The optimism over the US government’s quick reaction to the SVB collapse gave way to cautious investors selling regional banks and the bigger Wall St operators on Monday morning. Yields on the two-year Treasury notes fell 0.456 percentage points in the morning, taking it to the biggest three-day fall since 1987.
Four regional banks had trading in their shares halted after declines of up to 66 per cent.
Among the bigger banks, Credit Suisse (US:CS) fell another 4 per cent, taking its five-day decline to 14 per cent, while Goldman Sachs (US:GS) was down 2 per cent. Main street lender Wells Fargo (US:WFC) tumbled 6 per cent, taking its five-day decline is now 16 per cent. The KBW Nasdaq Bank Index was down 9 per cent on Monday, and 23 per cent since SVB revealed it would need to raise new shareholder funds to survive.
The events of the past few days have quickly shifted interest rate expectations ahead of a US Federal Reserve meeting next week. The Fed had already slowed rises from 50 basis points to a 25 basis-point rate increase last month, and now observers say even this could be in doubt.
“Another 25bp hike next week, seemingly an inevitability a matter of days ago, is now in serious jeopardy,” said Matthew Ryan, head of market strategy at financial services firm Ebury. “Focus will quickly turn to Thursday’s ECB meeting, with a 50 basis-point rate hike there also now in doubt.”
Senior US economist at Oxford Economics Bob Schwartz said rates would still likely rise but the Fed would need to consider more than inflation. “A hotter than expected CPI report next week imparts an upside risk to the forecast,” he said “[But] the Fed may have more on its mind than inflation over the next few weeks, as the failure of a major bank this week could lead to heightened financial instability.”
Earlier: In a tense weekend reminiscent of the height of banking crisis, the government, Bank of England and HSBC (HSBA) managed to successfully orchestrate the takeover of the UK subsidiary of the stricken Silicon Valley Bank, which was seized last week by US federal regulators after experiencing a bank run. HSBC paid £1 for the business, which had been due to file for insolvency on Sunday night.
The takeover guarantees the estimated $7bn (£5.8bn) of deposits that UK-based tech companies had with the bank, which was an important player in the world of tech startups and venture capital funds, and will quieten the increasing calls for a full government bailout.
Many smaller tech companies faced issues with meeting payroll and the situation had become increasingly unstable. HSBC said it was taking on £5.5bn in loans and £6.7bn in deposits total. Chief executive Noel Quinn said the deal would increase HSBC's exposure to the tech and life science sectors.
"Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK," said chancellor Jeremy Hunt. "This ensures customer deposits are protected and can bank as normal, with no taxpayer support."
Listed companies in the US, such as Roku (US:ROKU) had some large exposures to SVB. Roku said it has a quarter of its total cash deposits with the bank, or around $487mn. For HSBC, the takeover is neither large nor material as the British assets of SVB represent the tiniest fraction of the bank’s total balance sheet.
