key adviser
There are many differences between the fallout from the Silicon Valley Bank collapse and the 2008 financial crisis, but one similarity is the man trying to clean it up: H. Rodgin Cohen, aka Rodge, senior president of the Sullivan law firm. and Cromwell.
The soft-spoken Cohen was at the center of efforts to save Silicon Valley Bank and First Republic, the latter of which involved a call between Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen and JPMorgan Chase boss Jamie Dimon. Here’s what you need to know about one of the most influential players in the banking crisis who isn’t making headlines.
Mr. Cohen is a sought after adviser on banking crises, and has worked on almost all of them in the last few decades. “Rodge is the go-to banking attorney; there is no one who comes close to his level of reliability across the whole realm of substantive banking law,” said Sarah Raskin, a former deputy secretary of the Treasury. She added that he still finds himself in courtrooms asking, “What would Rodge say?”
Mr. Cohen also played a role in an international crisis: during the Iran-Contra affair, he advised US banks to release Iranian funds as a condition of releasing US hostages.
He has been with Sullivan & Cromwell for more than 50 years. After a run on the Continental Illinois Bank forced a government seizure in 1984, Mr. Cohen led their negotiations with the FDIC Represented the Bank of New York in its $1.48 billion bid for Irving Bank, one of the first hostile takeovers of a bank, in 1988.
During the financial crisis of 2008, he represented either the buyer or the seller in nearly every major banking deal, including the government-backed sale of Washington Mutual to JPMorgan Chase. He was in such high demand that he went from advising Lehman Brothers before it collapsed to advising Barclays, which bought a substantial part of the company after it collapsed. “Every time he looked up, it seemed like Rodge was in the room,” Henry Paulson, the former Treasury secretary, told The Times in 2009.
This crisis may require new maneuvers. Mister. Cohen advised Silicon Valley Bank as it searched for a buyer and has been advising the First Republic as it clamors for a lifeline. (The bank’s decision to inject some $30 billion in capital from 11 banks was one page in a well-tested playbook of joint intervention, including for Continental Illinois.)
But as the First Republic continues to falter, and questions swirl about the extent of government intervention, the question now for the First Republic and others is what the 2023 playbook will look like. If the patterns of the past continue, Mr. Cohen will have a role in its writing. —Lauren Hirsch
IN CASE YOU MISSED IT
A risky vacancy. Silicon Valley Bank operated without a chief risk officer for much of the past year, reports The Wall Street Journal. The job is some of the most thankless in the industry, but the collapse of SVB underscores how much it matters.
profit motive Elon Musk cut off funding for OpenAI in 2018, leaving it with no way to pay for the expensive work of training its AI models on supercomputers, reports Traffic lights. Soon after, the company announced that it would create a for-profit entity.
Palm payment. JPMorgan Chase plans to test a new technology that would allow consumers to pay with the palm of their hand or with their face at some US merchants. The bank, one of the world’s largest payment processors, expects the technology to account for $5.8 trillion in transactions by 2026.
AI over AI Reid Hoffman, co-founder of LinkedIn, wrote a book on artificial intelligence with the help of GPT-4, Open AI’s newly released language model, which Hoffman has funded.
Is this a ‘Minsky moment’?
The “Minsky moment” entered the spirit of the times for the last time during the 2008 financial crisis, and some pundits are now using it to comment on the current banking crisis. It describes the point after a long bull run when it becomes clear that asset values are unsustainable and an epic crash is ahead.
The backstory: The term was coined by economist Paul McCulley in 1998 when the asset bubbles burst and is based on the “financial instability scenarioby economist Hyman Minsky. His hypothesis holds that during a prolonged period of prosperity, investors take on increasing risk until borrowing exceeds what borrowers can repay and they start selling safe assets, leading to falling markets and creating a crisis. of cash.
Does the phrase apply to what is happening right now? Probably not. SVB did not fall because it was overleveraged, but because fleeing depositors forced it to sell assets at deflated values, so technically SVB was not a minsky momentwrites Zongyuan Zoe Liu, a fellow for economic policy at the Council on Foreign Relations. But JPMorgan analysts see potential minsky moment ahead as interest rates rise and economic engines sputter, citing concerns about global banking problems, among other signs.
14 percent
– He decline in Chinese billionaires last year while the ultra-rich paid for China’s zero covid policy, a regulatory crackdown on private business and the collapse of property.
Switzerland removed Credit Suisse bondholders, and it’s a big deal
When the Swiss government forced the marriage of UBS and Credit Suisse, it wrote down about $17 billion of the latter’s bonds and gave shareholders priority over bondholders, writes Joe Rennison of The Times, upending the usual order of who assumes losses first in a bankruptcy. In the words of Standard Chartered CEO Bill Winters, that could have “profound” implications for the way banks are run and for global regulation.
The deal targeted a dark part of the debt market. Many European banks issue additional tier one, or AT1, bonds. They count toward your capital requirements because in stressful situations, they can be written off and converted to capital to help prevent the bank from failing.
Swiss regulator Finma defended the decision Redeem Credit Suisse AT1 bonds, saying that it was necessary to “protect customers, the financial center and the markets”. Finma added that the AT1 bonds include contractual language that can be “written in a feasibility event” if the government gives it the authority to do so.
But after the call, AT1 bonds from other European lenders including Barclays, Standard Chartered and BNP Paribas fell sharply despite EU regulators saying they would stick to the conventional hierarchy of who benefits first in the event of a bankruptcy and shareholders would receive the first blow. As concerns swirled around Deutsche Bank, sending its shares tumbling as much as 15 percent yesterday, its bonds also fell. The dollar bond fell from 96 cents per euro at the beginning of the month to less than 70 cents yesterday.
Winters says the Swiss move could change the way banks are evaluatedbecause Credit Suisse’s bonds were liquidated even though the bank was solvent. “The issue is not whether regulators have confidence in our solvency. Does the market have confidence in our liquidity? he told her at a conference in Hong Kong.
Bondholders can take legal action. The law firms Quinn Emmanuel and Parras Partners compete to represent specialist investors such as Centerbridge and Davidson Kempner, as well as traditional fund managers such as Pimco and Invesco. But they don’t have much time to argue their point: Action must be taken within 30 days of the deal, according to people familiar with the process.
On our radar: The final season of ‘Succession’
The fourth and final season of “Succession” begins tomorrow. With all the recent drama among the real-life Murdochs: Rupert, 92, announcing his plans for a fifth weddingto $1.6 billion defamation lawsuitand a failed attempt to merge two parts of a giant media empire You may not have missed the fictional media dynasty that bears more than a slight resemblance to the family. But early reviews suggest “Succession” is worth a watch, especially given the promise of a real conclusion. The Guardian He called it “the most agonizing, pulverizing drama on television” (which sounds like a compliment). Fashion says it’s “lightning,” and Rolling Stone wrote“He’s going full steam ahead until the end.”
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