Companies like HSBC fall as the Wall Street sell-off last night spreads abroad.
The future of a reputable US financial institution has taken center stage as banking and other financial equities around the world have taken a beating due to concerns about their ability to manage the rising cost of money.
SVB Financial Group, the parent company of Silicon Valley Bank, suspended trading in its shares on Friday following a second consecutive day of heavy declines amid rumors that it was seeking an emergency sale.
Its UK counterpart, SVB UK, said it was unaffected by the turmoil because it was a “standalone, independent banking company.
Silicon Valley bank UK has been an independent subsidiary since August 2022 with a distinct balance sheet from the SVB Financial Group and an independent UK Board of Directors.
Wall Street banking equities lost $80 billion Thursday afternoon after SVB and another California bank revealed distress.
First, a prominent crypto-focused lender by the name of Silvergate announced it would be closing its doors due to losses incurred as a result of the collapse of the FTX exchange in 2017.
Shortly after, SVB disclosed a share sale to strengthen its balance sheet.
It reported a higher-than-anticipated “cash burn” and soaring capital costs.
SVB stock fell 70%, dragging down big US institutions like JPMorgan Chase, which closed Thursday more than 5% lower.
Asian and European financial equities followed in Friday’s trading.
Credit Suisse shares fell to an all-time low, while Deutsche Bank shares dropped 8%.
At the London FTSE 100 opening, HSBC and Standard Chartered led the drop, followed by insurers and investment funds.
Due to its prospective exposure to tech funding issues, Ocado led the decliners at the close, down 6.5%.
The FTSE 100 ended the week down 1.7%, or 131 points, at 7,748 points.
Premarket dealing in SVB shares fell 66% due to high deposit withdrawals.
The company was evaluating its options, including the possibility of a sale after its capital-raising efforts failed.
SVB had not yet commented.
According to market analysts, the widespread selling of banking equities followed SVB’s attempt to raise $2.25 billion in response to a $1.8 billion loss on the sale of a $21 billion portfolio.
The portfolio consisted of U.S. Treasury securities and mortgage-backed securities.
Investors have been concerned for months about the impact of rising interest rates, most recently after the chair of the US Federal Reserve signaled last week that the Fed was far from completing its cycle of interest rate increases to combat inflation.
Normally, this would be positive for banking stocks, but holders of US treasuries and mortgage-backed securities – such as significant financial services firms – are suffering because substantial volumes were purchased when interest rates were historically low.
The broader picture for US stocks on Friday was more stable, even though a key employment report revealed that domestic hiring and wage growth stalled significantly in February.
This information alleviated some of the concerns regarding prospective rate increases.
RJ Grant, head of trading at Keefe, Bruyette & Woods in New York, explained the catalyst for the sell-off as follows: “The Silicon Valley raise made everyone nervous about people’s capital levels and deposits.
“It just freaks folks out because Silicon Valley has historically been a very strong, well-run bank. “If they’re having issues now, what about other banks of lower quality and don’t have Silicon Valley Bank’s reputation?”
Rob Carnell, an economist at ING, stated, “I believe there is conjecture that there are broader problems within the US banking system, or that there is that potential.”
Neil Wilson, a markets.com analyst, said he didn’t see the reaction as a Lehman Brothers moment signalling a financial crisis.
“SVB does not represent the wider US banking sector,” he said, even though the stock’s precipitous decline affected sentiment.
Russ Mould, investment head at AJ Bell, said market participants noticed the irony of SVB’s losses on US Treasuries.
He added, “This leaves investors pondering who is exposed to whom, and they are taking no chances by selling banking stocks everywhere.”
