. All right. Regional bank stocks led by First Republic taking a beating despite the government's backstop of Silicon Valley Bank and the pain is not just being felt in the regionals. Big banks also under pressure as fears of cracks are emerging in the financial system. There you see three of the biggest of the big all down somewhat significantly. For more on the fallout from SVB and the impact on Wall Street. Let's bring in Husson. He's banking reporter for CNBC.com and Kate Kelly is a reporter with the New York Times covering Wall Street and it's interworking. She's also a CNBC contributor.

Kate, let me start with you. How close did we come over the weekend or potentially this morning if these steps had not been taken to what you might describe as a panic or a run on not just a couple of regional banks, but lots of them. You know, it's really hard to note, Tyler, as you know, when people are doing the sort of literal Monday morning quarterbacking, having seen the dramatic steps that the government took over the weekend, it's hard to know. I mean, in some ways, I think there's a very different situation than we had in 2008, and I covered the collapse of Bear Stearns very closely at the time and later wrote a book about it, And it essentially collapsed into J.P. Morgan's arms in 72 hours. But the issues there were systemic.

They were market-wide. There were derivatives where these relationships between the providers of the swaps, the purchasers of the swaps, these complex derivatives, were sort of system-wide in the U.S. and Europe and beyond. Here we've got a more isolated situation where you had this Silicon Valley Bank, nominally and literally, that, as you guys have well covered in the first part of this hour, had this sort of ultimately failed risk management solution, especially in the rising interest rate environment, right? They were heavy on deposits, largely uninsured deposits, a lot of them of major size. They had these longer-term assets whose value fluctuated along with monetary policy,

and there became a point where it was very expensive to try to hedge those assets through the market because the price of swaps got increasingly more expensive as the Fed telegraphed its move. So there's an argument to say that this might have remained more contained, but there's no doubt about it that people were very much on edge through the weekend, on edge throughout today, and probably beyond. And if the government hadn't taken bold steps, a source of mine called their new program a bazooka, we might be in really treacherous waters right here today.

You know, Hugh, there are regional banks of a certain scale, and then there are regional banks so-called that are of a much bigger scale. We just showed four or five of them, TRUS PNC, if we can bring that stock chart back up. And a lot of them are suffering today. Yeah. Is that fair? Look at that.

They're citizens, truest PNC, U.S. Bank, those are big banks. Make no mistake. Yeah, I think some babies are being thrown out with bathwater. I think you have to ask yourself, okay, we talked about the backstop, the implicit backstop for depositors at these other banks. What about the equity holders? What happened to the shareholders of signature? and Silicon Valley Bank, they're in all likelihood wiped out.

So when you look at the action at First Republic, down 70% last I checked, you know, you have to ask yourself, is there a concern that there's going to be value there? And so I think this is what we're dealing with. These are the ramifications of what happened at Silicon Valley Bank. The investors, the founders I talked to over the weekend said, they saw this and you can't unsee this risk. And now what is the prudent thing for them to do? At the very least, it is to diversify the number of accounts they have.

preferably to put them into a top four or five bank is what I'm being told by these investors. And so therefore, there are still money flows going on. There are still wires that were initiated over the weekend that are hitting this morning that are flowing. And money is still flowing, Tyler. So before, if I can take one more, Kel, before I do this, Kate, let me turn back to you. A lot of people are saying, okay, the $250,000 deposit insurance limit was somewhat sacrosanct. Well, it has been blown up by this, it would seem to me. Now all depositors at SVB and signature are going to be protected.

And there is an implicit suggestion here that all depositors everywhere are going to be, would be protected in the event of a bank unwind like this. But remember Bear Stearns, which you remember very well, remember WAMU, remember all of these banks that were, quote, rescued until they weren't. And the one that wasn't was Lehman. Talk to me about that and the possibility. that, well, there may come a day where the FDIC and the federal government says, no, we're done protecting depositors who were foolish enough to keep more than $250,000 in the bank.

