The world’s largest banks were hit on the stock exchange on Friday as problems at a U.S. regional lender raised concerns about the entire sector.
On Thursday, AFP reported that the four largest U.S. banks lost a market value of $52 billion after shares of SVB Financial, a primary lender to the tech industry, tumbled 60%.
Deutsche Bank was among its biggest losers on Friday. Its shares fell nearly 10 per cent after the Frankfurt stock exchange opened, recovering a little later to trade about seven per cent less. Barclays, Lloyds and NatWest lost up to five per cent in London before reducing some losses.
Societe Generale in France fell by more than five per cent, while BNP Paribas fell by more than three per cent. Switzerland’s UBS and Credit Suisse sank by more than four per cent. Mitsubishi UFJ Financial Group, listed in Tokyo, succumbed to more than six per cent, while HSBC lost about three per cent to Hong Kong, as did the National Australia Bank in Sydney.
SVB Financial scared the markets after announcing a stock offering and downloading securities to raise the money it badly needs as it grapples with falling deposits.
It revealed that it had lost $1.8 billion in sales, raising concerns that other banks might face similar problems.
SVB managing director Greg Becker on Thursday tried to reassure customers about the bank’s “financial health,” the Wall Street Journal reported, citing people familiar with the matter.
The newspaper said Becker urged them not to withdraw their deposits from the bank and not to spread fear or panic about its situation.
Investors fear other banks could face similar losses as well, as rising interest rates have hit their bond portfolios, analysts say.
Central banks around the world have raised interest rates in a bid to quell high inflation for decades. Higher rates affected the value of the lower-yield bonds lenders held before central banks launched campaigns to raise rates last year. Banks now face losses if they sell these assets to cover the drop in deposits.
In another situation, crypto banking giant Silvergate has announced plans to close as the sector faces more turbulence. Stock markets were already on a knife edge this week after U.S. Federal Reserve chief Jerome Powell warned that a faster pace of hikes might be needed to fight inflation.
The Fed will hold its next monetary policy meeting on March 21 and 22, and markets are looking forward to U.S. job data, which will be released Friday, to find clues about how U.S. central bankers might act.
Investors fear that the Fed could lead the economy into recession if its rates are too high and kept at a high level for too long.
Shares of the largest U.S. bank, JPMorgan Chase, ended Thursday down 5.4%. Bank of America and Wells Fargo fell 6.2%, while Citigroup dropped 4.1%. “It is no exaggeration to say that this episode is emblematic of the regime of higher rates for a long time that we seem to be at the beginning,” Deutsche Bank analysts said in a note.
“We’re going to have to see how this story evolves, but always something breaks hard during or after a fed raise cycle,” they said.
– Desk Report and Image: Freepik
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