Friday, March 17, 2023, 09:31
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The bankruptcy of SVB is only the beginning of a financial crisis that will result in many credit institutions closing their doors, warns Larry Fink, the chief executive of the world’s largest asset manager.
Fink compares the current crisis not to the turmoil of 2008-2009, but to crisis economic crisis of the 1980s, which had incomparably worse effects.
Both public and private sector leaders are now favoring resilience and national security over cost efficiency, says Larry Fink.
“The price paid for superficial money”
BlackRock’s chief executive raised the specter of a “slow-rolling crisis” in the US financial system following the bankruptcy of Silicon Valley Bank, “with more foreclosures and closures to come.”
The founder of the $8.6 billion fund manager said in the letter to investors and executives that SVB’s collapse was an example of “the price we pay for decades of shallow money,” according to the Financial Times.
The rapid rise in interest rates was “the first domino to fall,” while SVB was an example of the second, Fink wrote, while warning that other regional banks and investors that rely on leverage could follow suit.
Fink said swift regulatory action helped stabilize markets after the biggest bank failure since 2008.
High inflation will persist
He compares recent events to the economic crisis of the 1980s, when more than 1,000 lenders collapsed, and predicts that more companies will have to turn to the capital markets, creating opportunities for investors and asset managers.
But funds invested in illiquid investments such as private equity, real estate and private credit funds “could be another third domino to fall,” particularly if they used borrowed money to grow the returns, he wrote.
“Essentially, public and private sector leaders are giving up efficiency and lower costs in favor of resilience and national security,” he wrote.
It should be noted that BlackRock, as the world’s largest asset manager, has significant stakes in most US companies, and Fink’s annual letter has become required reading for company executives.
“Inflation will persist and it will be harder for bankers to tame. So I think it’s more likely that inflation will stay closer to 3.5% or 4% for the next few years,” says Larry Fink, with most central banks targeting 2%, half of their estimates. its.
Fink identified several other risks to the financial system, including geopolitical tensions and global fragmentation.