Right, Tyler. And this is a critical point, right? So there absolutely is an implicit message in there that all depositors are going to be protected, whether they are under $250,000 or more. I've talked to Wall Street folks today who think at a minimum the threshold should be raised to 500,000, and Kelly was just alluding to much more than that. But the key is it hasn't been codified yet. It wasn't done this weekend, and it may not be done in the near future. And that's important, according to policy folks I've talked to. I've talked to people on the Hill today and former executive branch officials. And they've said, look, we need to preserve some optionality here. You don't want to put together a massive program like that in a weekend. And you're absolutely right, though, Tyler, in the absence of the time,

of that, there could be a bank that is let go because of the moral hazard, you know, the sort of the precedent-setting effect that occurs when the government brings massive resources, taxpayer-funded resources to bear. Now, I know Secretary Yellen has made a key point of saying, in this case, they're not taxpayer resources. They're a bank subsidized fund. But still, broad strokes, you know, if we're going to ensure every depositor with every potentially teetering bank, you know, you could get into taxpayer bailouts here.

and there's a real reticence toward that. So I think we don't know what the future holds. So far, the early read I'm getting from folks who have seen this movie before is that the government did a pretty good job in a pretty short period of time in taking the appropriate actions here. And that also they may have, and we'll see, they may have successfully sort of ring-fenced the SVP and related problems signature and others from the monetary policy course that the Fed has charted

and wants to ultimately continue on, even if there's a temporary slowdown or cessation to its interest rate hikes. Just a real quick comment, Hugh as well, you know, cities down 6%, well, as far goes down 5%. You know, it's not as if the big banks are benefiting. We're not seeing share price increases today, and I just think maybe we don't want to, you know,

overlook too quickly the fact that the markets are a little bit skittish, even about some of the largest ones. Yeah, you know, it certainly isn't contained to the smallest banks. I do, you know, my conversations with investors, with founders, they suspect or they hope that this is contained with the tech-focused banks. We've seen them topple. You know, being on the East Coast, we think First Republic is for wealthy individuals, wealthy families. You're talking to the West Coast folks, eye-opening, you know, this was the second biggest, you know, market share in terms of tech founders, startups. So they've done a really good job penetrating that market on the West Coast.

And, you know, it's not surprising that they're down right now, guys. Yeah. All right, Hugh, thank you very much. Kate Kelly, always great to see you, my friend. You too, Tyler. Thank you. Thank you. And coming up, much more on the fallout from the collapse of Silicon Valley Bank.

Next, we'll discuss that moral hazard issue about rescuing one failed bank after another. Then we'll head out to Chicago as bond yields plummet. The two-year yield down about 50 basis points today. We'll be right back. The Fed's called a backstop deposit at Silicon Valley Bank hasn't gone without question. If the government will always be there to pick up the tab, our insurance limits pointless. Moral hazard aside, our next guest says the biggest question will be how this all impacts the FDIC. With us now is Steve Sosnik.

He's chief strategist at Interactive Brokers. It's good to see you, Steve. And what's the size of the exposure here you think we could ultimately be talking about? And yeah, it's like what's the need to even have different banks if you just raise the cap substantially? Bill Ackman, by the way, I think he's like the treasurer of Twitter at this point. But he was just tweeting again that, you know, we need to do something. to raise that cap dramatically, but you can't put that together in a weekend. So I'm curious how you think this is all going to play out. Good afternoon, Kelly. Yeah, this is one of the

problems that we have right now is, you know, they're putting band-aids, you know, on a trauma patient. And that's, and, you know, I understand why they did what they had to do, because otherwise, you know, you could have sequential panics. And we're seeing those panics play out in the stock prices, but not in the depositors. But the question now is, effectively the FDIC can, has been obliterated. We don't know what that is. The exposure now is, I'm not going to say infinite because it's hard to imagine everybody having a bank run all the time on everything. But then the question is, how does that get re-evaluated and how does that get passed on to banking customers eventually through the form of what have to be higher premiums? Because the premium mechanism

accounts for a $250,000 cap, not an infinite cap. Everything everywhere all at once. There's something in right so so what happens here i mean does does there come a day where that deposit insurance limit goes up to a million dollars or does it does it fundamentally just disappear what's what's the likely outcome here this becomes a real question and this the this this puts it all in the hands of politicians and once once business um crosses with politics all bets are off i mean that that becomes a whole other animal um And that's really where that's really the world that we're in now. We're grasping around.

It's logical to understand why we might want to raise it to some level. You mentioned a million. That seems that seems reasonable. But having none does introduce the idea of moral hazard. And moral hazard is when you insure risks for more than they're worth, you can't, you can't insure your house for more than it's worth because you might have an incentive if you're immoral to do something negative to your house. And so, you know, as a former options trader, I traded for 25 years, that's the one insurance market that doesn't involve moral hazard. And I have the scars to prove it. And so it's hard to say where that level is. But where, but now we're talking about when the politicians get involved and everything goes haywire when that happens.

