Bank stocks slumped on both sides of the Atlantic today as the fall out of the Silicon Valley Bank crisis spooked investors.
The sector has been plunged into turmoil since Friday as the full scale of the troubles at the start-up and venture capital focused lender became clear.
American bank First Republic was among the sharpest fallers today, with shares plunging nearly 70 per cent in pre-market trading despite the best efforts of regulators to calm markets.
The FTSE 100’s five major banking stocks were all down this morning following HSBC’s dramatic acquisition of SVB UK for just £1.
Barclays was down 4.3 per cent, HSBC 3.6 per cent, Lloyds 4.0 per cent, NatWest 3.6 per cent and Standard Chartered 5.2 per cent.
While many figures have praised the work of the Bank of England and the Treasury in securing HSBC’s deal, markets remained skittish.
Hargreaves Lansdown’s Susannah Streeter commented: “Although US regulatory action, and the purchase of SVB UK, has averted a wider sell off investors have still been shaken by the event of the past few days, and are waiting with bated breath to see if repercussions in the financial sector will spill over and create pools of fresh problems.”
In the US, other regional lenders have also caught a cold from SVB’s collapse despite US regulators committing to fully repay the bank’s depositors.
Chair of the Federal Reserve Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg made the commitment yesterday evening in an attempt to reassure the market.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors,” a statement read.
However, following the market open, private bank First Republic Bank lost nearly 65 per cent and has told depositors for a second time that it has enough liquidity to meet their demands.
The bank secured a new financing deal with JP Morgan on Sunday evening which it said gives it access to $70bn in funds.
Arizona-based Western Alliance Bancop and LA-based PacWest Bancorp both plummeted, falling 76 per cent and 36 per cent respectively.
The US’s major lenders fell too, with Wells Fargo falling 4.4 per cent and Bank of America dropping 5.4 per cent.
The news follows the collapse of Signature Bank on Sunday evening, the third largest bank collapse in US history.
“The deposit insurance scheme in the US is significantly more generous than in Europe, and there is a growing expectation that the US Treasury will move swiftly to fully guarantee deposits if more banks turn insolvent, with the extra loans facility offering reassurance for the wider financial sector,” Streeter commented.
Europe’s largest banks all lost ground too. UBS was down 5.7 per cent, Deutsche Bank just over five per cent, Santander 7.2 per cent and SocGen 5.7 per cent. Long suffering Credit Suisse hit a new low after falling over 11 per cent.
UniCredit’s shares were even briefly suspended in Milan, having fallen over seven per cent on Monday. UniCredit is the only systemically important bank in Italy.
Despite the downturn, Philip Richards, senior analyst at Bloomberg Intelligence said there was little systemic risk: “EU banks’ direct exposure to SVB’s demise is minimal – and appears to pose little systemic risk – with the focus now shifting to policymakers’ reactions. “
Susannah Streeter of Hargreaves Lansdown added that “regulators in Europe have been quieter, with little detail on what else regulators will do, if smaller institutions become unstuck.”