European bank stocks sold off sharply on Friday as jitters around US bank SVB Financial – which plunged 60% on Thursday – spread around the world.
It followed an announcement by the tech-focused lender of a capital raise to help offset losses in bond sales.
The Euro Stoxx Banks index was on track for its worst day since June, falling nearly 4% at 1pm London time, led by a fall of more than 7% for German Bank. Society General, HSBCAnd Santander all down more than 5%.
Silicon Valley Bank has a strong focus on start-up companies, especially venture-backed technology and life sciences companies in the US. billion loss while raising $500 million from venture firm General Atlantic, according to a financial update.
The company said in a letter from CEO Greg Becker on Wednesday that it had sold “virtually all” of the securities available for sale and was aiming to raise $2.25 billion through common stock and convertible preferred stock.
The U.S. Federal Reserve has aggressively raised interest rates over the past year, which could drive down the value of long-term bonds, and SVB plans to reinvest the proceeds from its sales in shorter-term assets.
Billionaire investor and CEO of Pershing Square, Bill Ackman, said in a tweet late Thursday that if SVB fails, it could “destroy a key long-term engine of the economy as venture capital-backed companies rely on SVB for loans and holdings.” their business cash.”
“If private capital cannot provide a solution, a highly dilutive government bailout should be considered,” he added.
Russ Mould, investment director at UK investment platform AJ Bell, said SVB’s announcement should not have come as a “big surprise” after a period when “the appetite of lenders and investors for this part of the market has dried up”.
“However, in a highly interconnected banking sector, it is not so easy to compartmentalize events like this, which often point to vulnerabilities in the wider system. The fact that SVB’s equity placement was accompanied by a fateful sale of its bond portfolio indicates cause for concern,” Mold said by email.
“Many banks have large bond portfolios and rising interest rates make them less valuable – the SVB situation reminds us that many institutions have large unrealized losses on their fixed income holdings.”
bank of America noted that the overnight declines in US bank stocks reflected concerns that deposit outflows could cause lenders to sell bonds at a loss. However, unlike specialty banks in California, which have seen large withdrawals, BofA strategists said European bond deposits are stable but stagnant, while cash deposits have grown.
“European banks did not assume rapid inflows of deposits would remain permanently stable, and therefore did not invest off the curve,” the Wall Street giant said in a note Friday.
“There is nothing new in banking. We note that HSBC, for example, saw significant capital drawdowns from bond markets during the first half of 22. It is now enjoying strong growth in net interest income and the appeal of those bonds. If one’s bank is stable , higher rates remain a great asset, we believe.”