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Crypto bank Silvergate collapses; HS2 delays expected; US jobless claims jump – business live


Introduction: Crypto bank Silvergate to shut down in face of market turmoil

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The turmoil in the crypto sector following the collapse of crypto exchange FTX has claimed crypto-focused bank Silvergate.

Silvergate Capital Corp announced last night that it plans to wind down Silvergate Bank‘s operations and voluntarily liquidate it in an orderly fashion, after incurring losses following the dramatic collapse of FTX in November.

Silvergate is one of the few mainstream financial organisations to have focused on providing services to the cryptocurrency sector. That helped it grow rapidly until the ‘crypto winter’ began last year, when prices of crypto assets tumbled.

Silvergate announced that:

In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward.

The Bank’s wind down and liquidation plan includes full repayment of all deposits. The Company is also considering how best to resolve claims and preserve the residual value of its assets, including its proprietary technology and tax assets.

The news sent Silvergate’s share price slumping in after hours trading, down 43% to $2.76. They’re down over 96% over the last 12 months.

Once a small community bank, Silvergate reinvented itself during the crypto boom to provide services to companies that struggled to work with conventional financial providers.

The collapse of Sam Bankman-Fried’s crypto exchange FTX in November created a crisis of confidence in the sector, and drove investors to pull money from Silvergate.

At the start of January, Silvergate reported that customers had pulled more than $8bn (£6.7bn) of their crypto-related deposits in the final quarter of last year, forcing it to sell billions of dollars of assets to protect its balance sheet.

Silvergate’s future has been in doubt since it delayed the publication of its annual report last week, and announced a fresh sale of assets to repay debts.

The agenda

  • 9.30am GMT: Realtime business and economic activity data released by the Office for National Statistics

  • 12.30pm GMT: Challenger survey of US job cuts

  • 1.30pm GMT: US weekly jobless figures

Key events

EDF Energy has said today it will extend the lifetimes of its Hartlepool and Heysham 1 nuclear plants in Britain by two years to March 2026, Reuters reports.

They had been slated for closure in 2024.

UK chancellor Jeremy Hunt could afford to raise public sector wages, and to provide targeted support for households with energy bills, the National Institute of Economic and Social Research says.

The thinktank has calculated that the chancellor has a large amount of fiscal space ahead of his budget on 15 March, thanks to higher revenue and lower spending, together with the more favourable outlook for GDP and interest rates.

These factors mean the budget deficit his year is £30bn less than expected last November.

NIESR says:

  • At the macroeconomic level, some of this fiscal space should be used to reduce the planned rise in corporation tax, which would otherwise lower investment and GDP in both the short run and long run, and to increase the amount of public investment. Lower effective corporation tax and increased public investment are both growth-enhancing.

  • The Chancellor should allow public-sector wages to rise to catch up with the private sector, given private-sector wages have been rising much faster than public-sector wages of late. We can expect some spillovers from public-sector wage growth to the private sector, but any adverse macroeconomic effects need to be assessed against potential output losses if the public sector lost skilled workers.

  • A more targeted approach to provide support for households to deal with the high energy prices: specifically, a combination of an opt-in Social Tariff system and a Variable Price Cap. This is preferable in fiscal terms to a universal EPG [energy price guarantee], as this might cost as much as £29bn for 2023-24, and would provide both incentives to users of energy to limit demand, and also more support to those households who need it most.

The market reaction to the rise in US unemployment claims shows that Bad News is Good News again for investors.

Wall Street futures have pared their earlier losses (as a weak economy will mean interest rates won’t rise as high as feared).

Bad news is good news again.

Initial claims for unemployment insurance jumped above 200k for the first time since Christmas.
10-year yields reversed lower, and stock futures popped higher.

What’s holding back the stock market in the last few weeks? Not enough people have been… https://t.co/sk94aw1RSw pic.twitter.com/ag4iV6os1X

— Jim Bianco biancoresearch.eth (@biancoresearch) March 9, 2023

US jobless claims highest since December

The number of Americans filing new claims for jobless support has jumped.

In the week to 4 March, there were 211,000 initial claims for unemployment insurance, up from 190,000 the previous week.

That 21,000 increase in initial claims suggests that the US jobs market softened last week, although initial claims are still historically low.

The number of people receiving at least two week’s of support also rose by 69,000 to 1,718,000

Initial and continuing UI claims both rose last week to their highest levels since the end of December.

