The shares of the main world banks plummet this Monday, as the measures taken by the United States to guarantee the deposits of the technological bank Silicon Valley Bank they failed to reassure investors about the financial strength of other banks.
The STOXX European banking index plunged 5.8%, after losing 3.78% on Friday, leaving it on track for its biggest drop in two days since March 2022, shortly after Russia invaded Ukraine.
Commerzbank AG fell as much as 12.7%, while Credit Suisse Group AG briefly hit a new all-time low after tumbling more than 15%.
US banks were also down in pre-market trading, with Bank of America shedding 3.7%. Smaller lenders remained under pressure, with private First Republic Bank sinking around 60% and PacWest around 40%.
Trading volumes were high, at 160% of the one-month average for the EURO STOXX 50, according to a note seen by Reuters, while the European volatility index hit its highest level since October 2022.
“There is a feeling of contagion and when we see a rally around the financial sector, there is a rally taking place in all markets”said Mark Dowding, chief investment officer at BlueBay Asset Management in London. He said he didn’t think many of the problems plaguing US banks would show up in their European peers.
The bonds held by SVB “have been worth almost nothing in a short space of time, so in that context the effect translates more broadly,” he added.
After a dramatic weekend, US regulators intervened on Sunday following the collapse of SVB, the biggest failure of a US bank since 2008, which suffered a run on savers after a big hit to a bond portfolio.
SVB clients will have access to all their deposits from Monday and regulators have put in place a new mechanism to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow in an emergency.
In turn, the Fed also moved quickly to close the New York bank. SignatureBank, who had been under pressure in recent days. But more tensions are expected.
First Republic Bank said Sunday it had secured additional financing through JPMorgan Chase, giving it access to a total of $70 billion in funds.
In Germany, the central bank assembled its crisis team on Monday to assess the possible consequences in the local market, although no emergency measures were foreseen in Europe.
Following extensive talks over the weekend, HSBC announced in London early Monday that it was buying Silicon Valley Bank UK, SVB’s UK subsidiary, for one pound ($1.21). According to HSBC, as of March 10, the subsidiary had loans worth about 5.5 billion pounds and deposits worth about 6.7 billion pounds.
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