What do you think the market is doing in the message it's sending today, Steve, with this trading? The market today is all about return of capital, not return. on capital when it involves banks. If you've got your deposits at risk, you don't want to take any risk on those deposits. So you're incentivized to just get them out. Those seem to, that part seems to be staunched. But if you're a bondholder or a stockholder, you don't want to be bearing the risk because you just know that you don't know what is under the balance sheet, under the hood of all these various regional banks. And so you're in a mode to sort of shoot first, ask questions later. And that's really the problem we're seeing today with the banking system in terms

of the capital markets reaction. Do you think that people are saying, okay, my bank may end up having to tap this facility and they may end up circling back to those who tap the facility and doing something, for instance, on the equity or something like that? It's very possible. The problem now is everybody is going to be incentivized to look through these bank balance sheets as well as they can scrutinize them, which as you mentioned with a previous guest is not a always that easy. But no one had the time or the ability to do that with every bank that they might have in their portfolio or they may have a relationship with. That's why you get this kind of get me out trade that you're seeing today. Over time, I think we do settle out and the

market will do a fairly good job of separating the winners from the losers. But in the short term, you know, this was triage. And I think, and unfortunately that's the result we're seeing in the stocks is people just panic to a certain extent. Yeah. Steve, we appreciate it. Thanks so much. you today. Steve Sazen. Thank you. All right, still to come, interest rates on the move following the SVB fallout. We will head live to Rick Santelli in Chicago. Plus, we'll hear from actual SVB depositors. That's next on Power. All right, welcome back to Power Launch, everybody. Investors pouring into bonds in the aftermath of the collapse of Silicon Valley Bank, the two-year yield falling more than four-tenths of one percent. Rick Santelli,

in Chicago talking to traders. Rick, the simple question from me is this. Why is that happening? Is that because people have become convinced that the Fed is not going to raise interest rates as aggressively as it had been, or is it because people want the safety of treasuries? I would say it's the latter. Absolutely the latter. There's credit risk. We could all debate Does the U.S. have the Supreme Credit? Well, of course they do because they have the Supreme Printing Press. So, yes, it's a credit event. As a matter of fact, that's the scenario around the world.

So, Tyler, let's look at the 10-year here, the 10-year in the UK, and the 10-year in the Eurozone. Boons, Giltz, and Artenes, all lower than they came in the year. And if you look at two years across the board, all lower now than they came in. They're all down on the year. And if you look at the VIX, VIX looks like it's going to close at the highest level since the end of October. However, if you look at a 20-year chart, it doesn't look that bad. Now, let's go grab Dave. Dave, all right, the big question everybody wants to know is we have a March 21st, 22nd meeting.

We have CPI tomorrow. Later on, we have PPI. Is the Fed going to raise or not? I think right now they're going to raise. I think Powell already said, you know, the market doesn't like to be, like, shocked. So I think they're going to race. Well, if the market doesn't like to be shocked, I'd like to see in their faces. morning. Hey, people, people, who thinks the Fed's going to raise on the 21st? Raise your hands.

Oh, who thinks the Fed is going to stand pat on the 21st? Raise your hands. Wow, that really kind of amazes me, I have to say, gang, because my own feeling is, I think that they would be a bit crazy to raise at the next meeting, but it certainly looks like the traders are voting for crazy. Back to you. That was interesting. That was very, very telling. of the people. Yep. Rick Santelli.

Thank you, my friend. Now let's go live to California where Yasmin Korum is outside Silicon Valley Bank, where depositors, Yasmin, are trying to get their money. Is that right? Yes, they are. Kelly, we have been here since early this morning when the bank opened. What you're seeing behind me is customers of Silicon Valley Bank lined up to make sure that they can get their money.

There's about 35 to 40 people out here right now. There's representatives from the FDIC, from the BOR, bank answering questions, reassuring customers that their money is safe. We're seeing, of course, a lot more happier people here today than we saw on Friday. And from the folks that we've been talking to, the founders say that their number one concern over the weekend was making payroll this week. So that announcement from the government is very good for them and they want to wait and see what happens next.

We spoke to one guy at the Santa Clara headquarters who is trying to move his money. from Silicon Valley Bank to another, he was lined up from 2 a.m. this morning. We hope to have the money as close as it can be to somewhere where I feel a lot safer about it and learn a bit more about exactly what's going on because things are moving very, very quickly. We feel there are some places where we have more certainty over the money and we'd like it to get there as soon as possible. I think it's going to take a little while before things really get to a point where everyone has clarity and what's going on. And what we're seeing out here is people going in three at a time into the bank, walking out 20, 30 minutes later, holding a cashier's check.

