Largest European energy companies threatened with $1.5 trillion margin call
Governments of EU countries will have to help the largest European energy companies, many of which are on the verge of bankruptcy because of the sharp decline in liquidity.
European energy companies may get a margin call. Europe is now facing a new crisis similar to that which brought about the collapse of the American bank Lehman Brothers 14 years ago and triggered the global financial crisis. Only the culprits of the European financial crisis will not be banks, but energy companies. European energy companies are rapidly losing liquidity. As a result, they’re threatened by a $1.5 trillion margin call on the derivatives market, Bloomberg reported. Many energy companies will need financial assistance from governments. There’s no doubt they’ll get it, because no politician in his right mind would want to get energy companies bankrupt on the eve or in the middle of a tough winter.
Some European countries decided not to wait for the crisis and announced bailout programs for their energy companies to prevent a margin call for European energy companies. Last weekend, the governments of Finland and Sweden became pioneers in saving energy companies. They intend to support Finnish and Swedish energy companies trading on energy derivatives markets.
The crisis intensified on September 2 when Gazprom announced that it was shutting off the Nord Stream 1 gas pipeline for an indefinite period and attributed the decision to an oil leak in the only working turbine at the Portovaya gas station. Moscow said European sanctions against Russia were to blame for the shutdown, while Brussels and Berlin once again accused Moscow of using energy as a weapon and called Gazprom an unreliable partner.
A Finnish government statement said that Helsinki’s proposed bailout scheme is a last-ditch effort to avoid bankruptcy of energy companies. The Finnish Finance Ministry is expected to open a credit line of 10 billion euros for energy companies.
The Swedish government will offer loan guarantees to large electricity producers in the kingdom trading in the energy derivatives market. The total amount of collateral in the market almost tripled over the summer, from 70 billion Swedish kronor (about $6.5 billion) to 180 billion kronor, according to the government.
“The aim of these measures is to prevent a sharp decline in liquidity that threatens to spread to other areas of the financial system,” the Swedish Finance Ministry said in a statement.
We previously reported that China’s Liquefied Natural Gas Companies Increase LNG Sales to Europe.
Startups under threat worldwide after Silicon Valley Bank collapse
High-tech startups have been hit. Companies around the world are facing a fight for survival after the collapse of a major US investment bank, Silicon Valley Bank (SVB). There was a “huge disruption” in the industry globally, Bloomberg reported, citing market participants. The entire stock market, and the S&P 500 in particular, plummeted.
Startups under threat
The bankruptcy of the lending institution, in particular, affected the co-founder of startup Birdly Inc. Quang Hoang. The entrepreneur invested about $10 million in SVB and is still unable to repay the money four days after the bank was shut down by the California Department of Financial Protection and Innovation. However, the entrepreneur is far from the only one who has faced similar problems, the article specifies.
“Hoang was one of thousands of founders around the world this week trying to track down their money after days of chaos and who are completely rethinking the way they run their own businesses. Startups from Silicon Valley to London to Tel Aviv to tech hubs across Africa have depended on SVB as a one-stop store for everything from storing their fortunes to personal mortgages,” the story says.
Now investors and technology companies are predicting a complicated financial future for themselves, even if the bankrupt bank begins to attract deposits from customers under a new name. Many market participants faced a “financial payback” for their overreliance on the credit institution’s risky investment assets, the memo said.
On March 11, the California Department of Financial Protection and Innovation closed Silicon Valley Bank, a large investment bank based in Santa Clara County. All insured deposits from SVB were transferred to Deposit Insurance National Bank of Santa Clara. Depositors were expected to have access to their accounts by March 13.
Earlier we reported that the U.S. Department of Justice has begun an investigation into the circumstances of the collapse of Silicon Valley Bank.
U.S. Justice Department Opens Investigation into Silicon Valley Bank Collapse
The U.S. Justice Department is set to investigate the circumstances surrounding the bankruptcy of Silicon Valley Bank (SVB), which was the largest since the global crisis in 2008. The entire stock market collapsed, in particular the S&P 500. This was reported by The New York Times (NYT), citing two people familiar with the situation.
The sources of the newspaper noted that the investigation is at a very early stage, and it is not yet very clear what the focus of federal investigators and prosecutors will be.
Lawyers believe that the main point that may attract investigators is that a few weeks before the crash of SVB, several top managers sold their shares. The sale of securities brought the sellers millions of dollars.
Market experts pointed out that some top managers sold their shares by previously announced plans, so that such sales would not seem illegal. For this purpose, the date of sale of securities and their volume are chosen in advance. However, some politicians have already said that all of the bank’s top managers should return the money received from the sale of shares.
Earlier on Wednesday, the Wall Street Journal, citing its sources, wrote that creditors of the bankrupt bank SVB joined to make profits after the collapse of the financial institution.
Earlier, we reported that an American billionaire declared the collapse of American capitalism.
U.S. Billionaire Says ‘Collapse of American Capitalism’
Is the collapse of the U.S. economy coming? The Silicon Valley Bank (SVB) bailout package released by American regulators shows that American capitalism is “crumbling before our eyes”. Ken Griffin, founder of the hedge fund Citadel, told The Financial Times.
“There has been a loss of financial discipline because the government bailed out depositors completely. It would have been a great lesson in moral hazard. The loss to depositors would have been insignificant, and it would have increased the importance of risk management,” he said.
In Griffin’s view, the U.S. government should not have taken such drastic action. Griffin’s position contrasts with that of another senior hedge fund manager, Bill Eckman, who on March 13 urged the Federal Deposit Insurance Corporation to “clearly guarantee all deposits now,” warning that “hours matter.”
Eckman wrote on Twitter that “our economy will not function effectively without our community and regional banking system.”
The situation is already affecting the Euro / U.S. Dollar exchange rate.
We previously reported that The Fed announced an emergency bailout of the U.S. banking sector.
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