Global bank shares slid on Monday even as U.S. authorities moved swiftly to stem contagion following the collapse of startup-focused Silicon Valley Bank.
HSBC bought the UK arm of stricken SVB for a symbolic one pound, rescuing a key lender for technology start-ups in Britain and helping curb the fallout from the biggest bank collapse since the financial crash.
Still, the measures to stem the fallout appeared to have done little to soothe investor concerns about the wider impact on financial markets.
Yields on safe-haven government bonds such as U.S. Treasuries and German Bunds fell sharply, while money markets quickly dialed back bets on the scope for further rate hikes from the Federal Reserve and the European Central Bank.
STOCKS: European banking stocks were last down 6%, UK banks fell over 4%. U.S. stock futures held in positive territory. Credit Suisse shares hit a new record low.BONDS: U.S. Treasury two-year Treasury yields were down 35 bps, set for their biggest three-day fall since 1987. Germany’s two-year bond yield fell over 30 bps and was set for its biggest one-day fall since 1995.
FOREX: The dollar was down over 1% versus the yen, the euro was 0.4% higher at around $1.067.
MARK DOWDING, CHIEF INVESTMENT OFFICER, BLUEBAY ASSET MANAGEMENT, LONDON:
“We don’t think that a lot of the issues that are impacting U.S. banks are ones that will be manifested in European banks.
“Because of the funding and accounting practices in Europe compared with the U.S., we are less concerned.
“However, there is a sense of contagion and where we see a repricing around financials is leading to a repricing across markets.
“We are not changing our positioning on banks across our funds, and tend to be more constructive on European banks versus the U.S.”
JEROME LEGRAS, HEAD OF RESEARCH AT AXIOM ALTERNATIVE INVESTMENTS, PARIS
“Market moves are a bit exaggerated because European banks have a much better interest rate risk management framework than regional U.S. banks. But it’s also a good thing that people are waking up to interest-rate risk. It’s definitely something that has to be monitored and some investors were a bit complacent, especially in the U.S. or Japan.
“We’ll see how it changes the Fed path, but I definitely can’t escape the feeling that one reason for ditching the moral hazard rhetoric and offering the facility to banks is that the Fed wants to be free to continue to hike should it want to and not be constrained by banks’ balance sheets.”
JAN VON GERICH, CHIEF ANALYST, NORDEA, FINLAND
“The ECB certainly is not going to stop on the basis of what we know now. If the markets aren’t cooled down, then maybe they will have to reconsider.
“I think on the margin the Fed will press ahead by 25 basis points next week. But the discussion of whether they will hike by 25 or 50, that is gone.
“The rate hikes will continue. Of course, what happens further out, if it’s right to take out some of the pricing further out, there is of course a case for that.
“If markets remain in a crisis mood, or in a very volatile set up, then the Fed doesn’t want to increase that volatility even further. But for now I think that 25 bps next is a reasonable baseline.”
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