SVB shockwaves rattle global banks in grip of contagion fears

By Reuters – published by Yahoo!news and Matichon

SILICON Valley Bank’s collapse pressured global bank stocks further today (Mar. 14) as investors fretted over the financial health of some lenders, in spite of assurances from US President Joe Biden and other policymakers.

An indicator of credit risk in the eurozone banking system leapt to its highest since mid-July, as worries about contagion risks from the collapse of two US banks compounded investor concerns about the impact on lenders of rising interest rates.

The VIX volatility index, Wall Street’s “fear gauge”, neared six-month highs overnight, although futures pointed to a modestly higher Wall St open on Tuesday, with US regional banks bouncing in pre-market trading after recent brutal losses.

Banking giants Citi, Wells Fargo and JP Morgan were also 1%-3% higher in the pre-market.

Europe’s banking index fell 0.6% after posting its biggest percentage loss in more than a year on Monday, although some said banks in the region were less vulnerable.

“A critical difference between the European and US systems, which will limit the impact across the Atlantic, is that European banks’ bond holdings are lower and their deposits more stable,” credit rating agency Moody’s said in a note.

Still, shares of embattled Credit Suisse fell 4.5% after it said customer “outflows stabilised to much lower levels but had not yet reversed” in its 2022 annual report.

And Britain’s HSBC, which bought SVB’s UK arm on Monday, rescuing a key lender for British technology start-ups, slipped 1.4% in its fourth consecutive day of losses.

Asian bank stocks hit

Asian banking stocks had earlier extended their declines, with Japanese firms hit particularly hard as anxiety about systemic risk sparked a wider rout in markets.

Japanese financial institutions have sufficient capital buffers to absorb losses caused by external factors, including risks caused by SVB’s collapse, the Bank of Japan said.

In Thailand the SET Index plunged 48.22 points, or 3.07%, to close at 1,524.85 points, after the morning session opened at 1,573.07 points amid lingering fears over the collapse of Silicon Valley and Signature banks in the US. It peaked at 1,572.36 points and touched a low at 1,518.66 points with the turnover being 103,839.82 million baht.

Mr. Nattaphon Khamthakrua, head of Yuanta Securities’ analysis department, said overall the Thai stock market moved in a negative territory throughout the trading session. The SET index had plunged by over 54 points just before the market closed but then edged up a little. There was a selling pressure mainly in large stocks.

Biden’s efforts to reassure markets and depositors came after emergency US measures to shore up banks by giving them access to additional funding failed to dispel investor worries about potential contagion to other lenders worldwide.

“The dramatic collapse of Silicon Valley Bank and widespread market turmoil in the subsequent days is ‘part of the process’ of the world tightening financial conditions after years of cheap money,” Morgan Stanley co-president Edward Pick said.

“This is part of the process of the knob being turned to tighten financial conditions to make sure that we are on our way to normalising a higher interest rate world,” Pick said.

“But there might well be surprises, there might well be reactions,” he added on Tuesday.

A furious race to reprice interest rate expectations also buffeted markets as investors bet the US Federal Reserve will be reluctant to hike next week.

Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis point hike was fully priced in, with a 70% chance seen of 50 basis points.

Short-end yields in the euro zone tumbled again as investors bet the European Central Bank would moderate its policy tightening at Thursday’s meeting, with chances of a Bank of England hike next week also seen receding.

Antonio Patuelli, head of the Italian Banking Association told Il Corriere della Sera he hoped that in the wake of the SVB collapse “the ECB will do more thinking than the already announced decision to raise rates further”.

Yunosuke Ikeda, chief equity strategist at Nomura Securities, said the shift to much less aggressive Fed hike expectations has also tempered the outlook for an eventual pivot in Japan away from ultra-low interest rates.

The prospect of higher rates had been “the reason investors have been really excited about Japan bank stocks”, Ikeda added.

Analysts say uncertainty continues to dog the financial sector, with investors extremely worried about the health of smaller global banks, the prospect of tighter regulation and a preference to protect depositors at the expense of shareholders.

A wave of customers have applied to shift their accounts to large US banks such as JPMorgan Chase and Citigroup from smaller lenders after SVB’s collapse last week, the Financial Times reported on Tuesday.

Major US banks have lost nearly $190 billion since the sell-off began, with regional lenders like First Republic Bank, which plunged more than 60% on Monday, hit hardest.

Biden said on Monday that emergency measures taken by his administration meant Americans would be confident the US banking system is “safe”, while also promising stiffer regulation after the biggest US bank failure since the 2008 financial crisis.

Open for business

In a letter to clients, SVB’s new CEO Tim Mayopoulos said it was open and conducting business as usual within the United States and expected to resume cross-border transactions in coming days.

“I recognize the past few days have been an extremely challenging time for our clients and our employees,” said Mayopoulos, a former CEO of federal mortgage finance firm Fannie Mae who was appointed by the FDIC to run SVB.

US bank regulators sought to reassure nervous customers who lined up outside SVB’s Santa Clara, California, headquarters on Monday, offering coffee and donuts.

“Feel free to transact business as usual. We just ask for a little bit of time because of the volume,” FDIC employee Luis Mayorga told waiting customers.

Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days, while Canada’s banking regulator took steps to begin daily check-ins with banks that will enable it to monitor their liquidity, The Globe and Mail reported on Monday.

CAPTIONS:

Top: Silicon Valley Bank branch in Santa Clara, California. Photo: Reuters and published by Yahoo!news

First insert: A graphic image of the stock market plunging. Credit: Matichon

Second insert: US President Joe Biden speaks about the banking system in the Roosevelt Room of the White House on March 13, 2023 in Washington, DC. Photo: Anna Moneymaker/Getty Images and published by CNN

Third insert: Customers wait in line outside a branch of Silicon Valley Bank in Wellesley. Photo: Reuters and published by Yahoo!news

Front Page: A pedestrian passes a Silicon Valley Bank branch in San Francisco  on Monday March 13, 2023. Photo: AP/Jeff Chiu and published by CNA

(Reporting by Trevor Hunicutt in Washington and Tom Westbrook in Singapore; Additional reporting by Alun John and Sinead Cruise in London and Rae Wee in Singapore; Writing by Lincoln Feast, Shri Navaratnam and Alexander Smith; Editing by Anna Driver, Sam Holmes, Elisa Martinuzzi and Catherine Evans)

Also read: Minimal impact on Thailand from collapse of 2 US banks

US bank collapse biggest failure since 2008

Concern over impact of election lingering till August

Thai economy to grow 3.8% this year, inflation to ebb: Finance Minister

Air pollution cost Thai economy 4.616 trillion baht in 2019: Academic

Over 900,000 foreign tourists came to Thailand during Jan. 1-15: TAT