Initial: 211k from 190k
Continuing: 1.718m from 1.649m

Both increases mostly driven by CA & NY, which each saw initial & continuing claims jump >10k from the wk prior. pic.twitter.com/OOErtlABhk

— Daniel Zhao (@DanielBZhao) March 9, 2023

1/ Even after their jump in early March, initial claims are very low by historical standards – but “very low” won’t cut it to keep continuing claims down, because the break-even is currently below 190K. (This beakeven has fallen over the past year, probably due to lower hiring.) pic.twitter.com/GEV1ofcLYJ

— Guy Berger (@EconBerger) March 9, 2023

The dollar has weakened, as investors calculate that this may be a sign that the economy is slowing, meaning further increases in interest rates may not be as high as expected.

This has pushed the pound up half a cent to $1.19, recovering some of its losses earlier this week.

Tomorrow’s Non-Farm Payroll will show how many jobs were created in February.

Layoffs by US companies in the first two months of this year have hit their highest level since 2009 after the financial crisis, a report has shown.

The tech sector accounting for more than a third of the more than 180,000 job cuts announced in January and February, the report from employment firm Challenger, Gray & Christmas shows.

In February alone, layoffs in the United States stood at 77,770, more than five times higher than the 15,245 job cuts announced a year ago.

Challenger shows moderate pace of layoff announcements at 77k. Mostly concentrated in NY/SF/Seattle tech & finance. A couple datapoints of modest spreading. While its ticked up, during 18/19 saw 60k layoffs with falling UE rate.

Monthly numbers here: pic.twitter.com/3xUz0Jbt0r

— Bob Elliott (@BobEUnlimited) March 9, 2023

Nice thing about the report is all the detail it gives. Under the hood looks like big chunk was in tech/fintech/finance areas. Some signs of broadening possibly in some other sectors. Notably construction and real estate remains pretty low. pic.twitter.com/Gx8oPjcY6H

— Bob Elliott (@BobEUnlimited) March 9, 2023

The employers’ organisation BusinessLDN has criticised the expected delays to HS2.

John Dickie, chief executive at BusinessLDN, warns that the move could push up the cost of the project:

Delaying construction of HS2 to save money is a false economy. Failing to invest now will likely increase costs over the long-term while also delaying the benefits for people and businesses across England.

The country needs this project to remain on track through swift and efficient delivery to drive long-term growth and decarbonisation. Slowing down construction of sections will do little to help levelling-up, particularly in the North.

With shovels already in the ground, we cannot afford yet another delay. Ministers should not hit the brakes and instead seize this once-in-a-generation opportunity to create a world-class, high-speed, capacity-boosting rail line that will transform connectivity between England’s major cities.

Like other construction projects, HS2 has been hit by rising costs of energy, fuel, raw materials and labour.

European stock markets have dropped into the red this morning, amid anxiety about rising interest rates.

The blue-chip FTSE 100 index has dropped by 54 points, or 0.7%, to 7875 points, further away from the record highs set last month.

Endeavour Mining, which owns and operates gold mines in Côte d’Ivoire, Burkina Faso and Senega, are the top faller, down almost 5% after reporting a 26% drop in EBITDA earnings for last year.

Mining group Rio Tinto (-4.6%) is next, followed by packaging firm DS Smith (4.5%) which reported signs of weakness in the corrugated box market today.

Investors are anticipating that the US Federal Reserve could lift its key interest rates by half a percentage point this month, following warnings from Fed chair Jerome Powell this week that interest rates are ‘likely to be higher’ than previously anticipated.

The Fed’s challenge is to slow inflation without sinking the economy, as Neil Wilson of Markets.com explains:

Sticking with 25bps this month would risk further loosening of financial conditions, which will only make the job to tame inflation harder. Unless there is a stinker of a jobs report tomorrow, the Fed will either need to go with 50bps or do 25bps and stress a much higher terminal rate.

And this comes back to the central dilemma – once a structural inflationary dynamic is let loose, the only way to rein it back in is to crash the economy, Volcker style.

[Paul Volcker put the US economy into a recession in the 1980s to get inflation under control].

Responding to the report that the high-speed HS2 project will be delayed or cut, Prime Minister Rishi Sunak’s official spokesman has said:

“ou will know there’s work already under way on HS2.

Equally the rail minister has been clear we’re continuing to look at any cost pressures and ensure the project delivers value for money for taxpayers.

Supermarkets have started to drop customer limits on buying certain fresh fruit and vegetables as supply issues that led to widespread shortages begin to ease.

