California banking regulators have shut down SVB Financial Group, the parent company of Silicon Valley Bank. The collapse of SVB is the largest bank failure in the US since the height of the financial crisis in 2008. The Federal Deposit Insurance Corporation (FDIC) was appointed as administrator of the bank. She stated that the bank’s assets are 209 billion US dollars, roughly 4.6 trillion CZK, and deposits are 175.4 billion USD. The bank’s shares lost over 60% on Wall Street yesterday, and the situation was repeated today just before the opening of markets in the United States. It also affected the banking sector in Europe. During today, it emerged that the effort to increase the capital was not successful and the bank started the process of finding a potential buyer. Subsequently, the intervention of the regulator came. Depositors should have access to insured deposits no later than Monday.
SVB specializes in technology companies backed by venture capital. This week, the bank announced that it wants to raise capital by more than two billion USD. She cited clients running out of cash as one of the reasons she wants to raise new capital. Rising interest rates, fears of a recession and a slowdown in the initial public offering market are making it difficult for startup companies to raise additional cash. This apparently caused a reduction in company deposits with banks such as SVB, which is focused on technology startups. Wall Street analysts have previously said they don’t think SVB’s troubles are likely to spread throughout the banking system. Morgan Stanley said in a note to clients that SVB’s problems are very rare.
The contagion around the SVB spread to Europe this morning with the start of trading, where we saw a drop in the Euro Stoxx Banks sector index of banks by more than 8% at the beginning of trading, which is corrected to 5% during the day. Banks , , ING Groep or wrote off even more than 5%. The negative mood in the banking sector was also reflected on the Prague Stock Exchange, where Erste depreciated by over 3 percent.
The bank’s shareholder structure is one view of the resulting jitters across the markets. 11.25% stake in SVB is held by Vanguard, 8.05% by BlackRock. State Street follows with 5.22%, JP Morgan has 4.25%, Invesco just under 3%, followed by Franklin with more than 2.5%. The market development took roughly 50 billion US dollars of market capitalization from the key “traditional” US financial institutions and lenders in turn, if we look at JPMorgan, Bank of America, Citigroup and Wells Fargo.
Development of SVB Financial shares (click to go to the Patria.cz interactive chart):
Last year, the American central bank, the Fed, began to aggressively raise interest rates, and this resulted in a drop in the value of bonds held, especially for those with the furthest maturity. It was necessary to get rid of these papers as a non-performing part of the portfolio against which increasingly expensive deposits stand. On the other hand, SVB was affected by the growing difficulties of clients from the ranks of start-up technology companies and their need for cash resources. SVB invests significantly in the startup industry, it is the bank for about half of the American startup technology scene, which is backed by venture capital.
“What we saw on the market was above all the first nervous reaction to shock, which the fall of SVB means. The links in the financial sector are quite opaque from the outside, so similar phenomena lead to a widespread increase in concern. Reasoning logically leads to cautious accumulation of liquidity and its increase in price on the money marketpotentially spreading the problems further. Investors keep in mind that when the Fed raises rates for a long time, something usually goes wrong eventually. Nobody can predict when and where the new problem will come from, but the banking sector and the drying up of liquidity are well known from 2008 and this helps to feed the fears,” he says. chief analyst of Patria Finance Tomáš Vlk. “However, in our opinion, we are very far from any systemic problem, the probability of which we see as small. SVB is a small bank and its problem is primarily its involvement in risky projects, when its for example, clients were affected by the collapse of the FTX cryptocurrency exchange. Other small banks may well follow, they are generally far more vulnerable than the big ones and are frequent victims of recessions overseas. On the contrary, the fate of the big ones should not be threatened,” Vlk judges.
Commentary from analysts and strategists included Patria Finance analyst Branislav Soták and Tomáš Vlk above agree that this event will not shake the American financial system and potentially worse problems lie elsewhere.
What’s up with the bottomless sajgons on US banks???
None #crypto, $sivbi.e. Silicon Valley Bank, which needs capital, which is somehow not available. #nomenomen
From the bank’s homepage: SVB is the financial partner of the innovation economy, and it is teeming with venture capital pic.twitter.com/sQ7M6GIWyy— Branislav Sotak (@BranoSotak) March 9, 2023
Also, for example, the respected strategist Mohamed El-Erian stated that “the risk of contagion and systemic risk can be well stabilized through the management of the bank’s balance sheet”.
Lots of chatter today about the possibility of generalized US banking system stress due to #SVB troubles. Three summary things on this:
While the US #banking system as a whole is solid, and it is, that does not mean that every bank is;
Due to the volatility in yields after the…
— Mohamed A. El-Erian (@elerianm) March 10, 2023
