Shares of world banks fall due to US fears

On Friday, the world’s largest banks faced a plunge in the stock market as problems with a regional US lender sparked concerns about the broader sector.

The four largest US banks lost a whopping $52 billion in market value on Thursday after shares in SVB Financial, a major technology industry lender, plunged 60 percent.

SVB Financial spooked the markets by announcing a share offering and sale of securities to raise much-needed cash as the company battles falling client deposits.

It was revealed that it lost $1.8 billion in the sale of $21 billion worth of securities from its portfolio, raising fears that other banks could face similar problems, which analysts say are related to rising interest rates.

Deutsche Bank was one of the biggest losers on Friday, as its shares fell nearly 10 percent after the Frankfurt stock market opened, only to bounce back a little later to trade about seven percent lower.

In London, HSBC lost more than five percent, Barclays lost four percent and NatWest lost more than three percent.

In Paris, Societe Generale shares fell more than five percent and BNP Paribas more than three percent. Shares of Swiss UBS and Credit Suisse fell by more than three percent.

Shares of Mitsubishi UFJ Financial Group, listed in Tokyo, fell more than six percent.

SVB chief executive Greg Becker attempted to reassure customers of the bank’s financial health on Thursday, the Wall Street Journal reported, citing people familiar with the matter.

The newspaper reported that Becker urged them not to withdraw their deposits from the bank and spread fear or panic about his situation.

Investors fear that other banks could face similar losses as their bond portfolios were hit by rising interest rates, analysts say.

Central banks around the world are raising interest rates in an attempt to curb inflation, which has been high for decades.

Higher rates hurt the value of lower-yield bonds held by lenders before central banks launched their rate hike campaigns last year.

Banks are now incurring losses if they decide to sell these assets to cover falling deposits.

“Theoretically, an increase in interest rates would be a boon for the banking sector as it would exceed their net interest income as they start earning money from deposits again,” Swissquote banking analyst Ipek Ozkardeskaya said.

“But the problem is that interest rates have risen too fast,” she said.

“Something always breaks badly” –

In another blow, crypto banking giant Silvergate has said it plans to shut down as the sector faces more turmoil.

Stock markets were already on edge this week after US Federal Reserve Chairman Jerome Powell warned that faster rate hikes may be needed to fight inflation.

The Fed will hold its next policy meeting on March 21-22, but markets are looking forward to US employment data due later Friday to see how US central banks can act.

Investors fear the Fed could push the economy into recession if rates are too high and held high for too long.

Shares of the largest US bank JPMorgan Chase ended the day down 5.4% on Thursday.

Shares of Bank of America and Wells Fargo fell 6.2%, while Citigroup fell 4.1%.

“It would not be an exaggeration to say that this episode symbolizes the higher interest rate regime that we seem to be seeing at the beginning,” analysts at Deutsche Bank said in a note.

“We will have to see how this story develops, but something always breaks badly during or after the Fed’s boost cycle,” they said.

“Is this another small wobble on that front, or the start of something bigger? It’s hard to say, but I’d be stunned if there weren’t a lot more victims of this boom and bust cycle.”

But ING senior industry strategist Suvi Platerink Kosonen said SVB Financial’s “small size and special nature” means that any risk of contagion remains limited.

“However, these developments serve as a good reminder of the various implications of higher rates,” she said.