Bank stock rout deepens amid SVB contagion fears

Trevor Hunnicutt and Tom Westbrook | March 14, 2023

Shock waves from the collapse of Silicon Valley Bank have further pounded global bank stocks as assurances from US President Joe Biden and other policymakers did little to calm markets and prompted a rethink on the interest rate outlook.

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.

Banking stocks in Asia extended declines on Tuesday, with Japanese firms hit particularly hard as anxiety about systemic risk sparked a wider rout in markets.

“Bank runs have started (and) interbank markets have become stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey.

“Arguably, liquidity measures should have stopped these dynamics but Main Street has been watching news and queues – not financial plumbing.”

Analysts say uncertainty continues to dog the financial sector, with investors still 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 should other banks fail.

Major US banks lost about $US90 billion ($A135 billion) in stock market value on Monday, bringing their loss in the past three trading sessions to nearly $US190 billion.

Regional US banks were hit the hardest. Shares of First Republic Bank plunged more than 60 per cent as news of fresh financing failed to reassure investors and rating’s agency Moody’s reviewed it for a downgrade.

Europe’s STOXX banking index closed 5.7 per cent lower. Germany’s Commerzbank fell 12.7 per cent and Credit Suisse slid 9.6 per cent to a record low.

Biden said his administration’s actions meant “Americans can have confidence that the banking system is safe”, while also promising stiffer regulation after the biggest US bank failure since the 2008 financial crisis.

“Your deposits will be there when you need them,” he said.

SVB’s customers were given access to all their deposits on Monday and regulators set up a new facility to provide banks access to emergency funds. The Fed made it easier for banks to borrow from it in emergencies.

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

“I recognise the past few days have been an extremely challenging time for our clients and our employees, and we are grateful for the support of the amazing community we serve,” 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 on Monday who lined up outside SVB’s Santa Clara, California, headquarters, offering coffee and doughnuts.

“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.

“A serious investigation needs to be undertaken on why the regulators missed red flags … and what needs to be overhauled,” said Mark Sobel, a former senior Treasury official and US chair of Official Monetary and Financial Institutions Forum, a think tank.

In the money markets, indicators of credit risk in the US and euro zone banking systems edged up.

Emboldened by bets the Fed might have to slow its rate hikes, the price of gold, a popular safe-haven raced above the key $US1,900 level.

Companies around the globe with SVB accounts rushed to assess the impact on their finances. In Germany, the central bank convened its crisis team to assess any fallout.

After marathon weekend talks, HSBC said it was buying the British arm of SVB for Stg1 ($A1.80). HSBC’s Hong Kong listed shares fell more than five per cent on Tuesday.