- US, European banks sell off for second day
- Banks’ bond holdings in focus when central banks raise interest rates
- The Ministry of Finance’s monitoring of developments; investors fear “systemic risk”
- The banks’ fall comes amid the end of the cheap money era
- SVB’s efforts to raise capital fail; bank exploring options
March 10 (Reuters) – SVB Financial Group ( SIVB.O ) is exploring options, including a sale, after its efforts to raise capital through a share sale failed, sources familiar with the matter said on Friday, citing a crisis in technology. heavyweight lenders tumbled through global markets, hitting bank stocks.
Shares in SVB were halted on Friday after plunging as much as 66% in pre-market trading.
SVB, which does business as Silicon Valley Bank, was not immediately available for comment.
Treasury Secretary Janet Yellen told lawmakers on Capitol Hill Friday that the department was aware of the latest development and was monitoring the situation, calling it “a matter of concern” when banks experience losses, according to CNBC.
The brutal slide in SVB’s stock, which began on Thursday, spilled over into other US and European banks, with the episode spreading concern about hidden risks in the sector and its vulnerability to rising funding costs.
See 2 more stories
The S&P 500 banking index (.SPXBK) fell 0.7% on Friday after falling 6.6% on Thursday, while the KBW Regional Banking index (.KRX) fell 2.2%. Both were well off previous lows.
Europe’s STOXX bank index ( .SX7P ) fell nearly 5%, set for its biggest one-day slide since March 2022, with most major lenders down, including HSBC ( HSBA.L ), down 5.7% and Deutsche Bank ( DBKGn. DE), a decrease of 8%.
The problems at SVB underscore how a campaign by the US Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market.
“Silicon Valley Bank highlights vulnerabilities across the US banking sector, primarily in the bond holdings held by many large institutions,” said Karl Schamotta, Chief Market Strategist at Corpay.
“Investors fear a repeat of 2008-like dynamics, and this sell-off in the banking sector has raised fears of systemic risk, raising expectations that the Federal Reserve will step in to provide some accommodation if things worsen.”
Bank stocks weighed on the overall U.S. stock market, with the S&P 500 (.SPX) down 0.7%.
“The current liquidity run at Silicon Valley Bank is having a knock-on effect on the broader banking system,” said Rick Seehra, Prudential Lead at Bovill.
TECHNICAL UNDER PRESSURE
The technology sector has been hit hard in the past few months and stress has appeared in other corners of the market as rates rise.
Crypto-focused bank Silvergate Capital Corp ( SI.N ) said on Wednesday it planned to wind down operations and voluntarily liquidate after it was hit by losses following the dramatic collapse of crypto exchange FTX.
Silvergate shares rose to $3.04 on Friday after falling sharply in the previous session. They had traded over 100 dollars apiece. share a year ago.
The crisis at SVB started earlier this week when the bank, which lends heavily to tech startups, launched a share sale to shore up its balance sheet after selling a portfolio consisting mainly of US Treasuries at a loss.
Sources familiar with the situation said on Thursday that some startups had advised their founders to withdraw their money from SVB as a precautionary measure.
On Friday, the US economy added jobs at a solid clip in February, likely ensuring that the Federal Reserve will raise interest rates for longer.
Banks typically invest heavily in government bonds, especially those of their home country. Rising interest rates have caused the price of such bonds to fall, fueling investor concerns that other banks may also be vulnerable.
Earlier this month, the Federal Deposit Insurance Corp said U.S. banks faced a total of about $620 billion in unrealized losses on their securities holdings by the end of 2022.
But banking experts said SVB’s problems were unique and that concerns about the wider sector were unwarranted.
“The knee-jerk market reaction to this risk event looks overdone. But rising costs of deposits and possible deposit withdrawals are likely to pressure sector earnings,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note.
Still, some banks felt the need to reassure the market by issuing statements of a kind not seen since the financial crisis. Commerzbank, one of Germany’s biggest banks, for example, downplayed any threat from SVB, saying it did not see “a corresponding risk for us”.
“The market is treating this as a potential contagion risk,” said Antoine Bouvet, senior rates strategist at ING in London.
Global borrowing costs have risen at the fastest pace in decades over the past year as the Federal Reserve raised US interest rates by 450 basis points from near zero, while the European Central Bank raised the euro zone’s by 300 bps.
Other parts of Europe and many developing economies have done even more.
Neil Wilson, Chief Market Analyst at Markets.com, said the SVB episode could be the “straw that breaks the camel’s back” for banks after concerns about ever-higher interest rates and a fragile US economy.
Written by John O’Donnell, Noor Zainab Hussain and Paritosh Bansal; Additional reporting by Niket Nishant, Emma-Victoria Farr, Pete Schroeder, Jo Mason, Marc Jones, Iain Withers and Yoruk Bahceli; Editing by Toby Chopra and Anna Driver
Our standards: Thomson Reuters Trust Principles.