Silicon Valley Bank Collapse Weighs Heavily On Global Bank Stocks As Companies Assess Fallout

Silicon Valley Bank Collapse Weighs Heavily On Global Bank Stocks As Companies Assess Fallout

The Silicon Valley Bank collapse weighed heavily on global bank stocks on Tuesday as assurances from President Joe Biden and other policymakers did not ease pressure on stocks thereby prompting to rethink on the interest rate outlook.

Biden’s reassurance for the markets and depositors came after the US prepped up emergency measures to support banks by giving them access to additional funding. However, it failed to quell the concerns of investors about potential contagion to other lenders worldwide.

Banking stocks in Asia remained under pressure, with Japan’s banking subindex leading the fall, down 6.7 per cent in early trade to its lowest since December, reported news agency Reuters.

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“Bank runs have started (and) interbank markets have become stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Arguably, liquidity measures should have stopped these dynamics but Main Street has been watching news and queues – not financial plumbing.”

This coupled with the interest rate expectations also sent waves through markets as investors expect the Federal Reserve will resist increasing the rates next week.

As the fear has spread among investors over additional failures, major US banks lost around $90 billion in stock market value on Monday, bringing their loss over the past three trading sessions to nearly $190 billion, according to the agency report.

Regional US banks were hit the hardest. Shares of First Republic Bank lost more than 60 per cent while Europe’s STOXX banking index closed 5.7 per cent lower. Germany’s Commerzbank fell 12.7 per cent and Credit Suisse also lost 9.6 per cnt to a record low.

Tech sector points at SVB CEO for the failure

As the rout in the banking stocks continues, the blame game is on who caused Silicon Valley Bank’s collapse. The tech sector is blaming SVB CEO Greg Becker for allowing his company to go down in history as the second-biggest US banking failure on record. One Silicon Valley Bank employee told CNN that he was dumbfounded by how the CEO publicly acknowledged the extent of the bank’s financial troubles before privately lining up the necessary financial support to rescue it from the crisis.

“That was absolutely idiotic,” the employee added. “They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”

“People are just shocked at how stupid the CEO is,” the Silicon Valley Bank insider said. “You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.” While experts also pinned some of the blame on Jerome Powell, Biden’s pick to lead the Federal Reserve, and his colleagues.

“There should be no mistaking that Silicon Valley Bank’s collapse was a direct result of the Fed’s persistent and excessive interest rate hikes,” CNN cited experts as saying.

Countries Assess Fall Out Of The SVB Collapse

While the money markets indicated credit risk in the US and eurozone banking systems will amplify, the Fed is likely to slow its rate hikes. The price of gold, a popular safe haven zoomed above the key $1,900 level.

All those companies with SVB accounts started to assess the impact on their finances. In Germany, the central bank convened its crisis team to assess any fallout. HSBC said it was buying the British arm of SVB for one pound ($1.21).

In Britain where the SVB is small has prompted the startup industry, and its heavily exposed biotech sector in particular to seek support from the government. UK Prime Minister Rishi Sunak said there was no concern about systemic risk.

“Our banks are well capitalised, the liquidity is strong,” Sunak told ITV during a visit to the United States.

While the majority of start-ups, entrepreneurs, and venture funds in China, where SVB was considered one of the main go-to foreign banks are also looking out for funds. 

Back in India, startups are worried if their money is safe and if it can be moved out of the collapsed bank fast. The situation could become worse for startups that depend on the money stuck in SVB for their next salary, reported NDTV quoting Nitish Mittersain, the chief executive of Nazara Technologies Ltd.  Nazara Technologies itself is safe with a cushion of over Rs600 crore, its two subsidiaries have Rs64 crore stuck in SVB, which is no small amount for early-stage startups.

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