By Sinéad Carew

(Reuters) – The S&P 500 bank index tumbled nearly 6% on Thursday in its biggest one-day drop in over two years as investors fled the industry following SVB Financial Group’s share sale announcement and crypto bank Silvergate’s decision to wind down operations.

Shares of SVB, whose operating segments include Silicon Valley Bank, slumped over 50% in their deepest one-day drop on record after the company announced a $1.75 billion share sale late on Wednesday. SVB is battling cash burn due to declining deposits from startups struggling with a venture capital funding drought.

San Francisco headquartered First Republic slumped 15% after hitting its lowest level since October 2020.

The SPDR S&P regional banking ETF dropped more than 7% to its lowest level since January 2021.

Major U.S. banks were also hit, with JPMorgan and Bank of America both down more than 5%.

First Republic and SVB were the S&P 500’s deepest percentage decliners in Thursday’s trading session, while JPMorgan’s loss weighed more than any other stock on the S&P 500’s 1.1% decline at mid-day.

“The Silicon Valley raise got everybody nervous about people’s capital levels and what deposits are doing. A lot of institutional investors don’t feel great about owning certain banks right now,” said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York.

“It just gets people freaked out because Silicon Valley, historically has been a very strong, well-run bank. If they’re having issues right now, people are wondering what about other banks that are lesser quality and that don’t have the reputation that Silicon Valley Bank has.”

Investors were also grappling with the decline of cryptocurrency-focused lender Silvergate Capital, which dropped 22% after saying late on Thursday it planned to wind down operations and voluntarily liquidate after it was hit with losses following the collapse of crypto exchange FTX.

Shares in Silvergate peer Signature bank fell 9.4%.

(Reporting By Sinéad Carew and Lance Tupper; additional reporting by Noel Randewich in Oakland, Calif.; Editing by Andrew Heavens and Nick Zieminski)

By David Randall

NEW YORK (Reuters) -Renewed hawkishness from the Federal Reserve is pushing investors to game out how a regime of “higher for longer” interest rates could weigh on U.S. stocks. Some believe they may be in for a slog.

While stocks have managed to advance during periods when rates were around current levels, some investors are worried a combination of higher bond yields and sticky inflation bodes poorly for equity returns if the Fed follows through on the message of higher and potentially faster rate increases Chairman Jerome Powell delivered this week.

Jonathan Golub, managing director at Credit Suisse, is among those with a bleak outlook for equities. He described an environment in which persistent inflation squeezes companies’ profit margins and investors spurn stocks in favor of Treasuries and other short-term debt, where yields are at their highest levels in nearly two decades for some maturities.

“A six-month (Treasury) yield effectively guaranteed at 5.25% changes the dynamics for investors when the stock market looks shaky,” he said. “You would need to get risk-adjusted returns in equities of at least 1 or 2 percentage points more than that, so in that environment stocks are not worth the effort and are dead money.

Golub expects the S&P 500 to end the year near 4,050, about 1.5% above its current level, and offer annual returns in the low single digits through at least 2025 as inflation falls more gradually than many investors expect.

A flat-lining of U.S. equity returns would serve as a harsh turnabout for investors who garnered annual gains of 16% or more in the S&P 500 in four of the six years ending in 2022 as interest rates sank to historic lows in 2020.

Of course, there’s no guarantee such an environment awaits. Investors will be closely watching U.S. employment data on Friday and next week’s consumer price report, which Powell this week said will be key factors in determining whether the central bank will need to go back to the jumbo-sized rate hikes that shook markets last year.

For now, markets are pricing in a nearly 75% chance that the Fed raises rates by 50 basis points at its March 22 meeting, to a range of 5.00 to 5.25%, compared with the 9% chance seen a month ago. Pricing for how high the Fed will ultimately take rates has also shifted, with investors now seeing a 56% chance the central bank brings rates to 5.75% and a 32% chance it takes rates as high as 6%.

Equity valuations, meanwhile, look stretched given the likelihood that rates will remain elevated, dampening future returns, wrote Nicholas Colas, co-founder of DataTrek Research, in a report this week.

