A Wall Street bank’s top strategist has pointed to a big drop in loans because of stricter rules.
Mike Wilson, the top stock strategist at Morgan Stanley, says that the failure of Silicon Valley Bank (SVB) and the subsequent banking crisis has led to a credit crunch in the US. He pointed to numbers that show that banks are making it harder to get loans.
The warning comes more than a month after big withdrawals led Silicon Valley Bank and Signature Bank to fail in just a few days. Top Wall Street banks ended up giving $30 billion in the form of savings to a third lender, First Republic, to help it out. Investors were afraid that First Republic would be the next big company to fail, so the big players stepped in.
Wilson said in a note seen by Business Insider that the last two weeks had seen the sharpest drop in loan levels ever. He says that the drop is because US banks are trying to make up for the fast pace of money flight in the month since SVB failed.
Wilson said in a note seen by Business Insider that the last two weeks had seen the sharpest drop in loan levels ever. He says that the drop is because US banks are trying to make up for the fast pace of money flight in the month since SVB failed.
“The data suggest that a credit crunch has started,” the analyst wrote in a note on Sunday. He pointed out that US lenders have lost $1 trillion in deposits since the Federal Reserve started raising interest rates almost a year ago.
Wilson says that the fact that big stock indexes have stayed the same since SVB went bankrupt shouldn’t be seen as a sign of recovery. Instead, it should be seen as a sign that stocks are at risk of a sudden drop, like what has happened to small caps and bank stocks since March.
“We would say to investors who cheered last week’s inflation data because it was lower than expected, be careful what you wish for,” Wilson said, pointing out that the March Consumer Price Index report showed that inflation has been rising less than predicted.
“If/when sales start to disappoint, the drop in margins can happen much more quickly, and that’s when the market can get ahead of the drop in earnings we’re expecting.”
In February, Wilson said that US stocks, which had risen to unrealistic highs, could fall 26% in the next few months.
