Silicon Valley Bank: Shares fall as fears persist about failed US bank
Stock markets in Europe fell on Monday as investors remained spooked by the collapse of Silicon Valley Bank (SVB), despite efforts to limit the fallout.
Bank shares dropped sharply, with Germany’s Commerzbank falling more than 12%, and Santander down 7%, reflecting fears over the health of the sector.
In London, the FTSE 100 index closed 2.6% lower, with shares falling even after HSBC agreed to buy SVB’s UK arm.
US markets were flat, recovering after initially being dragged lower by banks.
Stock markets in Frankfurt, Paris and Milan suffered sharp losses.
George Godber, fund manager at Polar Capital, said markets had fallen because of “a fear of what else might lie out there”.
“The imminent crisis may have been averted but it’s alerted people to the fact that there’s a group of companies out there with business models who will struggle in a high interest rate environment – as that’s what’s undone SVB,” Mr Godber said.
But he added that the direct impact on UK economy and UK market was limited, “because the UK financial sector is really healthy and well capitalised”.
Silicon Valley Bank – which specialised in lending to technology companies – was shut down by US regulators who seized its assets on Friday. It was the biggest failure of a US bank since the financial crisis in 2008.
SVB was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates.
The US has now agreed a rescue deal for customers of SVB, with all depositors fully protected. The US government has also taken over Signature Bank, saying it will guarantee all deposits as part of emergency measures to shore up the banking system.
Wall Street’s stock exchanges fell during early trading on Monday over fears of contagion following SVB’s collapse, although subsequently recovered ground.
There were huge falls in the value of some US banking stocks, as markets began to assess President Biden’s response to the situation.
The value of shares in one bank, Western Alliance, tumbled by about 75% on opening, while another, First Republic, was down 65%. Trading of more than a dozen regional bank stocks, including First Republic, has now been halted.
On Monday, HSBC announced it was buying SVB’s UK arm for £1. The deal followed a frantic weekend of talks as the government and Bank of England sought a solution, and the news bought relief to UK tech firms who feared going bust without support.
The Bank of England said no other UK banks had been “materially affected” by SVB’s collapse. Chancellor Jeremy Hunt also said there was “never a systemic risk” to the UK’s financial stability.
Elsewhere, France’s economy minister said US bank failures did not create a risk of contagion, and Germany’s finance watchdog said SVB’s collapse did not pose a threat to financial stability.
But investors nevertheless took fright on Monday, with the US dollar and oil prices also slipping.
Russ Mould, AJ Bell’s investment director, said the markets remained “edgy” despite the best efforts of governments and regulators to contain the situation.
“There’s plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix,” he said.
“Little surprise people are feeling a bit spooked.”
Why should I care if share prices fall?
Big shifts in the stock market are often in the news, and for good reason, as their performance can affect your life and finances.
Even if you don’t invest money directly yourself, there are millions of people with a pension – either private or through work – who will see their savings invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.
So big rises or falls in share prices can affect your pension, although pension savings are usually a long-term bet.
Anyone who has a pension pot invested and is taking an income from it will again see their investment go up and down with the stock markets.
That could mean getting less than you expected if you cash in too much after stock markets have fallen, making it important to plan how to make up any of this shortfall, experts say.
So “the markets” matter – maybe not as much as everyday wages, but for the future.