“The S&P 500 trades for 17.5x Wall Street analysts’ expected 12-month future earnings, which we continue to believe is simply too high given the uncertainty around rate policy/economic growth,” he said. “We therefore remain cautious on US equities.”

At the same time, history suggests that when the yield of the 3-month Treasury bill rises above that of the S&P 500 – as happened early this year for the first time since the dot com bubble – cash typically outperforms equities, analysts at Capital Economics wrote in a note Thursday.

“We suspect Treasuries will also outperform US equities later this year, as the biggest tightening of Fed policy in four decades finally takes a toll on the economy,” the firm noted.

Still, stocks have managed to hold onto their year-to-date gains so far even as bond yields have risen, with the S&P 500 up 4% and the Nasdaq Composite up nearly 11%. Some investors believe markets will continue grinding higher.

“You can still make money in stocks, but you need to be in the right segment,” said Nancy Tengler, CEO & CIO of Laffer Tengler Investments, in a recent note. “So cyclicals do well in this particular environment, and that’s what we’re focused on.”

But Max Wasserman, senior portfolio manager at Miramar Capital, believes the Fed needs to raise rates by another 100 basis points in order to tame inflation – producing an environment that will likely be unfriendly to U.S. stocks.

Wasserman is focusing on dividend-paying stocks and bonds, which he believes offer more attractive short-term returns given that valuations remain stretched. He does not expect the equity market to have a sustained rally until the Fed begins to cut rates in the second half of 2024.

“You no longer have to hold your nose and invest in stocks because there’s no other alternative,” he said.

(Reporting by David Randall, Editing by Ira Iosebashvili, Nick Zieminski)

By Luc Cohen

NEW YORK (Reuters) – Sam Bankman-Fried’s lawyers said on Wednesday it may be necessary to delay the FTX cryptocurrency exchange founder’s scheduled Oct. 2 criminal trial, arguing it may take more time than expected to review the evidence and prepare a defense.

In a letter to U.S. District Judge Lewis Kaplan, the 31-year-old former billionaire’s lawyers said federal prosecutors in Manhattan had not yet turned over evidence collected from electronic devices belonging to Caroline Ellison and Gary Wang, previously two of their client’s closest associates.

Both have since pleaded guilty and agreed to cooperate with prosecutors. 

The lawyers also noted that prosecutors added new fraud and conspiracy charges late last month, boosting the number of counts to twelve, following the November collapse of Bankman-Fried’s now-bankrupt exchange and his arrest the next month.

In January, Bankman-Fried pleaded not guilty to the original eight counts that he cheated investors and caused billions of dollars in losses, in what prosecutors have called an “epic” fraud.

“While we are not making such an application at this time, we wanted to note this issue for the Court now,” Christian Everdell, one of Bankman-Fried’s lawyers, wrote in the letter.

A spokesman for the U.S. Attorney’s office in Manhattan declined to comment. 

Bankman-Fried rode a boom in the values of bitcoin and other digital assets to an estimated $26 billion net worth, and became an influential donor to U.S. political campaigns.

But his fortune evaporated after concerns about commingling of funds between FTX and Alameda Research, a hedge fund he also owned, spurred the cryptocurrency equivalent of a run on the bank at FTX. 

Bankman-Fried was released on $250 million bond and has been under house arrest at his parents’ Palo Alto, California home.

Kaplan has suggested his bail could be revoked after prosecutors said he may have tried to tamper with witnesses. Prosecutors over the weekend proposed Bankman-Fried remain free with strict limits on his use of technology. 

The trial schedule and Bankman-Fried’s bail conditions are expected to be discussed at a court hearing on Friday.

(Reporting by Luc Cohen in New York; Editing by Lincoln Feast.)

By Jonathan Stempel

NEW YORK (Reuters) – A New York judge rejected a bid by the former Lehman Brothers’ bankrupt European unit to claw back $485 million from bond insurer Assured Guaranty Ltd over transactions that were canceled amid the global financial crisis.

In a decision on Wednesday, Justice Melissa Crane of a New York state court in Manhattan said Assured’s AG Financial Products unit instead deserved to recover about $20 million from Lehman Brothers International (Europe).