Asda confirmed it had removed limits of three on cucumbers, lettuce, salad bags, broccoli, cauliflower and raspberries, leaving restrictions of three on just tomatoes and peppers, PA Media reports.

The supermarket said availability overall had improved as expected, and supplies of tomatoes and peppers were also expected to be back to normal within a couple of weeks.

Anders Kvamme Jensen, founder of the global brokerage and digital asset specialist AKJ, explains how Silvergate worked with the crypto sector:

While the FTX collapse had a direct impact on liquidity in the crypto markets, Silvergate is merely an infrastructure gateway to exchanges.

Most crypto hedge funds have developed relationships with multiple banks, also traditional ones, and are already well diversified on banking and other destinations following FTX. Traditional banks are cumbersome to deal with for transactions on crypto exchanges but looks better optically to an investor and is often used to onboard a fund these days.

The fund manager will thereafter use more crypto oriented banks, like Signature, to enter crypto exchanges.

Economics professof Nouriel Roubini, who has said that “literally 99% of crypto is a scam”, isn’t shedding a tear for Silvergate:

Profit warning from chip firm IQE shows economic slowdown

Shares in the Cardiff-based semiconductor company IQE have plunged by around a third this morning, after it reported a fall in orders.

IQE, which makes semiconductor wafer products and advanced material solutions to the global semiconductor industry, told the City that weaker demand has led to inventory build-up throughout the supply chain since mid-January.

Similar trends are evident across the industry, it says, citing reports that global industry sales of chips fell 18.5% in January.

IQE expect that this “near-term market softness” will be temporary, but it’s a sign of weakness in worldwide economic activity.

This inventory pile-up means that IQE now expects first-half sales in 2023 to drop by some £30m, a fall of more than one-third from the £86 million in revenues generated between January and June 2022.

AJ Bell investment director Russ Mould warns that IQE now has “little or no chance” of meeting sales forecasts for this year.

Shares are down 31.5% at 32.2p.

While IQE is only a small player in the global industry, the latest warning feels ominous, Mould says:

First, IQE the sharp drop in sales now expected for the first half means that management is already getting out the prayer mat for 2023 and hoping for an upturn in the second half. IQE is not the first UK-quoted firm to express this hope – just this week Spirent, Ibstock and STV have done the same, following Croda, Coats and others – but it does make the company and its shareholders a hostage to fortune if that second-half pick up fails to materialise.

And while IQE is expressing greater confidence in the latter half of 2023, thanks to indications of demand from customers, these are presumably the self-same customers who led the company up the garden path in 2022 and obliged IQE to issue profit warnings when incoming business levels undershot expectations.

Industry specialists are busily cutting their global sales forecasts for the semiconductor industry in 2023. They are now looking for a 12% drop in 2023, having started the year looking for a decline of just 3%.

The Conservative MP Simon Clarke, former chief secretary to the Treasury, has welcomed the reports that construction of some parts of HS2 will be delayed to save money.

Clarke says (via PA Media):

This would be a sensible decision.

Having observed HS2’s progress as chief secretary, I have serious doubts as to value for money and cost control.

HS2 construction to be delayed to save money as costs soar

Gwyn Topham

Gwyn Topham

The government is set to announce that construction of certain sections of the HS2 rail line will be delayed to save money, our transport correspondent, Gwyn Topham, reports:

Ministers are preparing to deliver more bad news on HS2, with a statement expected imminently outlining both the extent of budget overruns and more cost-cutting proposals as soaring inflation hammers the high-speed rail line’s construction.

At least £2bn more will be needed for the first London-Birmingham stretch alone since the last official update in October, well above the contingency sums in the initial £44.6bn funding and will dampen further the prospects for the full network’s delivery.

While the chancellor, Jeremy Hunt, and Downing Street reiterated in January that the government will build the line between London Euston and Manchester, the Department for Transport has been under mounting pressure to find cost savings from HS2 – or leave other, non-HS2 rail investment projects to lapse.

Ministers have repeated their commitment to a £96bn rail plan drawn up last year but the final results of that spending are likely to be less than anticipated.

Here’s the full story:

And here’s the BBC’s Simon Jack’s take:

1/The BBC understands government will imminently announce certain sections of HS2 will be delayed to save money. It’s thought delay will primarily affect sections from Manchester to Crewe and Birmingham to Crewe. However…

— Simon Jack (@BBCSimonJack) March 9, 2023

2/ However, industry sources have also indicated that some of the design teams working on the Euston end of the line may be affected and contractors are looking at whether they need to redeploy staff working on that site.