And again, a lot of them look a lot more relieved today. All right, yes. Me, thank you very much. We appreciate that report. Ahead on power launch, Bitcoin also hitting a backstop. The crypto banking trifecta collapsing, but investors finding relief in the federal government stepping in. So what comes next for crypto? We'll be right back. and explore that. Welcome back to Power Launch, everybody.

Markets continuing to assess the damage from the collapse of the Silicon Valley Bank. The bank put cash in long-dated U.S. Treasury's, mortgage-backed securities as well. And then when yields rose, those treasuries declined in value big time, causing a huge loss, which started the ripple effect,

leading to leading customers to pull their money out. On the Fed, backstopping customer deposits, but we are still seeing selling in many other banks. Let's get to Bob Pisani for the broader, market reaction. Bob, Tyler, 350 new lows at the New York Stock Exchange. That's a lot. There's about 2,500 stocks down here. Even though the S&P 500 is up, big increase in new lows and almost all of them are financials. A lot of regional banks. In fact, every one of the major regional banks are hitting 52-week lows. Just take a look. CMA, Zions go right down the list,

key fifth-third. These stocks are down 30 to 45 percent in the last three or four days. And it just goes on on U.S. Bank Corp, Regents Financial, PNC. Again, this is the top 15 super regional banks, the stuff that's just below Bank of America, Citigroup, and J.P. Morgan, M.M.M.M.M.T. Bank, also at a new low here. What are the risks here? There seem to be three that are out there, and a lot of people seem to feel two of the three are not that real at this point. Lower net interest income, yes. They're going to have to pay more for deposits. A new era of regulation, yes. It's the deposit flight risk that's got people a bit puzzled. Most people agree, The federal government is essentially offering backstops to all of the banks at this point,

and there is an implicit guarantee. So a little bit of head scratching going on about why exactly the regional banks are down, subject of a lot of debate. Guys, back to you. Thank you, Bob. And at another corner of the market, crypto is actually stabilizing after this intervention and the SBB crash and, of course, signature and what was it last week? Silvergate.

I mean, that's how quickly the events have happened. CnBC.com Technology reporter McKenzie Sagalos is here to discuss. And let's just start with the fact that Bitcoin is up today. The bulls are all saying, see, look, the demise of the banking system is finally making our case. Why is it rallying? I mean, part of it has to do with some big assumptions that are being made about just how quick the Fed was to step in and backstop depositors. So there's this thought process that, hey, maybe the government's going to start providing more liquidity again, which is a massive departure from the line that they've been pushing the last several months.

There's also a lot of hope coalescing around the idea that when the Fed meets later this month, maybe they won't be as quick. to hike up the price of interest or hike up those interest rates. And so those macro events do very much ripple into the crypto market. But one headwind that people aren't really talking about as much is, you know, the lack of liquidity in the overall crypto market. And that will be a huge problem now that we've lost both signature signet payments network as well as the Silvergate Exchange network. True.

And it's interesting because, you know, 24, 48 hours ago, this looked like it could have gone the other direction when the U.S. D.C., the U.S. dollar coin was significantly below a buck. maybe 70 cents. I don't know what the low tick was. There was a sense of, as we've analogized it already, some money market mutual funds, oh boy, are these all about to now experience another tether and then cause widening pain? So it's really amazing. That apparently now has been unwound. And what I saw today was trading back up near a dollar. So now what are people saying about the systemic issues that may not exist there? Right. It was worrisome on Saturday. When Circle said that it had this $3.3 billion

exposure, because that's what it banked with SVB. You saw this erosion of confidence quickly ripple through the stable coin market, which is, you know, really the backbone of crypto trading. It's meant to be inherently stable at keeping these fixed prices. It slipped as low as 87 cents on Saturday. And what it says is that like when confidence was rocked, a lot of the investor money moved into tether, which is like the biggest and most popular U.S. dollar peg stable coin, which itself has faced a lot of questions around its proof of reserves and whether it has enough to back up its tokens in circulation. So it certainly doesn't shore up confidence about what happens in a crisis. Meanwhile, think back to last May, Kelly, when

Terra USD collapsed, which set off this entire implosion of the crypto sector and the sequence of bankruptcy. So the stable coin corner of this, of the market, not so stable. Not so stable. Yeah, and we swung from possibly repeating that outcome to now on Monday being being in the green. I mean, is it a green across the board in crypto space? Yeah, it is. And then in terms of restoring that dollar peg, pretty much as soon as we got that announcement last night, like those U.S. dollar peg stable coins returned to that one-to-one.