The case stemmed from Assured’s July 2009 termination of 28 credit default swaps on which Lehman had bought credit protection.

Lehman and Assured disagreed on how to calculate the “loss” from the terminations.

Crane said Lehman’s calculation, based on hypothetical market prices estimated by its experts, was not reasonable because the financial crisis has “so disrupted” markets that accurate prices did not exist.

“By putting all its eggs in the market price basket, LBIE has failed to show both that Assured’s valuation was unreasonable, and that its own valuation was reasonable,” the judge wrote. “Meanwhile, Assured’s valuation was reasonable and calculated in good faith.”

Crane ruled after a five-week nonjury trial held in late 2021.

Lehman had sought $1.4 billion when it sued Bermuda-based Assured in November 2011. Some claims were dismissed before trial.

Lawyers for Lehman did not immediately respond to requests for comment on Thursday. Assured’s lawyers in a statement called the decision a “significant victory.”

The Sept. 15, 2008 bankruptcy of Lehman Brothers Holdings Inc – once Wall Street’s fourth-largest investment bank – was one of the major triggers of that year’s financial crisis. Lehman’s bankruptcy remains by far the largest in U.S. history.

The case is Lehman Brothers International (Europe) v. AG Financial Products Inc, New York State Supreme Court, New York County, No. 653284/2011.

(Reporting by Jonathan Stempel in New York; Editing by Hugh Lawson)

(Reuters) -Rising stock market prices pumped wealth back into Americans’ pockets at the end of last year, but declining property values, slowed credit growth, and a drop in corporate profits may show the influence of Federal Reserve rate hikes beginning to take hold.

Household net worth rose 2% to $147.71 trillion in the fourth quarter of 2022 from $144.78 trillion at the end of the third quarter, the Federal Reserve reported on Thursday. The value of holdings of equities increased $2.7 trillion, while real estate values dropped by about $100 billion.

The quarterly snapshot of U.S. financial accounts also showed credit growth was slowing among households and businesses as the year ended in the face of a sharp increase in interest rates engineered by the Fed over the course of 2022.

Total domestic nonfinancial debt grew at a 3% annual rate in the fourth quarter, down from 4.5% the quarter before and from 8.8% a year earlier. Household debt growth slowed to a 2.3% annual rate from 6.2% in the third quarter, while business debt growth eased to 3.6% from 4.3%.

After hitting a record $151.9 trillion in the first quarter of last year, household wealth plummeted by more than $7 trillion over the second and third quarters as the Fed’s aggressive rate-hike campaign sent stocks into a bear market.

The Fed has delivered 4.5 percentage points of rate increases since last March as the highest inflation in four decades brought an abrupt end to a period of near-zero percent borrowing costs that had prevailed during the coronavirus pandemic.

The benchmark S&P 500 Index fell by roughly 25% through the first nine months of 2022 before posting a 7% recovery in the fourth quarter to staunch the overall decline in net worth. On the year, though, wealth declined by about $4 trillion from 2021.

The decline in property values at the end of last year was the first since 2012 and coincided with a year-long slump in the housing market, which has stood out as the sector most affected by the Fed’s rate hikes.

Household cash reserves, which had swelled during the pandemic from trillions of dollars in government assistance payments, declined modestly for a third straight quarter.

The combined value of checking and savings deposits, certificates of deposit and money market mutual funds dropped to about $18.1 trillion from $18.3 trillion at the end of the third quarter and from a record high of nearly $18.5 trillion in the first quarter. Savings and time deposits declined to the lowest since the first quarter of 2020 at $10.4 trillion, while checking account balances, which have also been buoyed by a strong job market, slipped for the first time in three years to just below $5 trillion.

The Fed data also suggested that some of the dynamics policymakers have been looking for in the fight against inflation, such as a moderation in corporate profits, may be under way.

The corporate profit share of national income jumped during the pandemic to a high of 14.5% in the second quarter of 2021, and remained above 14% early this year. By the end of  the year it had fallen to 12.8%, comparable to pre-pandemic levels. The share of national income going to employee wages and benefits rose at year’s end to 63.3%.

