SVB fall heightens fears of global banking crisis

By Trevor Hunnicutt and Tom Westbrook

March 14 (Reuters) – The fall of Silicon Valley Bank further hurt global banking stocks on Tuesday, after guarantees offered by the U.S. government failed to calm investors, prompting a rethink of the outlook for interest rates. interest.

The US government’s efforts to reassure markets and depositors came after emergency measures were taken to bolster banks with access to additional funding, which however failed to allay investor fears of possible contagion to other financial institutions around the world.

Asian bank stocks extended their slide on Tuesday, with Japanese companies hardest hit and concerns about systemic risk weighing on the broader market.

“The spread of the bank run has started and interbank markets have become stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably the liquidity measures should have slowed this momentum, but companies looked at the news and consumption, not the financial plumbing.”

A frantic race to reassess interest rate expectations has also rattled markets, with investors betting that the Federal Reserve will balk at further hikes next week.

Traders are currently seeing a 50/50 chance of no rate hike at this meeting, with rate cuts expected for the second half of the year. At the start of last week, bets on a 25 basis point hike were slim, with a 70% chance of a 50 basis point hike.

Several analysts say uncertainty continues to weigh on the sector, at a time when investors remain very concerned about the health of smaller global banks, the prospect of stricter regulation and a preference to protect depositors at the expense of shareholders. in the event of the failure of other banks.

Big U.S. banks lost about $90 billion in trading on Monday, bringing their losses over the past three trading sessions to nearly $190 billion.

US regional banks were the hardest hit. Shares of First Republic Bank plunged more than 60% as investors failed to provide reassurance over new funding and ratings agency Moody’s downgraded its rating.

The European STOXX banking index closed down 5.7%. Germany’s Commerzbank fell 12.7% and Credit Suisse plunged 9.6% to a record low.

US President Joe Biden has said his government’s actions mean “Americans can have confidence in the safety of the banking system”, while promising tougher regulation in the wake of the biggest US banking crisis since 2008.

“Their deposits will be there when they are needed,” he said.

ACCESS TO DEPOSITS

SVB customers had access to all their deposits on Monday and regulators introduced a new mechanism to give banks access to emergency funds. The Federal Reserve has made it easier for banks to borrow in an emergency.

In a letter to customers, new SVB CEO Tim Mayopoulos said the bank remains open and conducts business as normal in the United States, expecting to resume cross-border transactions in the coming days.

“I recognize that the past few days have been extremely difficult for our customers and employees, and we are grateful for the support of the incredible community we serve,” said Mayopoulos, former CEO of federal mortgage finance company Fannie Mae, who was appointed to run SVB for the Federal Deposit Insurance Corporation (FDIC) of the United States.

U.S. banking regulators tried to reassure nervous customers queuing outside SVB headquarters in Santa Clara on Monday by offering coffee and donuts.

“Feel free to do business as usual. We’re just asking for a little time because of the volume,” FDIC employee Luis Mayorga told waiting customers.

Regulators also moved quickly to close New York-based Signature Bank, which had come under pressure in recent days.

Mark Sobel, a former senior Treasury official and chairman of the Official Forum of American Monetary and Financial Institutions, said: “There needs to be a serious investigation into why regulators missed the red flags…and what needs to be checked. .”

Canada’s banking regulator has decided to start performing daily checks on banks that will allow it to monitor their liquidity, The Globe and Mail reported on Monday.

CRISIS

In the money markets, credit risk indicators for the US and Eurozone banking systems have increased.

Emboldened by bets that the Federal Reserve may have to slow its rate hikes, the price of gold, a popular safe haven, climbed above the $1,900 benchmark.

These expectations also weighed on Japanese banking stocks, which fell 6.7% in early Asian trading and hit their lowest level since December.

Yunosuke Ikeda, chief equity strategist at Nomura Securities, said the shift to much less aggressive Fed rate hike expectations has also clouded prospects for a possible pivot in Japan away from ultra-high interest rates. down.

“The pressure to relax is extremely great,” 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 accounts at the SVB have been quick to assess the impact on their finances. In Germany, the central bank has assembled its crisis unit to assess the possible consequences.

After marathon talks over the weekend, HSBC said it was buying the UK arm of SVB for one pound ($1.21). Shares of Hong Kong-listed HSBC fell more than 6% on Tuesday.

Although SVB UK is a small company, its sudden demise has prompted calls for the government to help Britain’s start-up industry, and in particular its highly exposed biotech sector.

(Reporting by Trevor Hunicutt in Washington and Tom Westbrook in Singapore; Additional reporting by Alun John in London and Rae Wee in Singapore; Writing by Lincoln Feast; Editing in Spanish by Benjamín Mejías Valencia)