WASHINGTON – Shockwaves from the collapse of Silicon Valley Bank (SVB) pounded global bank stocks further on Tuesday as assurances from US President Joe Biden and other policymakers did little to calm markets and caused a rethink on the outlook for interest rates.
Global financial stocks have lost US$465 billion (S$627 billion) in market value so far as investors cut exposure to lenders in places from New York to Singapore.
Banking stocks in Asia extended declines on Tuesday, with big Australian banks ANZ, Westpac and NAB all down more than 2 per cent and Japan’s banking sub-index falling 6.7 per cent in early trade to its lowest since December.
Singapore’s trio of local banks all retreated for a second day, although the declines were more modest. At 9.32am, DBS Bank had dropped 0.75 per cent to $31.95, while OCBC Bank slipped 0.2 per cent to $11.95 and UOB fell 0.4 per cent to $27.92.
The Straits Times Index, meanwhile, was down 1 per cent after sliding 1.4 per cent on Monday.
The Monetary Authority of Singapore (MAS) said on Monday that the local banking system remains “sound and resilient”, while the local banks said they have no exposure to SVB and two other US banks that failed. MAS also said that the feedback it has received so far indicates limited impact on Singapore start-ups, including those with operations in the United States.
Mr Biden’s efforts to reassure markets and depositors came after emergency US measures to shore up banks by giving them access to additional funding failed to dispel investor worries about potential contagion to other lenders worldwide.
Meanwhile, a furious race to reprice interest rate expectations has sent waves through markets as investors bet the Federal Reserve will be reluctant to hike rates next week.
“Even if the collapse of several mid-tier banks does not develop into a full-blown systemic crisis, it will more than likely trigger a credit crunch,” said Dr Paul Ashworth, chief North America economist at Capital Economics.
Traders currently see a 50 per cent chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis-point hike was fully priced in, with a 70 per cent chance seen of 50 basis points.
With investors fearing additional failures, major US banks lost around US$90 billion in stock market value on Monday, bringing their loss over the past three trading sessions to nearly US$190 billion.
Regional US banks were hit the hardest. Shares of First Republic Bank tumbled more than 60 per cent as news of fresh financing failed to reassure investors, and so did Western Alliance Bancorp and PacWest Bancorp.
Europe’s Stoxx banking index closed 5.7 per cent lower. Germany’s Commerzbank fell 12.7 per cent and Credit Suisse slid 9.6 per cent to a record low.
Fallout
In the money markets, indicators of credit risk in the US and euro zone banking systems edged up.
Emboldened by bets that the Fed may have to slow its rate hikes, the price of gold, a popular safe-haven asset, raced above the key US$1,900 level.
Companies around the globe with SVB accounts rushed to assess the impact on their finances. In Germany, the central bank convened its crisis team to assess any fallout.
After marathon weekend talks, HSBC said it is buying the British arm of SVB for a symbolic £1 (S$1.60). While SVB UK is small, its sudden demise prompted calls for government help for Britain’s start-up industry, and its heavily exposed biotech sector in particular.
British Prime Minister Rishi Sunak said there is no concern about systemic risk. “Our banks are well capitalised, the liquidity is strong,” he told ITV during a visit to the US.
In China, where SVB was the main go-to foreign bank for the majority of start-ups, entrepreneurs and venture funds were also scrambling for alternative funding. REUTERS, BLOOMBERG
- With additional information from The Straits Times