Fascinating. And don't stop watching this area. It feels like, you know, we got a little, just, you know, glad it's all fine for now. Mackenzie, thank you. Mackenzie Segalis reporting. We appreciate it. All right, thanks. Oil prices falling today, but a big recovery from this morning. Pippa Stevens joins us now

with the latest. Hey, Pippa. Hey, Tyler. Well, at one point today, WTI was down nearly 6%. So it is settling with a more modest 3% decline here. Some of the recovery, no doubt, thanks to bets, the Fed will pause those rate hikes. Now, Nat gas is going in the other direction, jumping more than 6%. We have seen the rate count fall to a nine-month low, but short covering is also likely at play here after that nearly 20% drop last week. Now, earlier today, the Biden administration approved an $8 billion oil drilling project in Alaska, led by Conoco Philips and known as Willow. In a hotly anticipated and controversial decision, the Department of the Interior granted permits for three drilling sites, which was slimmed down from the initially requested five sites.

Conoco's CEO called the right decision for Alaska and our nation. But environmentalist groups were quick to oppose the decision with the NRDC calling it a grievous mistake that green lights a carbon bomb. Kelly? A carbon bomb. Wow. Thank you, Pippa. Still to come, a big biotech biotech. buyout, Pfizer acquiring C-Gen for $43 billion. We've got details next. A lot of eyes on biotech as

well today with SVB's fallout. And as we had to break throughout the month, we're celebrating women's heritage, sharing the stories of women leaders in business and those of our CNBC teammates and contributors. Here is Gwen Jamir, Neutralisha, CEO and founder. One thing that people can learn from my journey is that it is perfectly okay to pivot. It doesn't matter where you are in your life. Oftentimes as women who are, who are high achieving, we oftentimes feel like we are pigeonholed into whatever is that we're known for. And I'm here to let you know that it doesn't matter if you're divorcing, if you're having a baby, if you simply are no longer passionate about what it is that you're doing

or previously doing, you can totally change gears, totally shift. You will probably even be more successful than you were before because now you're living in your purpose and you're aligned with what you're supposed to be doing. In the midst of this banking crisis, we've got a big biotech deal joining us now to talk about it. Meg Terrell. Hey Meg. Hey, Tyler. Well, Pfizer is buying Cgen, a big maker of cancer drugs on the West Coast for $43 billion, $229 per share. This was a deal that had been telegraphed for at least a few weeks, but Pfizer actually pulling through on it, whereas Merck had been rumored to be looking at Cgen last year and ultimately didn't go through with the deal. We talked with Pfizer CEO Albert Borla this morning about what made this

company worth $43 billion to Pfizer. Here's what he said. CZEN is having one of the greatest technologies to battle cancer. It's called ADCs. These are turbocharged guided missiles, but they are attacking the cancer cells and can make a huge difference. I would say ADC is something like the MRNA for vaccines. It is ADC for cancer. So we think that we can make a very big difference with this technology in our hands. Now, this is just the latest, but the biggest of a spree of deals, Pfizer has been on, really with all of the money that they brought in from their COVID business and trying to fill a revenue hole from that business and patent expirations later in the decade.

They bought Global Blood Therapeutics, Bio Haven, and Arena over the last year or so. They're trying to get to $25 billion in added revenue from deals by 2030. they say this gets them 80% of the way there, but that still means they're going to be looking for something that can add $5 billion more in revenue by 2030. And guys, the stocks of both companies rose today, but on Pfizer's end, what I'm hearing from multiple people is that that is more a result of all of the unrest around SVB

and pharma being seen as a defensive play there. And if this were an up market, Pfizer's stock might actually be down. Uma Raphat over at Evercore ISI, saying that the investor reaction on this deal ranges anywhere from underwhelming to lukewarm at best. He says Seagen is a very good asset with the tail in pipeline. The questions are more around the valuation being paid.

Guys, back over to you. It does often come down. But you know what they say? Better to get a great company in a good price than a good company in a great price. Anyway, Meg, Meg, thank you so much. We appreciate it today. Meg Terrell. After the break, more on what the SBB collapse means for markets and the economy.

