A small US lender focused on US tech companies and startups has sparked a sell off in global banks, including the FTSE 100’s leading banks.
SVB, or Silicon Valley Bank, set about raising capital yesterday and triggered a chain of events that left investors questioning the stability of the financial system.
SVB launched a $1.8bn placing to help cover losses in their bond portfolio. This raised concerns about the health of the bank and the possibility of a bank run. SVB themselves have called for calm.
Nonetheless, SVB shares have been destroyed in frenetic trade and major US indices suffered yesterday. The volatility spilled over into Europe’s session and the FTSE 100 tanked 2% early on Friday while the French CAC and German DAX were down around 1.5%.
Contagion
The big question is around potential contagion in the international financial system and whether SVB’s issues will be limited to other smaller lenders, or if the world’s largest financial institutions will be impacted. There is no indication large banks are under any pressure at this point.
Some analysts have highlighted the ‘sell first, ask questions later’ nature of this mornings trade in Europe’s biggest banks.
Barclays was down over 8% at one point on Friday while Deutsche Bank was down nearly 10% before recovering. These are some of Europe’s largest banks and well capitalised institutions, and the move is mostly based on sentiment, rather than any immediate financial strains.
“In a heavily interconnected banking industry it’s not so easy to compartmentalise these sorts of events which often hint at vulnerabilities in the wider system. The fact SVB’s share placing has been accompanied by a fire sale of its bond portfolio raises concerns,” said AJ Bell investment director Russ Mould.
“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable – the SVB situation is a reminder that many institutions are sitting on large unrealised losses on their fixed-income holdings.”