MoneyWeek

Plenty of fund managers will have had some sleepless nights recently, but not Fundsmith’s Terry Smith. “I never invest in bank shares,” he says in the Financial Times. Banks need too much leverage to make an “adequate return”. NatWest, for instance, has £5 of shareholders’ equity to finance £100 of assets, so it is geared 20 times; the average company in the US blue-chip index, the S&P 500, is geared three times. Around 52% of NatWest’s assets are made up of loans. All it takes to wipe out the equity, then, is for 10% of the loans to go bad. Before that happens depositors will notice the problem and trigger a run on the bank. Cue the next problem, says Smith: a panic can infect perfectly healthy banks. He tells…

An unnamed influencer on OnlyFans received tax relief on breast surgery after successfully arguing that it was a legitimate business expense, says The Mail on Sunday. HM Revenue & Customs allows self-employed entertainers to claim relief on cosmetic surgery if it was done for professional purposes, and a test case in 2003 ruled that a radio broadcaster could claim for getting his teeth straightened after landing a job on television, but this is the first reported case involving breast enhancement. OnlyFans, an online platform where users pay to access work from content creators, is primarily used for adult content, but also hosts other performers. Love Island star Megan Barton-Hansen (pictured) has reportedly made £1.5m from the site in the past two years. She spoke of having a breast operation in…

“Here we go again,” says Jeremy Warner in The Telegraph. “Little more than a decade after the financial system last went belly up,” we are once again “peering over the cliff edge into the abyss” of another banking crisis. As the rescues of Credit Suisse (see page 16) and US regional banks demonstrate, “whatever the safeguards, however big the required capital and liquidity buffers, when push comes to shove… beleaguered governments” have little choice but to ride to the rescue of bankers in distress. Banks are better capitalised The problems in today’s banking sector are “totally different from the issues of 2008”, says David Buik on LBC. Post-crisis reforms mean “banks now require almost ten times the amount of capital to do the same level of business they did 15…

Credit Suisse bondholders are discovering that “life is unfair”, says Shuli Ren on Bloomberg. Investors in the CHF16bn-worth (£14bn) of the bank’s Additional Tier 1 (AT1) bonds were wiped out as part of the Swiss rescue deal over the weekend. AT1 bonds, also known as contingent convertibles, or “CoCos”, were conceived after the 2008 financial crisis as a way for banks to raise additional capital. They pay investors high yields, but come with a “hidden hand grenade”: if the bank runs into trouble they can be converted into equity (and written down). The idea is that bank losses will thus be borne by private investors rather than taxpayers. While AT1s are riskier than other bonds, they are still supposed to be safer than shares, says Ross Clark in The Spectator.…

“The planets are aligning again for gold,” says Étienne Goetz in Les Echos. Prices topped $2,000 an ounce on Monday for the first time in a year. The yellow metal last exceeded $2,000 on 10 March 2022, just after Russia’s invasion of Ukraine. The latest rush into gold, a traditional safe-haven, shows that investors have reacted to the banking panic with similar alarm. It also reflects bets that the US Federal Reserve will be forced to slow interest-rate increases while going easier on inflation. That is a favourable set-up for gold, which has been squeezed over the past year by competition from rising US bond yields. Gold pays no interest or dividends, but that becomes less of a drawback when real interest rates (interest rates adjusted for inflation) are on…

“The end of the ‘everything bubble’ has finally hit the banking system,” says Satyajit Das on MarketWatch. Over the past year, central banks’ attempts to unwind “an economic and financial structure built upon an artificially low cost of money” have shaken tech stocks, cryptocurrencies and UK gilts. Now it is the turn of US, European and Japanese banks, which have jointly lost $460bn in market value in March. This reckoning was overdue, says Larry Elliott in The Observer. “Financial crises have occurred on average once a decade over the past half century,” but this one was delayed by a prolonged period of “ultra-low interest rates and periodic injections of electronic cash from central banks” (known as quantitative easing, or QE). Now something has finally broken. As Dhaval Joshi of BCA…