© Reuters. Customers wait in line outside a Silicon Valley Bank branch in Wellesley, Massachusetts, U.S., March 13, 2023. REUTERS/Brian Snyder
By Trevor Hunnicutt and Tom Westbrook
(Reuters) – Shockwaves from the collapse of Silicon Valley Bank hit shares of global banks further on Tuesday, as reassurances from President Joe Biden and other lawmakers did little to calm markets and prompted a rethink of stocks. interest rate outlook.
Biden’s efforts to reassure markets and depositors came after US emergency measures to prop up banks by giving them access to additional funding failed to allay investor concerns about possible contagion to others. lenders around the world.
Bank shares in Asia extended their declines on Tuesday, with Japanese firms hit particularly hard as anxiety over systemic risk led to a broader slide in the markets.
“Bank runs started (and) interbank markets got stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably liquidity measures should have stopped this dynamic, but Main Street has been watching news and tails, not financial plumbing.”
A furious race to reprice interest rate expectations also hit markets as investors bet the Federal Reserve will resist raising rates next week.
Traders currently see a 50/50 chance of no rate hike at that meeting, with rate cuts discounted for the second half of the year. A 25 basis point rise was fully priced in early last week, with a 70% probability of 50 basis points.
Analysts say uncertainty continues to plague the financial sector with investors still extremely concerned about the health of smaller global banks, the prospect of tighter regulation and a preference to protect depositors at the expense of shareholders in the event of a other banks fail.
Major US banks lost about $90 billion in stock value on Monday, bringing their loss over the past three trading sessions to nearly $190 billion.
Regional banks in the US were the most affected. Actions of Bank of the First Republic (NYSE:) plunged more than 60% as news of new financing failed to reassure investors and ratings agency Moody’s (NYSE:) revised the rating down.
The STOXX European banking index closed with a fall of 5.7%. Germany’s Commerzbank (ETR:) fell 12.7% and Credit Suisse slid 9.6% to a record low.
Biden said his administration’s actions mean “Americans can have confidence that the banking system is safe,” while pledging tighter regulation after the biggest US bank failure since the 2008 financial crisis.
“Your deposits will be there when you need them,” he said.
Chart: SVB, signature bank (NASDAQ:) first bank failures since 2020 SVB, Signature Bank first bank failures since 2020- https://www.reuters.com/graphics/USA-BANKS/SILICONVALLEY/zdpxdxzlwpx/chart.png
ACCESS TO DEPOSITS
SVB clients had access to all their deposits on Monday and regulators set up a new facility to provide banks with access to emergency funds. The Fed made it easy for banks to lend it money in an emergency.
In a letter to clients, SVB’s new chief executive, Tim Mayopoulos, said the bank was open and operating as usual within the United States and expected to resume cross-border transactions in the coming days.
“I recognize that the last few days have been an extremely challenging time for our customers and our employees, and we are grateful for the support of the incredible community we serve,” said Mayopoulos, former CEO of federal mortgage finance firm Fannie Mae. , who was appointed by the FDIC to run SVB.
US banking regulators tried to reassure nervous customers on Monday who lined up outside SVB’s headquarters in Santa Clara, California, to offer coffee and donuts.
“Feel free to transact business as usual. We just ask for a little time due to volume,” Luis Mayorga, an FDIC employee, told waiting customers.
Regulators also moved quickly to shut down Signature Bank of New York, which had come under pressure in recent days.
“There needs to be a serious investigation into why the red flags were missed by regulators … and what needs to be looked at,” said Mark Sobel, a former senior Treasury official and US chairman of the Official Forum of Monetary and Financial Institutions. , a group of experts.
Canada’s banking regulator has moved to begin daily check-ins with banks that will allow it to monitor their liquidity, The Globe and Mail reported Monday.
Chart: The rise and fall of SVB and Signature Bank- https://www.reuters.com/graphics/USA-BANKS/SILICON%20VALLEY/lgvdkorwzpo/chart_eikon.jpg
FALL
In money markets, credit risk indicators in the US and Eurozone banking systems rose.
Emboldened by bets that the Fed might have to rein in its rate hikes, the price of gold, a popular safe haven, spiked above the key $1,900 level.
Those expectations also weighed on Japan’s bank shares, which fell 6.7% in early Asian trading to their lowest level since December.
Japanese financial institutions have sufficient capital reserves to absorb any losses caused by external risks, such as rising interest rates abroad, the Bank of Japan said on Tuesday. He did not directly mention the collapse of SVB.
Yunosuke Ikeda, chief equity strategist at Nomura Securities, said the shift to much less aggressive Fed hike expectations has also dimmed prospects for an eventual shift in Japan away from ultra-low interest rates.
“The pressure to unwind is extremely great here,” Ikeda said. The prospect of higher interest rates had been “the reason investors were really excited about Japanese bank stocks.”
Companies around the world with SVB accounts scrambled to assess the impact on their finances. In Germany, the central bank called in its crisis team to assess any consequences.
After marathon talks over the weekend, HSBC said it was buying SVB’s UK arm for one pound ($1.21). HSBC’s Hong Kong-listed shares fell more than 5% on Tuesday.
Although SVB UK is small, its sudden demise prompted calls for government help for Britain’s start-up industry and its highly exposed biotech sector in particular.