(Reporting By Dan Burns and Howard Schneider; Editing by Deepa Babington and Andrea Ricci)

By Rajesh Kumar Singh and Abhijith Ganapavaram

CINCINNATI, Ohio (Reuters) – General Electric Co forecast revenue at its cash-cow aviation business to grow by at least low-double digits through 2025, sending its shares to levels not seen since 2018 on Thursday.

The shares rose 6.5% after Chief Executive Larry Culp said at the company’s annual day for investors that a recession was “the last thing on our mind.”

The Boston-based conglomerate’s shares have benefited from strong aerospace demand and the recent spinoff of its healthcare business, even as its renewable energy unit has struggled.

GE stuck to its profit expectations for 2023 despite the dim economic outlook and persistent supply shortages. It expects adjusted earnings per share of $1.60 to $2.00, with revenue growth in the high single digits.

“We’re well positioned to have a strong year,” Culp said.

Through 2025, GE expects profit margins at GE Aerospace to be about 20%, company executives told investors at a conference in Ohio.

A jump in air travel has driven up sales at its aerospace division, which makes and services engines for Boeing Co and Airbus SE jets.

“The bottom line is that management are putting out pretty impressive targets for Aero through 2025, with the long-term framework for Vernova also above our base case,” Wolfe Research analyst Nigel Coe said, referring to GE energy businesses.

Culp said while GE is not recession-proof, it is enjoying “incredible” order backlog and demand.

The company expects the aerospace business to generate double-digit revenue growth this year, translating into an operating profit of $5.3 billion-$5.7 billion.

GE also said it is possible that lucrative repair revenues from the CFM56 engine that powered the previous generation of Boeing and Airbus narrow-body jets would continue for years to come. Planemakers have struggled to raise production, so jets are being retired later than anticipated.

Supply and labor shortages have hurt jet engine output, with CEO Culp saying it was a daily battle to meet jet engine demand.

Nearly half of the industry’s most popular jet engines have not seen the first shop visit, GE said.

GE said it was aligned with Boeing and Airbus on demand for LEAP jet engines through 2024, adding that 2025 supplies were being discussed as part of a standard process.

Engines supplied by CFM International, GE’s joint venture with France’s Safran SA, power Boeing’s 737 MAX jets and about half of Airbus’ A320/321neo family.

The comments imply a commitment to support Airbus plans to lift narrow-body output to 65 jets a month from 45, but leave question marks over the planemaker’s further push to take it to 75 a month. Airbus last month said it could reach production of 65 a month by the end of 2024 and plans to hit 75 a month in 2026. 

Airbus has said it is confident that demand for jets would support the higher production rate but has given itself another year to get there, compared with earlier proposals, due to supply chain pressures.

GE Vernova, the company’s portfolio of energy businesses, including renewables, is expected to report an operating loss of between $200 million and $600 million in 2023.

The troubled renewable business is expected to be profitable in 2024, GE said. However, the unit has failed to turn a profit in the past eight quarters due to weak demand, higher raw materials and labor costs as well as supply-chain pressures.

These troubles have cast a shadow over GE’s spin-off timeline for Vernova, but Culp said energy businesses are “preparing to stand on their own sometime in early 2024.”

GRAPHIC: General Electric on a tear (https://fingfx.thomsonreuters.com/gfx/ce/zdpxdxbkdpx/Pasted%20image%201678385291193.png)

(Reporting by Rajesh Kumar Singh in Cincinnati, Ohio and Abhijith Ganapavaram in Bengaluru; Additional reporting by Tim Hepher in Paris; Editing by Jane Merriman, Arun Koyyur, Nick Zieminski and Daniel Wallis)

By John McCrank

NEW YORK (Reuters) – The Financial Industry Regulatory Authority on Thursday said it fined retail brokerage Webull Financial $3 million for failing to exercise reasonable due diligence before approving customers for options trading, as well as issues around how it responded to customer complaints.

Wall Street’s self-funded watchdog said Webull’s automated system missed red flags and approved customers for options trading who did not meet the brokerage’s eligibility criteria between December 2019 and July 2021.

Webull did not admit or deny FINRA’s findings. The company declined to comment.

