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Tuesday, March 28, 2023

Financial chaos: Bank shares plummeted after SVB bankruptcy

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The shares of the main world banks plummet this MondaySince 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.

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The pan-European STOXX 600 index closed the day down 2.3%, with banking, financial and insurance stocks, along with energy stocks, all suffering higher selling.

Risk aversion moves led to stocks Credit Suisse to fall 9.6%to a new all-time low. Germany’s Commerzbank plunged 12.7%, France’s Societe Generale and Spain’s Sabadell fell 6.2% and 11.4%.respectively.

HSBC fell 4.1% after the UK bank acquired SVB’s UK subsidiary for £1, thus rescuing a key lender to UK tech startups.

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US banks fell in pre-market trading but managed to moderate the declines except for the First Republic Bank that continues with losses of up to 50% and PacWest Bancorp with 20%.

Other financial stocks that are falling but at a lower level are the cases of Citigroup Inc (-6.4%) and Wells Fargo (-5.4%). Major banks like Goldman Sachs, Bank of America, JPMorgan and Morgan Stanley are not feeling the brunt and are only down as much as 2%.

European stock markets Madrid Ibex

Photo: Madridiario

“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 on Sunday that 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.

Source: Ambito

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