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By Alun John and Rae Wee
LONDON/SINGAPORE (Reuters) – Bank shares in Europe and Asia plunged on Monday as the United States’ move to guarantee the deposits of the collapsed tech-focused lender Silicon Valley Bank failed to reassure investors that other banks remain finacially sound.
Europe’s STOXX bank index fell 4.3%, having shed 3.78% on Friday, leaving it on track for its biggest two-day fall since Russia invaded Ukraine in February 2022.
Commerzbank AG (OTC:CRZBY) fell as much as 12%, Credit Suisse Group AG was down almost 11% as lenders across Britain, Italy and Spain also fell.
Trading volumes were also high, running at 160% of the one-month average for the EURO STOXX 50 according to a note seen by Reuters, while Europe’s volatility index jumped to the highest level since October 2022.
“There is a sense of contagion and where we see a repricing around financials is leading to a repricing across markets,” said Mark Dowding, chief investment officer, BlueBay Asset Management in London. He said he did not think that a lot of the issues impacting U.S. banks would be manifested in European peers.
Bonds held by SVB were “worth next to nothing in a short space of time, so against that backdrop, that has an effect that is translated on a more widespread basis,” he added.
After a dramatic weekend, U.S. regulators on Sunday stepped in after the collapse of SVB – the largest U.S. bank failure since 2008, which suffered a run after a big hit on a portfolio of bonds.
SVB’s customers will have access to all their deposits starting Monday and regulators set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
Regulators also moved swiftly to close New York’s Signature Bank (NASDAQ:SBNY) SNBY.O, which had come under pressure in recent days. Smaller banks remained under pressure with U.S. private bank First Republic Bank (NYSE:FRC) plunging around 50% in pre market, and PacWest down around 26%.
First Republic Bank said on Sunday it had secured additional financing through JPMorgan Chase (NYSE:JPM), giving it access to a total of $70 billion in funds through various sources.
EUROPEAN FALLOUT
In Germany, the central bank convened its crisis team on Monday to assess the possible fallout on the local market, even as no emergency action was foreseen in Europe.
A senior European supervisor source told Reuters on Monday that the European Central Bank’s Single Supervisory Board had not held any emergency meeting and was not planning to hold one, with its next scheduled gathering due to take place on March 23-24.
A spokesman for the ECB, which oversees the biggest banks in the eurozone, declined to comment while a spokesman for the Banque de France said it did not have a crisis meeting in the works.
Still, after marathon talks over the weekend, early on Monday in London HSBC announced it was buying Silicon Valley Bank UK, the British arm of SVB, for 1 pound ($1.21). It said the subsidiary had loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds as of March 10.
While SVB UK is small – HSBC’s balance sheet exceeds $2.9 trillion – concerns that SVB’s failure would cause Britain’s start-up industry to seize up had prompted calls from the sector for government to intervene.
MARKETS GYRATE
Meanwhile, a furious race to re-price interest rate expectations also sent waves through markets as investors bet the Federal Reserve will be reluctant to hike next week while the mood is febrile and delicate.
Two-year U.S. Treasury yields were last down 30 bps point at around 4.27% and were set for their biggest three-day slide since 1987, down a total of 80 bps.SVB’s collapse comes alongside the closure of crypto-focused bank Silvergate, which last week disclosed plans to wind down operations and voluntarily liquidate, in the aftermath of FTX’s implosion last year.
U.S. banks lost over $100 billion in stock market value late last week following the collapse, while European banks lost around another $50 billion in value, according to a Reuters calculation.
(This story has been corrected to fix move in Credit Suisse shares in paragraph 3)