Dow's hanging on to 130-point gain. NASDAX up 1.5% as rates plunge. We'll be right back. All right. Welcome back to Power Lunch, everybody. markets are in the green. NASDAQ by more than 1%, as some investors believe that the SVB shock is going to get the Fed to back off on rate hikes. We shall see, and we shall ask. Sam Stovall, CFRA's chief investment strategist. He's here now with more on the market action. He says the fallout

from SVB's failure could keep the Fed on a 25 basis point hiking path. Sam, so that's where you come down. Not that the Fed's hand has been stayed for now, but that they will move in what many would consider a smaller increment than had been considered possible a week 10 days ago. Hey, Tyler. Yeah, I think that's likely to be the case that will probably end up seeing the Fed hike possibly through the second quarter of this year, but then pause. And what they're not going to do is try to upset the Apple Cart any further by increasing

the rate hike at the March 21-22 meeting, keep a steady path. So they'll probably have to change their mantra from higher for longer to just high for long. So how does the market digest, ultimately, what's been going on over this past weekend? We've seen a lot of carnage in regional bank stocks today, even some of the big money center banks, the big New York banks as well, have been stumbling a little bit. There you see a lot of the regionals or super-reginals. How does this play out in the market over the next four to six months? Well, don't leave out the brokers either. So basically, everybody in the financial space has had some challenges as retail investors, institutional investors worry about what is likely to

happen to their accounts to these banks and what kind of an impact it will have on the economy, etc. I think we've also seen some pressure on these smaller cap stocks because banks, these regional banks might be more reluctant to lend to the lower quality smaller companies out there. So that in a sense could accomplish what the Fed is attempting to do and slow the rate of growth for the economy as well as slow the rate of inflation. So I think over the next couple of months we're going to have to take a wait and see attitude. Our forecast was for a tale of two halves where the first half of 2023 is much more challenging, highly volatile, et cetera, but then investors begin to look across the valley sometime in the second half and toward

a more favorable 2024. Meantime, as Kay Latowski points out, the Fed just released an FAQ saying that they will release details on who taps this new lending facility two years from now. So that would be March 2025, Sam. We also have a Lloyd Blankfein tweet, former Goldman CEO. first one in about six months. He thinks he sees positives. He says anxiety and volatility are high, but sharply lower rates, Fed likely unhold strong positives from a market.

Markets, do you agree or do you think we're risking a rerun of 2008 here? I don't think we're risking a rerun of 2008. A lot of people that are still in charge were there back then and they know what they needed to do to write the ship. So I would tend to say that if there are new mistakes, there'll be new ones, not repeat. of old ones. I also think that history can offer some guidance because the Fed usually starts to lower interest rates about nine months after the last rate hike. And while the S&P was up an average of 13 percent, financials led the way up an average of 22 percent. So usually the groups that get beaten up on the way down tend to be outperformers on the way back up.

All right, my friend. Thank you very much. Sam Stovall. We appreciate it. My pleasure. The effects of the banking crisis in the U.S. rippling all the way to China's startup market. We'll have the details next. The ripple effect from the collapse of Silicon Valley Bank is being felt across the country, even around the world. The bank was a big lender to startups in China. Eunice Yunus Yun is live in Beijing with that part of the story for us. Hi, Eunice.

Hey, Kelly. Well, for the Chinese tech sector, Silicon Valley Bank has played a special role. Early stage, a Chinese tech startup, so looking to raise money in the U.S. would often park their funds at SVV. SVB has a reputation here for having friendlier requirements when it comes to opening accounts. For example, being able to use a Chinese mobile phone for verification.

Also, the company is seen as having a lot of flexibility when it comes to startups, as well as companies with VIE or variable interest entities, which are offshore entities that Chinese companies, often used to be able to list in the United States. And then the bank was also viewed as an entryway for Chinese tech firms to go into the Silicon Valley ecosystem, so to have access to LPs, VCs, as well as other startups. So when the news about SVPs failure first hit China, there was a whole lot of panic throughout

the weekend. But then that panic did subside once the U.S. regulators came in. Though, Kelly, there is so some concern about the longer-term fallout that could happen. Would they go to an American competitor or likely a Chinese one? Well, that's actually one of the interesting developments that because of the way the geopolitical situation is, there's actually a lot more money when it comes to VC funding in China or denominated in R&B than there has been in the past. So that's helped to mitigate the effect a little bit. But at the same time, people are here worried about the fundraising efforts.

They've been through a lot in the startup scene here for the past couple of years because of the regulatory crackdowns as well. So that's a big concern for them. Absolutely. Eunice, thanks so much. We know you'll be monitoring it. Unis, Union, Beijing for us. All right. Thanks to Eunice.

And thanks to all of you for watching Power Lunch today. Closing bell starts right now.