A Swiss Shotgun Wedding

Plus: What is a library in the age of e-books? ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

March 20, 2023

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Good morning,

Your bracket is busted. But so is everyone else’s. For just the second time in March Madness history a No. 1 seed succumbed to a No. 16 seed when Purdue fell to the Cinderella squad at Fairleigh Dickinson University on Friday. And that was just the beginning of an unusually lucky run for underdogs in the tournament.

No. 15 seed Princeton beat No. 2 seed Arizona and then No. 7 seed Missouri, No. 4 seed Virginia lost to No. 13 seed Furman, and No. 8 seed Arkansas beat top-seeded Kansas to gain entrance to the Sweet Sixteen. So far we’ve seen a historic seven upsets — commonly defined as a team beating another ranked five seeds or more higher. The upshot is that your co-worker who picked their bracket solely on team mascots will probably end up winning the office pool.

Morning Brief

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Credit Suisse gets rescued.

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Ceci n’est pas une bibliothèque.

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Small banks are getting buffeted around.

Banking

Credit Suisse Sells to UBS In Move to Slow Contagion

The epicenter of the Great Banking Earthquake may have been Silicon Valley, but the aftershocks have been especially violent in Zurich.

On Sunday, UBS agreed to acquire its longstanding rival, the oft-embattled Credit Suisse, for more than $3 billion. Swiss authorities are slashing red tape — lest they risk losing the nation’s standing in the banking sector.

Stop the Spread

The red flags (both with and without the Swiss white cross) had been flapping around Credit Suisse well before SVB’s catastrophe made everyone second-guess their favorite wealth management firm. Last year, deposits dropped 40% to $252 billion while total assets plummeted 30% to roughly $571 billion. And, in a harbinger of things to come, the bank already witnessed a social media-fueled exodus of wealthy clients last October amid concerns about its overall health. And then SVB went kerplunk.

By Wednesday, the bank’s largest shareholder Saudi National Bank announced it had no interest in increasing its 9.9% stake. The Swiss lenders’ share price suffered its worst single-day drop in history when bond prices fell below distressed levels, and outflows ran nearly $11 billion a day last week. According to the FT, Credit Suisse was forced to tap a $50 billion lifeline from the Swiss National Bank.

It wasn’t enough. Rumors swirled that BlackRock could swoop in. The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (Finma), however, reportedly favored a solution that kept Credit Suisse, well, Swiss. Enter UBS:

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UBS, the largest private bank in the world and Switzerland’s top lender, agreed to acquire the beleaguered bank in an all-share deal worth $3.2 billion — well below the roughly $7 billion market value Credit Suisse held at the end of Friday.

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SNB has agreed to float UBS a $100 billion liquidity line in the process. The Swiss government will also provide a loss guarantee of roughly $9.7 billion, though only after UBS suffers the first $5 billion of losses on specific assets.

SNB and Finma also moved to circumvent a UBS shareholder vote on the acquisition to complete the deal ahead of Monday trading. “It was indispensable that we acted quickly and find a solution as quickly as possible,” SNB president Thomas Jordan said at a press conference Sunday.

Defining the Terms: For UBS, the move is as much about business as it is about slowing the spread of contagion. “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS Chairman Colm Kelleher said after the deal. Isn’t this the part where he’s supposed to tell us all to stay calm?

– Brian Boyle

Publishing

Legal Battle Over Free Digital Book Lending Heats Up

(Photo Credit: CCAC North Library/Flickr)

A library by any other name would still be a place to borrow and read books, right?

Not so simple. Four publishing giants including Penguin Randomhouse and HarperCollins filed a lawsuit three years ago against a nonprofit called the Internet Archive over its freely accessible online collection of books. A judge will hear the publishers’ pleas on Monday, and the outcome could have huge ramifications for copyright law.

Throwing The Book At ‘Em

The Internet Archive operates a giant digital library called The Open Library which consists of over 20 million books that have been scanned and uploaded page by page. It loans these scans to users one at a time in a practice called Controlled Digital Lending (CDL).

This contrasts with the approach most physical libraries take to digital lending. Libraries often strike a licensing deal with publishers to lend e-books. So here’s the big question: is scanning a physical copy of a book the same thing as an e-book, and should it follow the same rules?

The publishing giants filed the lawsuit in 2020 when, in response to the onset of the pandemic, The Open Library temporarily waived its cap on how many people could borrow a book at once. Now, however, the publishers are keen to prove a larger point about CDL:

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The publishers argue the CDL model cheats authors and publishers out of their rightful dues. “If this conduct is normalized, there would be no point to the Copyright Act,” Maria Pallante, chief executive of the Association of American Publishers, told The Wall Street Journal.

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The Internet Archive’s rebuttal is that CDL more closely mirrors how libraries lend out actual paper books than the licensing model that has become the industry standard for e-books.

“Plaintiffs would like to force libraries and their patrons into a world in which books can only be accessed, never owned, and in which availability is subject to the rightsholders’ whim,” the nonprofit argued in legal documents, per The Nation.

Contrarian Librarians: A group of eight current and former university librarians wrote a column vigorously defending The Internet Archive in Inside Higher Ed. They argue a victory for the publishers would “jeopardize the future development of digital libraries nationwide.” Our advice? Never mess with librarians, they know way too much…

– Isobel Asher Hamilton

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Banking

Smaller Banks Want FDIC To Insure Everything

Regional banks across the US want a regulatory buffer, but they might be getting a Buffett instead. As in the really rich guy from Omaha.

A bloc of midsize lenders has officially asked federal regulators to guarantee that all bank deposits will be insured by the FDIC for the next two years in the wake of the Silicon Valley Bank failure and the ongoing crisis of faith in smaller banks.

Get The Oracle on the Phone

In a letter to federal officials, the Mid-Size Bank Coalition of America pleaded that extending the FDIC backstop to deposits larger than the $250,000 limit would be key in cauterizing the bleeding from smaller banks to larger ones in the wake of runs on SVB and Signature Bank. For regional lenders, the request is something of a hail mary as confidence in the system is already plumbing dangerous lows, and larger banks are already flexing their muscles as evidenced by last week’s $30 billion liquidity injection into First Republic Bank by US banking totems like JPMorgan Chase, Bank of America, and Morgan Stanley.

While the MBAC’s ask has support from a growing list of lawmakers, it appears that key Capitol Hill decision-makers are also turning to an old friend for help. According to reports, Berkshire Hathaway founder Warren Buffett has been engaged in talks with Washington throughout the SVB fallout and topics included the Oracle of Omaha infusing the banking sector with cash as he did with Goldman Sachs and BofA in the wake of the 2008 financial crisis.

Buffett and/or the FDIC might need to move quickly:

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The SPDR S&P Regional Banking ETF which tracks shares in smaller lenders has fallen by almost 25% since SVB imploded, squeezing those banks at a very inopportune time and fomenting fears of more failures.

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“It is imperative we restore confidence among depositors before another bank fails,” the MBCA implored in its letter.

Perhaps, a merger? While teamwork and a Batline to Omaha appear to be the plan for now, there is at least one signal that smaller lenders are willing to help each other out. The FDIC announced Sunday that a subsidiary of New York Community Bancorp has agreed to buy a $38 billion chunk of Signature’s deposits and loans. What wasn’t in the chunk? Signature’s $4 billion in crypto deposits, which will be returned to customers.

– Thornton McEnery

Extra Upside

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Blood Money: Elizabeth Holmes has missed three payments worth $25 million owed to Theranos creditors, CNBC reports.

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No Copycats: University of Chicago researchers are building a tool to help artists protect their work from AI mimicry.

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