Who’ll Rescue Bank Stocks?

Plus: Chick-fil-A is looking for nesting places abroad ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

March 14, 2023

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Good morning.

If you love reading The Daily Upside and want to go a layer even deeper into global economics and geopolitics, then you’re going to love what we’re cooking up.

Behind closed doors, Wall Street and Washington often work hand in glove, shaping the world of power, and now tracking it all is Power Corridor, written by Leah McGrath Goodman. Starting Wednesday, this twice-weekly newsletter will deliver original reporting and analysis on the key players, events, and ideas leading the way – who’s doing what and why, and how it affects us all. We will bring you unparalleled insights into the forces affecting our world today (yes, the first edition will dive deep into the fallout from Silicon Valley Bank’s implosion). Stay on top of the shifting dynamics between Wall Street and Washington, while journeying through the fast-moving terrain of global events, economics, and geopolitics. All right in your inbox.

Morning Brief

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Small banks need a friend.

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Diamond Sports is down in the count.

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A three-piece and a soda for foreign markets.

Banking

In the Wake of SVB, Fearful Investors Turn on Bank Stocks

Not a single US bank failed on Monday, but you would have been forgiven thinking otherwise if you just looked at the thumping bank stocks took.

After the fall of both Signature Bank and Silicon Valley Bank this past weekend, shares in US lenders sold off dramatically to start the week as panicky investors feared panicky customers would remove their money from increasingly panicky small and regional lenders.

Secure, Contain, Protect

On Sunday, the Federal Reserve announced a $25 billion emergency loan program for banks to try and stop further runs. It appeared to do the trick as far as customers pulling deposits, but didn’t exactly create a deeper sense of relief in the US banking system. In fact, the rescue seemed to ramp up the confusion and nail-biting as Wall Street bet that customers would take their deposits to megabanks JP Morgan and Wells Fargo. If that were to happen, lending throughout the system could freeze up and banking services would become more expensive for the majority of US households as fees increase.

Investors trying to get ahead of the SVB contagion weren’t waiting around to find out. Lenders like First Republic Bank, Western Alliance, PacWest, and Zions all saw their stocks plummet, with the market punishing them for their outsized reliance on deposit accounts above the $250,000 FDIC insurance threshold. Before its collapse, SVB had the highest such rate, almost a third higher than First Republic’s, which saw its stock close down almost 62% on Monday.

SVB’s aftershocks could be felt all over:

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Rates on 30-year fixed mortgages dropped to 6.57% on Monday, shedding almost half a point since last Wednesday as the bond market reacted to one of the most volatile weeks in the history of US banking.

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In response to the crisis, the Federal Home Loan Banks system (a key source of cash for regional lenders) is moving to raise $88 billion through a sale of short term bonds in what appears to be a major signal that regulators believe more small and regional banks will require funding to backstop their deposits.

President Joe Biden tried to assure everyone things will be fine. “Look, the bottom line is this: Americans can rest assured that our banking system is safe. Your deposits are safe,” he said in a brief speech Monday morning.

Not Dead Yet: It might not be RIP for SVB. According to reports Monday afternoon, US regulators have not abandoned hope of selling what’s left of tech’s favorite bank even though they couldn’t find a taker over the weekend. CNBC reported that superregional PNC Bank kicked the tires on SVB but came away less interested after doing so. But it’s nice to know the FDIC is staying positive.

–Thornton McEnery and Griffin Kelly

Sports Media

Diamond Sports Expected to File for Bankruptcy This Week

For Diamond Sports, it’s the bottom of the ninth and they’re down to their last strike.

Carrying roughly $8 billion in debt following a $10.6 billion deal to acquire 21 regional sports networks (RSNs) from Disney in 2019, the broadcast company, a subsidiary of Sinclair that operates the Bally Sports brand, is now widely expected to file for bankruptcy by the end of the week. At least it’s not a bank.

Cutting Out the Middle-Reliever Man

Diamond is the latest victim of cord-cutting. RSNs used to be a decent business: networks would pay tens of millions for the rights to local broadcasts and, more importantly, the right to sell lucrative live-event ad space and collect the steady carriage fees that every cable bundle subscriber passed their way, whether or not they even watch sports.