Options trading volumes have surged in recent years alongside rallies in so-called meme stocks, as individual investors have used the derivatives to place leveraged bets in hopes of outsized returns.

FINRA fined brokerage Robinhood Markets a record $70 million in June 2021 for “systemic” failures, including failing to properly vet customers before allowing them to make risky options bets. In June 2020, a 20-year-old Robinhood customer took his own life after believing he incurred a large loss using the trading app.

FINRA on Thursday said Webull approved more than 2,500 customers under the age of 21 to trade options spreads, even though the firm’s eligibility criteria required customers have at least three years of options trading experience before being approved for that trading level.

Program errors in Webull’s automated systems also led to 9,000 accounts being mistakenly approved for options trading even though those customers stated they had no investment experience, which should have made them ineligible to trade options under Webull’s criteria, FINRA said.

Separately, the brokerage failed to commit the staff and other resources necessary to keep pace with the hundreds of thousands of customer communications it received, which included complaints, FINRA said.

Webull also did not report certain written customer complaints to FINRA, as required, the regulator said.

(Reporting by John McCrank; Editing by Paul Simao)

By Noele Illien and Oliver Hirt

ZURICH (Reuters) -Credit Suisse has postponed publication of its annual report after a last-minute call from the United States Securities and Exchange Commission (SEC), which raised questions about its earlier financial statements.

The unusual intervention by the U.S regulator is the latest blow to Credit Suisse as it attempts to rebuild investor confidence after a series of scandals and setbacks that have sent its shares plunging and led clients to withdraw billions.

Credit Suisse shares were close to their all-time low in Zurich on Thursday but later recovered much of a 6% loss.

The Zurich-based bank said the SEC had called it late on Wednesday regarding “certain open SEC comments about the technical assessment of previously disclosed revisions to the consolidated cash flow statements in the years ended December 31, 2020, and 2019, as well as related controls.”

The bank had revised how it booked a series of cash flows, including share-based compensation and foreign exchange hedges. 

Credit Suisse said that following the call it had decided to postpone publication of its 2022 annual report.

“Management believes it is prudent to briefly delay the publication of its accounts in order to understand more thoroughly the comments received,” it said, adding that the 2022 financial results “are not impacted”.

The SEC declined to comment on the matter, a spokesman for the organization said.

Other regulatory authorities were not involved, a person familiar with the matter said.

Swiss financial regulator Finma told Reuters that Credit Suisse had informed it of the delayed publication.

“We are in contact with the bank,” Finma said.

‘CONSTRUCTION SITE’

It remains unclear when the annual report will be released. The delay was unusual, according to five attorneys and experts Reuters spoke to .

“The disclosure is strategically and carefully worded so as not to raise alarms,” said Jacob Frenkel, a former SEC enforcement attorney who is now government investigations and securities enforcement practice chair for law firm Dickinson Wright.

It “lays the groundwork for the explanation for the revisions to the financial statements. Nothing about the release has an ‘enforcement’ centric tone.”

Still, the Credit Suisse announcement concerned analysts.

“(It) does not help investor sentiment and it does not help in rebuilding trust,” said Andreas Venditti from Vontobel.

Switzerland’s second-biggest bank has begun a major overhaul of its business, cutting costs and jobs to revive its fortunes, including creating a separate business for its investment bank under the CS First Boston brand.

Daniel Bosshard from Luzerner Kantonalbank described Credit Suisse as “a major construction site” and said “the share is only suitable for turnaround speculators.”

In February, Credit Suisse reported that 2022 brought its biggest annual loss since the 2008 global financial crisis after rattled clients pulled funds from the bank, and it warned that a further “substantial” loss would come this year.

Among a string of scandals, Credit Suisse was hard hit by the collapse of U.S. investment firm Archegos in 2021 as well as the freezing of billions of supply chain finance funds linked to insolvent British financier Greensill.

The bank was also rocked by a prosecution in Switzerland involving laundering money for a criminal gang.

Meanwhile, credit ratings agency Standard & Poor’s downgraded Credit Suisse to just one level above so-called junk status in November last year.

(Additional reporting by John Revill in Zurich; Editing by John O’Donnell, Tomasz Janowski, Alexander Smith and Deepa Babington)