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Wednesday, March 29, 2023

Nasdaq suspends its actions and banking sector suffers widespread falls

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The shares of SVB Financial Group were suspended from trading on Friday after plummeting 66% in pre-opening trading, as investors were reluctant to the company’s efforts to raise capital.

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The collapse of the bank of technology companies fueled a wide stock selloff that wiped out billions in market value from lenders around the world.

The brutal fall of the lender’s shares spread to other US and European banksfor fear of hidden risks in the sector and their vulnerability to a higher cost of money.

He S&P 500 banks index fell 6.6% on Thursday and opened lower this Friday.

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He STOXX European banking index fell more than 4%, on my way to its biggest daily drop since early June, loss-making for most major banks, including HSBCthat down 4.5%and Deutsche Bank, which lost 7.9%.

The SVB crisis fueled growing investor concerns about the Vulnerability of banks in the face of rising money prices.

He commerzbankone of the largest German banks, issued a statement in which downplayed any threat from the SVBstating that he did not see “a corresponding risk to us”.

SVB, one of the main banking partners of the US technology sector, was forced to raise fresh capital after selling a losing bond package to meet the cash demands of depositors.

“The knee-jerk reaction of the market to this event risk seems exaggerated. But the rise in the cost of deposits and possible deposit withdrawals are likely to put pressure on the sector’s profits,” he wrote in a note. Mark Haefele, investment director of UBS Global Wealth Management.

SVB shares had plunged to $35.60 before the open when trading was halted.

Their titles had already plummeted a 60% on Thursdaythe worst day in its history, after reveal plans to seek more than $2 billion from investors.

“The market considers it a possible contagion risk,” he said. Antoine BouvetING rates strategist in London.

“It makes sense to me that a remote probability of a crisis of the entire US banking system also come with a small probability of contagion to Europe“, said.

end of cheap money

SVB’s troubles highlight the risks posed for banks by end of cheap money. The banks they tend to invest heavily in public debtparticularly that of their country of origin. Interest rate hikes have sparked a massive bond saleleaving banks exposed to potential losses on the securities they hold.

neil wilsonchief market analyst at Markets.com, said the SVB episode could be “the straw that broke the camel’s back” for banks, following concerns about rising interest rates and a fragile US economy.

“The problem is the leverage of the system,” said James Athey, Abrdn’s chief investment officer. “Too easy monetary policy for too long.”

Source: Ambito

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