The essential crisis advisor for the banking sector

Key Advisor

There are many differences between the fallout from the Silicon Valley Bank collapse and the 2008 financial crisis, but one similarity is the man trying to clean it up: H. Rodgin Cohen, known as Rodge, senior chairman of the law firm Sullivan & Crowell.

The soft-spoken Cohen was at the center of efforts to save Silicon Valley Bank and the First Republic, the latter involving a call between Federal Reserve Chairman Jerome Powell, Treasury Secretary Janet Yellen and JPMorgan Chase boss , Jamie Dimon. Here’s what to know about one of the most influential players in the banking crisis who didn’t make the headlines.

Mr. Cohen is a sought-after adviser in banking crises, and he’s worked on almost all of them over the past few decades. “Rodge is the gold standard for banking lawyers – no one comes close to his level of reliability in the whole area of ​​substantive banking law,” said Sarah Raskin, former Undersecretary of the Treasury. She added that she still finds herself in lawyer rooms asking, “What would Rodge say?”

Mr. Cohen also once played a role in an international crisis: during the Iran-Contra affair, he advised American banks that released Iranian funds as a condition for releasing American hostages.

He has been with Sullivan & Cromwell for over 50 years. After a run on the Continental Illinois Bank that forced a government seizure in 1984, Mr. Cohen conducted its negotiations with the FDIC He represented the Bank of New York in its $1.48 billion bid for Irving Bank, one of the first hostile bank takeovers, in 1988.

During the 2008 financial crisis, he represented buyer or seller in nearly every major banking transaction, including the government-backed sale of Washington Mutual to JPMorgan Chase. He was in such high demand that he went from advising Lehman Brothers before its bankruptcy to advising Barclays, which bought a substantial part of the company, after its collapse. “Every time I looked up, it seemed like Rodge was in the room,” Henry Paulson, the former Treasury secretary, told The Times in 2009.

This crisis may require new maneuvers. Mr. Cohen advised Silicon Valley Bank as it sought a buyer and advised the First Republic as it claims a lifeline. (The bank’s decision to inject some $30 billion in capital from 11 banks was a page from a well-tested joint intervention playbook, including for Continental Illinois.)

But as the First Republic continues to falter – and questions swirl about the extent of government intervention – the question now for the First Republic and others is what the 2023 playbook will look like. past patterns continue, Mr. Cohen will have a role to play in drafting it. —Lauren Hirsch

IN CASE YOU MISSED IT

A risky vacation. Silicon Valley Bank has operated without a chief risk officer for much of the past year, reports The Wall Street Journal. The job is among the most thankless in the industry, but SVB’s collapse underlines just how important it is.

Profit motive. Elon Musk cut funding to OpenAI in 2018, leaving it without a way to pay for the costly labor of training its AI models on supercomputers, Semafor reports. Shortly after, the company announced that it would create a for-profit entity.

Palm payment. JPMorgan Chase plans to test new technology that would allow consumers to pay with their palms or faces at select US merchants. The bank, one of the world’s largest payment processors, expects the technology to account for $5.8 trillion in transactions by 2026.

AI on AI Reid Hoffman, the co-founder of LinkedIn, wrote a book on artificial intelligence with the help of GPT-4, the new language model of Open AI, funded by Hoffman.

Is this a “Minsky moment”?

The “Minsky moment” last came into the air during the 2008 financial crisis, and some pundits are now using it to comment on the current banking crisis. It describes the point after a long bull run where it becomes clear that asset values ​​are not sustainable and an epic crash is looming.

The back story: The term was coined by economist Paul McCulley in 1998 as asset bubbles burst and is based on economist Hyman Minsky’s “financial instability hypothesis”. His hypothesis holds that over an extended period of prosperity, investors take increasing risk until loans exceed what borrowers can repay and they begin to sell safe assets, causing markets to fall and creating a cash shortage.

Does the expression apply to what is happening at the moment? Probably not. SVB didn’t fall because it was overleveraged – rather, runaway depositors forced it to sell assets at deflated values, so technically SVB wasn’t a Minsky moment, writes Zongyuan Zoe Liu, in charge of economic policy at the Council on Foreign Relations. But JPMorgan analysts see a potential Minsky moment ahead as interest rates rise and economic engines crumble, citing concerns over global banking woes, among other signals.

14 percent

– THE drop in the number of Chinese billionaires last year as the ultra-rich paid for China’s zero-Covid policy, a regulatory crackdown on private enterprise and a property collapse.

Switzerland wiped out Credit Suisse bondholders, and that’s a big deal

When the Swiss government forced the marriage of UBS and Credit Suisse, it canceled about $17 billion of the latter’s bonds and prioritized shareholders over bondholders, writes Joe Rennison of The Times. , upsetting the usual order of who takes losses first in a bankruptcy. In the words of Standard Chartered CEO Bill Winters, this could have “profound” implications for how banks are run and for global regulation.

The deal targeted an obscure part of the debt market. Additional Tier 1, or AT1, bonds are issued by many European banks. They are taken into account in their capital requirements because, in crisis situations, they can be amortized and converted into equity to prevent the bank from going bankrupt.

The Swiss regulator Finma defended the decision write down Credit Suisse AT1 bonds, affirming that it was necessary “to protect the customers, the financial center and the markets”. Finma added that the AT1 bonds include contractual language that they can be “written at a viability event”, if the government gives it the power to do so.

But after the writedown, AT1 bonds from other European lenders, including Barclays, Standard Chartered and BNP Paribas, all fell sharply, even though EU regulators said they would respect the conventional hierarchy of who benefits first. in the event of bankruptcy and the shareholders would be the first affected. As concerns swirled around Deutsche Bank, causing its share to fall as low as 15% yesterday, its bonds also fell. The dollar bond fell from 96 cents on the euro at the start of the month to less than 70 cents yesterday.

Winters says Switzerland’s move could change how banks are valuedbecause Credit Suisse’s bonds were written off while the bank was solvent. “The issue is not whether regulators have confidence in our solvency. Does the market have confidence in our liquidity? he said at a conference in Hong Kong.

Bondholders can sue. Law firms Quinn Emmanuel and Parras Partners are vying to represent niche investors like Centerbridge and Davidson Kempner, as well as traditional fund managers like Pimco and Invesco. But they don’t have long to argue their case: Action must be taken within 30 days of the deal, according to people familiar with the process.

On our radar: The final season of “Succession”

The fourth and final season of “Succession” begins tomorrow. With all the recent dramas Among the real-life Murdochs — Rupert, 92, announcing his plans for a fifth marriage, a $1.6 billion libel lawsuit and a failed attempt to merge two parts of a giant media empire — you won’t You may not have missed the fictional media dynasty that bears more than a slight resemblance to the family. But early reviews suggest “Succession” is worth watching – especially given the promise of an actual conclusion. The Guardian called it “television’s most harrowing and pulverizing drama” (which seems like a compliment). Vogue says it’s “love at first sight”, and Rolling Stone wrote, “It’s full steam ahead until the end”.

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