- The collapse of US-based Silicon Valley Bank, the largest bank failure since the global financial crisis, has sparked a sell-off of bank shares amid fears of contagion.
- The S&P 500 Banks Index rose 3% on Monday, but remains down 22.5% from March. In Europe, the Stoxx 600 bank index closed 1.7% higher on Monday, but he has fallen more than 17% this month.
- Citi concluded it was in an “irrational market” after no clear explanation for Friday’s share price movement.
The slogan is written on the sidewalk in front of the global headquarters of Swiss bank Credit Suisse, one day after stock prices fell by about 30% in Zurich, Switzerland on March 16, 2023.
Arnd Wiegmann | Getty Images News | Getty Images
The collapse of U.S.-based Silicon Valley Bank is the biggest bank failure since the global financial crisis, and Swiss rival UBS’s emergency rescue of Credit Suisse has pushed bank stocks amid growing fears of contagion. caused a sale.
Deutsche Bank is the next target, and despite Deutsche Bank’s strong capital and liquidity, its share price plunged over the weekend and default premiums surged.
Market panic appeared to subside on Monday after First Citizens agreed to buy most of the assets of the failed Silicon Valley Bank. The S&P 500 bank index rose 3% on Monday, but remains down 22.5% since March. In Europe, the Stoxx 600 bank index closed Monday with him up 1.7%, but this month he’s down more than 17%.
Market watchers have come to question whether markets are moving on sentiment rather than fundamentals when it comes to concerns about a systemic banking crisis.
“This is nothing like Lehman Brothers exposed to complex derivative counterparty risk during the subprime mortgage crisis,” said Sarah, global head of fixed income group at asset manager Vanguard. Devereux pointed this out during Friday’s Q&A.
“Banks in recent headlines had trouble managing the risk of traditional assets. The rapid rise in interest rates exposed these weaknesses. , recognized a loss after its investment in the bond fell significantly below its par value.”
She suggested that banks like SVB and Credit Suisse could still exist today if they didn’t lose the trust of their customers.
“It was an ’emotional contagion’ rather than the true systemic contagion seen during the global financial crisis. And I think the damage was largely contained,” Devereux said. .
Citi agreed with this view, concluding that in the absence of a clear explanation for Friday’s move, we were looking at an “irrational market.”
Deutsche Bank’s 8.6% drop on Friday could be one example. The bank launched a major restructuring effort in 2019 and has been profitable for 10 consecutive quarters since. Shares on Monday he recovered 6.2% to close above 9 euros ($9.73) per share.
There has been speculation that the decline may have been due to Germany’s exposure to US commercial real estate, or the Department of Justice (DoJ) request for information from many banks in connection with Russian sanctions. However, Citi joined the chorus of market analysts and concluded: These were insufficient to explain the movement.
“As we witnessed with CS, the risk is when depositors are psychologically impacted from various media headlines whether or not the initial reason behind this was correct,” the strategist added. .
Dan Scott, head of Vontobel Multi Asset, told CNBC on Monday that the introduction of the Basel III framework, which was put in place to strengthen bank regulation, supervision and risk management after the financial crisis, has seen European banks all ” He said it means “heavily capitalized.”
He noted that both Credit Suisse’s common equity Tier 1 ratio and liquidity coverage ratio are key indicators of the bank’s strength ahead of the emergency sale to UBS. Banks indicated they were still solvent and liquid.
Scott said the failure was an inevitable consequence of the rapid tightening of financial conditions by the US Federal Reserve and other central banks around the world in a relatively short period of time. stressed that they face a very different situation than SMEs. – Large US Bank.
“We’ve seen a lot of things broken, but we didn’t really pay attention to them because they were outside of our regulated capital. I saw it, but I just ignored it.I saw SVB, and I started paying.It was getting closer and closer, so it got my attention,” Scott told CNBC’s “Capital Connection.”
“I think the problem is with the small and medium banks in the US. They are not Basel III regulated and they are not stress tested. I’m sure you’re looking at a completely different situation, but I wouldn’t worry.”
