No banks collapsed over the weekend for the first time in a while. It’s a shame because I had a really funny newsletter introduction written about customers losing their deposits. I’ll save it for the next collapse, but by then you might’ve lost interest.

The lowdown

• 🏦 First Citizens Bank in advanced talks to acquire what’s left of SVB.

• 🪶 Elon Musk puts a valuation of $20 billion on Twitter, less than half of what he paid.

• 📉 Deutsche Bank is the latest major financial institution to show signs of distress.

Flex your finance muscle

Debt Service Coverage Ratio

While deposit flight and unrealized losses on bond portfolios are the major issues facing banks right now, some fear that losses on commercial property loans could be the next domino to fall before a credit crunch.

To understand the problem, it is useful to understand the concept of a debt service coverage ratio (DSCR) – a financial metric used by lenders to assess the ability of a borrower to repay debt obligations.

A DSCR is calculated by dividing the net operating income of a property (or business) by the total debt service payments due in each period. The net operating income is the revenue generated by the property (such as rent), minus any operating expenses.

In many areas of the Commercial Real Estate (CRE) market, DSCRs are tumbling, as interest rates have increased and rents have fallen. This makes it hard to make new loans or roll over existing ones and so banks could be left holding a load of distressed property. Even more problematic is that some 70% of CRE loans are held by small and medium size banks ($) which have been most affected by the current banking turmoil.

Featured stories

UK competition watchdog greenlights Microsoft/Activision deal

The UK’s competition regulator has changed its stance on Microsoft’s acquisition of Activision Blizzard, clearing the way for the $75 billion deal. The regulator had previously suggested that Microsoft would have to sell the Call of Duty business for the deal to go through. 

The regulator said it no longer believed the acquisition would lead to a “substantial lessening of competition” in the console market and had new evidence suggesting that any move by Microsoft to make Call of Duty exclusively available on Xbox would be “significantly loss making under any plausible scenario” ($).

Shares in Activision Blizzard rose around 5% on the news it was not game over for the deal, but are still below Microsoft's $95 offer price.

The content we're consuming today

• WSJ: Many Startups Operate Without a CFO. That Was a Challenge as SVB Collapsed.

• Bloomberg: All Your Modern-Day Bank Run Questions, Answered ($).

• Odd Lots podcast: Is it time for public checking accounts at the Fed.

Off-balance sheet items

• Succession is back! I thought the first episode of Season 4 was great but reviews have been kind of mixed. And another one.

The bottom line