March 27, 2023 7:59 am

Blundering banks and boring old pensions

Some problems we can’t control, others we definitely can …

Recently, Money Means mailers have focused on one specific topic. But with a lot going on in the financial space we’re here to explain recent events …

And to politely enquire about your pension.

Ain’t sunny in Silicon Valley

Alarm bells were ringing this month when Silicon Valley Bank (SVB) saw its value plunge by roughly $10bn. At one point the bank’s stock was down 87%.

In a nutshell, SVB had bought up a lot of what are usually considered “safe” assets, such as government-backed bonds, during the pandemic. But with rising interest rates, those assets began to lose money.

SVB is known as a ‘weaker’ lender in that it largely provides loans and liquidity for private start-ups that, generally speaking, burn through a lot of cash. It’s a business model that unlocks big rewards when times are good, and carries a lot of risk when they’re not …

And right now they’re not. So when word spread that SVB was in trouble, account holders wanted out. Customers requested withdrawals totalling an eye-popping $42bn, and only a US government intervention could calm fears and add some temporary stability.

Meanwhile in Switzerland …

While SVB’s problems are impacting other US banks in a similar space — namely Signature and Silvergate Capital — recent problems at Credit Suisse could have much wider ramifications.

Credit Suisse is one of the biggest financial institutions in the world and one of just 30 lenders said to be “systemically important” to the health of the global financial system.

Like SVB, Credit Suisse’s problems also centre on liquidity and rising interest rates, but customer concerns, shareholder fears and tanking share prices only began when the bank’s biggest backer said it wouldn’t put in more cash to bridge a gap.

In truth, onlookers have questioned Credit Suisse’s operational health for years. Several commentators have been waiting for Credit Suisse, the so-called “weak link” in the global financial chain, to come undone – and current conditions have been just the catalyst.

Another banking crisis?

Anyone old enough to remember 2007/8 will see the potential for banks to topple like dominos and naturally ask the question are we heading for another global financial crisis?

While knockout blows to SVB and the “systemically important” Credit Suisse would certainly pack a punch, the answer (at least for now) is unclear.

But in a series of tweets, Mark Zandi, chief economist at Moody’s Analytics, laid out four ways the current crisis differs from the Global Financial Crisis (GFC) of 2007/8.

To paraphrase:

  1. In 2008 all financial institutions were pulled into the chaos, that’s not the case now
  2. The system learned lessons and updated its playbooks to prevent a GFC repeat
  3. The US government stepped in quickly to safeguard SVB clients, just as other significant global banks (USB) are looking at ways to support Credit Suisse
  4. The economic backdrop is very different. Developed economies’ employment rates are good with several, the UK being one, predicting growth, not recession, in 2023.

How’s your pension?

Unfortunately, none of us are powerful enough to singlehandedly stave off a recession or a banking crisis.

In fact, any decent economist will tell you that another financial crisis is always a question of when, not if.

So instead of worrying about the uncontrollables, we need to look to things we can control. And recent pension stats tell us our financial futures are a vital place to start.

In an article amusingly entitled ‘Check my pension? No thanks I’ll have a skinny chai latte’, Money Alive reported research which lays bare the problem UK under-35s have with their pensions, and their pension providers:

  • 56% say they spend more time queueing at Starbucks than reviewing their pension
  • 49% say pension comms are unclear or difficult to understand
  • 46% describe their provider’s communications as “not very engaging”
  • 76% believe their provider should make it “easy to grasp”
  • 57% say that making pensions “more interactive” will increase their engagement

In life there are uncontrollables, but there are also controllables – and your financial future is more the latter than the former. Too many people leave it too late to arrange a pension when the younger you plan it, the more advantageous it’ll be come retirement.

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