— Simon Jack (@BBCSimonJack) March 9, 2023

The recruitment firm PageGroup has reported that it is still a struggle to find candidates for jobs, despite the economic jitters.

In its latest financial results, this morning, PageGroup said the employment market remained hot, after its profits hit record levels last year.

Nicholas Kirk, chief executive officer, says:

Looking forward, there remains a high level of global macro-economic and political uncertainty in the majority of our markets. However, against this backdrop, we continue to see candidate shortages and good levels of vacancies.

PageGroup, which earns fees by placing candidates at companies, reported that its operating profits jumped to £196.1m for 2022 from £168.5m in 2021.

One in 10 UK businesses were affected by industrial action in January, figures from the Office for National Statistics show.

The ONS reports that more than a quarter (26%) of those businesses reporting that they were unable to fully operate as a consequence.

Train staff, National Highways workers, nurses and teachers all held strike action early this year, as unions pushed for pay rises to protect workers from soaring inflation.

The ONS also reports that one in eight businesses with 10 or more employees experienced global supply chain disruption in January – a shortage of materials was the most likely cause.

And half of businesses reported that they were able to get the materials, goods or services they needed from within the UK in January 2023 without encountering any supply issues.

Of businesses with 10 or more employees:

▪️ 12% experienced global supply chain disruption in Jan 2023
▪️ 24% said their employees’ hourly wages had increased in Jan 2023
▪️ 27% experienced worker shortages in late Feb 2023.

— Office for National Statistics (ONS) (@ONS) March 9, 2023

Many houses are being sold under the asking price, the Royal Institution of Chartered Surveyors (RICS) reports.

RICS’ monthly survey has found that in “the mainstream market”, covering prices up to £500k, around 60% of respondents suggested that prices were being agreed at below the asking price.

But, sellers of more expensive houses are more likely to accept a ‘discount’. For properties priced between £500k and £1m, the share jumped to just over 70%.

NEGOTIATE…NEGOTIATE…NEGOTIATE “In the mainstream housing mkt (for prices up to £500,000), about 60% of surveyors said that prices were being agreed at below the asking price. For properties priced between £500,000 & £1m, the share inc to just over 70%”
https://t.co/KpHsoe4tJC

— Emma Fildes (@emmafildes) March 9, 2023

MPs seek protection for investors tricked by greenwashing claims

MPs are urging the financial regulator to protect investors who fall victim to ‘greenwashing’ claims.

The Treasury committee is concerned that investors who are tricked by rogue claims should not have to pay to move investments to funds which are properly labelled as ‘sustainable’.

The Financial Conduct Authority (FCA) is looking to introduce criteria that a UK investment fund would need to meet to describe itself as ‘sustainable’, ‘ESG’, ‘green’ or similar.

The Treasury Committee is concerned that the regulator will not seek redress for customers who have been sold misleading investments, and might choose to move to actual ‘green’ funds. Such a move could incur charges.

Following correspondence with the FCA, Harriett Baldwin MP, chair of the Treasury committee, says investors who are tricked by greenwashing claims should not foot the bill for moving their money to actually sustainably funds.

Baldwin explains:

Consumers who invested in funds believing they were doing their bit to save the planet must not be made to bear the cost of moving if they find out their fund isn’t so green after all.

Without a comprehensive cost-benefit analysis, the regulator’s proposals are lop-sided. Further work on what the costs are going to be, who will pay, and how the regulator will enforce the rules is clearly necessary.

In recent correspondence to the committee, the FCA assumed that one third of funds currently claiming to be sustainable would no longer qualify for a sustainable label, and another third would decide not to use the label, the committee says.

The UK housing market is not about to fall off a cliff, predicts Tom Bill, head of UK residential research at Knight Frank, despite the pressure on prices revealed by RICS today.

Bill predicts prices will only drop by ‘a few percent’ this year:

The further we get from the mini-Budget, the more things improve in the UK housing market. Asking prices will continue to come under pressure as buyers recalculate what they can afford but the market is not about to go over a cliff.

The weak start to the year for mortgage approvals means bigger lenders will be focussed on market share, which will keep downwards pressure on rates but the key for buyers is the overall sense of stability rather than movements in borrowing costs that are likely to be small. Transaction levels will come down from the heights seen during the pandemic and we expect prices to fall by a few percent but the evidence is that 2023 will be a solid year for the housing market.





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