Ravi Chopra’s Azora Capital successfully shorted all four of the US banks that failed in March and sent financial markets reeling.
Last year, Ravi Chopra was travelling through Europe to shop his latest short idea to potential investors.
All this amounted to what Chopra called “the ingredients for a banking crisis”, a recipe he had become familiar with during his 20-year career specialising in financial institutions. “I looked around and there were so many sector funds, but there really weren’t many with real dedication to financial services,” he said.
But while the industry was focused on credit threats, Chopra believed not enough attention was being paid to the other key factor driving financial institutions – interest rates. Between May 2022 and May 2023, the US Federal Reserve raised the funds rate from near zero to about 5 per cent.“But they weren’t buying Peloton bikes, they bought things like Treasury securities at the lowest yields in the history of the United States. And so they had to go out to 10- or 15-year maturity schedules to get any kind of yield,” the CIO said.
So when the US Fed began ratcheting up rates by hundreds of basis points in 2022 and 2023, the bond portfolios of some banks were suddenly losing value fast.Rising rates had pushed the market value of the banks’ long-duration bond portfolios negativejust as deposits had started fleeing bank accounts to other alternatives. That meant those banks that hadn’t insured their deposit base were suddenly facing a liquidity crunch.
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