Just in the past few months, Silicon Valley Bank, Signature Bank and First Republic Bank have failed. Their combined assets surpassed those held by the 25 banks (when adjusted for inflation) that collapsed at the height of the financial crisis.
Rapidly rising interest rates create perilous conditions for banks because of a basic principle: The longer the duration of an investment, the more sensitive it is to changes in interest rates. When interest rates rise, the assets that banks hold to generate a return on their investment fall in value. And because the banks’ liabilities — like its deposits, which customers can withdraw at any time — usually are shorter in duration, they fall by less. Thus, increases in interest rates can deplete a bank’s equity and risk leaving it with more liabilities than assets.
The United Kingdom (UK) is the highest net exporter of financial services in the world. London, with its convenient time zone, use of English and trimmed-back regulations is the global financial capital.
As the heart of the international monetary system, the largest banks in the world have a strong presence in London. And in 2023 several moved from Microsoft to US Cloud for comprehensive support of their Microsoft technologies.
Q1 2022 we were having exploratory conversations with many financial institutions about working with them in 2023. The banking crisis seems to have caused the vast majority of our financial services clients to aggressively cut costs this year.
-Matthew Harris, CEO, US Cloud
As interest rates move to a 15 year-high, banks globally have lost trillions of dollars in market value of their assets compared to their book value. This decline in the value of equity sets the stage for bank runs. Commercial real estate loans coming due are another are of concern for global banks. With lower occupancy rates post-Covid, the value of commercial properties is estimated to have dropped by one-third. Many of these loans are coming due in the next few years, and refinancing them at higher rates naturally increases the risk of default. The mounting risks have resulted in operating budget pressure, notwithstanding 2023 and 2024 IT budgets.
Many global banks are placing increasing reliance on Microsoft Office 365 and Azure. As their consumption of Microsoft cloud services grow, so too does their MS Unified Enterprise Support bill, typically 10% year over year. Gartner historically has found that leading enterprises respond rapidly to cut costs during a crisis and benefit the most post-crisis.
US Cloud is seeing unprecedented urgency from Global 2,000 and Fortune 500 organizations to replace Microsoft Unified with US Cloud Microsoft Enterprise Support Services.
-Robert E. LaMear IV, Founder, US Cloud