But then came Netflix and Hulu, and, well, you know the rest. With far fewer cable subscribers than expected, Diamond missed a $140 million interest payment to bondholders last month, and nearly all of its 12 MLB rights contracts could be unprofitable this year, sources told The New York Post. The death of RSNs could significantly impact the bottom line of America’s favorite pastime — and now the league is scrambling to make sure fans can actually watch their teams:

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Local TV deals can account for anywhere between 20% and 50% of overall revenue for MLB teams, depending on the market, sources told the WSJ, with many small to midsized city teams selling their rights for up to $60 million a year.

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Should Diamond file for bankruptcy and fall behind on MLB team payments, the league would essentially take control of its local broadcasts. Commissioner Rob Manfred plans to stream the games for free in local markets while negotiating more favorable contracts with cable and satellite distributors, sources told The Post.

MSG’s Sac Fly: While streaming may feel like a healthy embrace of modernity for the 122-year-old sports league, it’s hardly a no-brainer solution. After all, it’d take quite a few $10-a-month subscriptions to make up for the $60 million RSN contracts teams are used to. Last month, the MSG Network, which carries New York Knicks and New York Rangers games, launched a $30-per-month streaming service, a digital step forward likely designed to help avoid its own possible bankruptcy this fall, according to The Post. When even RSNs in New York are struggling, it’s tough to see how the ones in Cincinnati or Milwaukee won’t whiff.

– Brian Boyle

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Food & Beverage

Chick-fil-A is Going International with Europe and Asia Expansion

(Photo Credit: Scuder/Flickr)

Take these crispy wings and learn to fly.

US-based fast-food chicken chain Chick-fil-A is looking to expand beyond the states to establish new locations in Europe and Asia by 2026, The Wall Street Journal reported Monday.

Golden Brown

Despite what Chick-fil-A might claim, it didn’t actually invent the fried chicken sandwich. Seriously, do you think it took till 1946 before someone started putting breaded chicken between more bread? However, the family-owned business that pioneered the Southern staple topped with a pickle and spicy sauce can be credited with giving it mass commercial appeal.

Chick-fil-A has seen outstanding growth recently. Its restaurants averaged $6.3 million in sales for 2021, and despite having fewer than 3,000 locations in the US, it’s the third largest fast food chain in the country by sales, according to consulting firm Technomic. That’s impressive considering that the largest chains – McDonald’s and Starbucks – have a combined 30,000 stores across the nation. So while there’s still plenty of room to grow stateside, the Atlanta-based chain wants to go abroad in the next three years:

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Chick-fil-A plans to spend $1 billion between now and 2030 on the expansion. The news follows similar announcements from McDonald’s and Starbucks, which plan to open thousands of new locations in China over the next two years.

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It’s unclear exactly how many kitchens Chick-fil-A wants to open overseas, but the privately-owned company will stick with its very protective policies. Chick-fil-A corporate owns all of its restaurants, meaning franchisees don’t build equity and they can’t sell or pass on their stores to the next generation. It’s also very rare that an operator is allowed to run multiple locations.

“We feel like it’s time to continue to innovate and try and test how we will do in international markets so that we can learn,” CEO Andrew Cathy told the WSJ.

Try Again: This isn’t the first time Chick-fil-A tried roosting in other countries. In the late ‘90s, locations in South Africa failed to gain enough attraction and went belly up. In 2019, the company received flack for its donations to groups with anti-gay agendas, and as result, a UK store went out of business in just a few months. That same year, though, it did find footing in Canada, which now has eight restaurants. With fried chicken being the fast food of choice in many Asian markets – millions of Japanese eat KFC on Christmas – Chick-fil-A wants a piece of the chicken pot pie.

-Griffin Kelly

Extra Upside

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Can we switch seats? Biden says families with young children shouldn’t have to pay more to sit next to each other on flights.

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Forget all that digging and blood. These diamonds are made from air.

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Slap shot: Oscar viewership surged to a 3-year high.

Just For Fun

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