There has been a great deal going on for investors to mull over. Measures to boost the economy in the Budget from Chancellor Jeremy Hunt were well signalled and should have been the focus of attention for domestic markets. Unfortunately, unexpected events can often disrupt investors’ plans. The collapse of the Silicon Valley Bank (SVB) was just such an event, causing markets to move sharply into reverse. It set me thinking to those momentous events of fifteen plus years ago when Bradford and Bingley collapsed and the mighty Royal Bank of Scotland had to be bailed out by the government.
In those days, as a seasoned market commentator, I was often asked to share my views on Radio 4’s Today programme. John Humphrys was the lead presenter when I made the comment that all banks are potentially bust. It certainly grabbed his attention. And it’s true. Banks finance their lending through investing wisely and taking deposits. If those placing their deposits want their money back, then the bank needs to realise its investments as calling in loans is an altogether more difficult and dangerous exercise.
If those investments fall short of their anticipated value, Armageddon ensues. And so it did with SVB. Rising interest rates driven by higher inflation meant that those so-called safe haven investments of government bonds had dropped in value and would not meet the needs of nervous depositors seeking the return of their investment. But this is not 2008 revisited, though it is becoming clear that there will be some collateral damage. It is more of a localised storm, but one that has nevertheless damaged confidence and seen the shares of many banks plummet.
But to return to the Budget, there certainly was a great deal of ground covered in Mr Hunt’s first spell at the despatch box as Chancellor. And there were a few surprises, like the abolition of the lifetime pension limit. Sadly, his measures were insufficient to prevent the slide in the stock market from gathering pace, though sterling clearly benefited from the more upbeat assessment of the country’s economic outlook. In the end all will depend on whether the detail in this Budget is capable of generating the growth so much needed by the Conservative government. Only time will tell.