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By Geoffrey Smith
Investing.com -- Banks are in the spotlight again, with Europe leading the way down after a mystery spike in Federal Reserve lending to other central banks. Payments company Block is the latest to feel the wrath of short-seller Hindenburg Research, and oil slumps as the Biden administration says it will take its time to refill the Strategic Petroleum Reserve.
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1. Banks under pressure again amid spike in Fed lending
European banks slumped, as investors took fright at a gradual buildup of circumstantial evidence suggesting that the sector’s problems are far from over.
The Federal Reserve on Thursday reported a sharp spike to $60 billion in loans under its FIMA repo facility, which makes dollars available to overseas central banks in emergencies. While there is no confirmation of any connections, the reporting period covers the hasty deal to merge Credit Suisse (SIX:CSGN) with UBS (SIX:UBSG), its stronger local rival.
UBS stock slumped on Friday after Bloomberg reported that both it and its new acquisition are under investigation in the U.S. on suspicion of having helped Russian oligarchs get around western sanctions.
Deutsche Bank (ETR:DBKGn) stock also fell 12% to a five-month low, while its credit default swap spreads widened sharply, without any obvious trigger (other than a two-decade history of reckless mismanagement which its current CEO appeared to have ended).
2. Hindenburg downs another
Fresh from its reverberating bet against India’s Adani Group, short-sellers Hindenburg Research landed a heavy blow against Block (NYSE:SQ), the payments company formerly known as Square.
Block stock was down another 4.7% in premarket by 06:00 ET (10:00 GMT) after losing 15% on Thursday in response to the report.
Hindenburg had accused the company, founded by ex-Twitter CEO Jack Dorsey, of systematically misleading its investors and clients and avoiding regulation. It highlighted the frequency with which rappers, in particular, boasted of using Block’s Cash App function for fraudulent or illegal purposes.
Block said it is considering legal action. Hindenburg’s action has ensured the question of how to sustain the heroic valuations of tech companies with little or no profitability at a time of high interest rates.
3. Stocks set to open lower; regional banks down only a little
U.S. stocks are set to open lower again, reversing Thursday’s gains to put them on course for a negative week. The spotlight will once again be on the banking sector, although the regional banks that have commanded so much attention over the last two weeks are down in premarket by far less than their European counterparts. The Fed’s weekly balance sheet showed that overall lending from the Fed’s facilities was broadly stable, albeit banks shifted more of their loans to the new and more lenient BTFP program.