Shares of some of the largest banks in the world fell on Friday because the failure of the Silicon Valley Bank of California reverberated around financial institutions across the US and in Europe.
Some of the biggest US banks were lower for a second day after heavy losses on Thursday. Bank of America closed down 0.9 percent, having opened nearly 5 percent lower, while Citigroup fell 0.5 percent.
In Europe, Deutsche Bank shares closed down 7.4 percent, Société Générale gave up 4.5 percent and HSBC gave up 4.6 percent. Credit Suisse shares closed up 4.8 percent.
Jitters come from Silicon Valley Bank, a lender focused on technology, which earlier this week revealed that it lost $1.8bn in the sale of securities portfolio and sought to raise more $2.25bn from the capital market, but the shares cratered. There is a US bank regulator taking over.
Trading in banking groups PacWest, Western Alliance and First Republic – all of which appear to have the same depositor profile – experienced a pause after the fall clearly triggered volatility “circuit breakers”. Shares of First Republic ended the day off almost 15 percent while smaller rivals tumbled 38 percent and 21 percent respectively.
Shares of New York-based Signature Bank, known for its services to the cryptocurrency industry, dropped by almost a quarter.
Analysts have attributed the sell-off to investor fears about the declining value of bank bond portfolios and deposits. Banks have told investors they expect deposits to fall between 2 and 5 percent this year, according to research house Autonomous, and there are concerns they will have to sell bonds at a loss to cover outflows or pay higher interest rates to hold them. customers.
The State Street S&P US regional bank exchange-traded fund lost 4.4 percent after falling nearly 8 percent on Thursday. Utah-based Zions saw the biggest drop among larger banks, but fell 10 percent early and ended 2.4 percent lower. KBW’s US bank index, which includes larger lenders, fell 3.9 percent.
Bank of America analysts described the sell-off as “likely overdone” and that there was no connection between idiosyncratic problems at individual banks and the broader sector.
“However, the sell-off also highlights the delayed realization among investors that higher interest rates have been negative for the sector. [earnings] prospects,” he added.
The Stoxx Europe 600 Banks index fell as much as 4.5 percent on Friday, hitting its lowest point in more than a month. The broader Stoxx 600 index closed down 1.4 percent while the bank-heavy FTSE 100 fell 1.7 percent.
Banks are one of Europe’s strongest sectors, with shares up 20 percent over the past six months. Lenders have reaped the rewards of rising interest rates, as profits rise from the difference between what they pay on deposits and what they earn on loans.
Robert Alster, chief investment officer at Close Brothers Asset Management, described the situation as “a storm in a teacup” and said that the right to read from SVB to the big European banks “unwarranted”.
But Alster said higher short-term interest rates than long-term interest rates would “put pressure on margins” at the big banks and that “higher interest rates tend to lead to tighter credit standards which could dampen the economy”.