Markets in Europe and Asia suffered a hit following a sharp sell-off of banking stocks in the US. SVB Financial Group was forced to raise capital after it sold part of its portfolio of US Treasuries at a loss to cover a rapid decline in customer deposits. The stock cratered 60% on Thursday and was down almost 47% in pre-market trading on Friday. Russ Mould, investment director at UK broker AJ Bell, says that rising interest rates are making bonds of poorly performing banks less valuable following the removal of the Unlimited Federal guarantee protection that was introduced in the aftermath of the financial crisis. The sharp fall of US bank stocks, the largest since September 2016, is seen as a sharp reversal for the global banking sector, which has enjoyed surging stock valuations since last autumn, according to CNN Money.
The Stoxx Europe 600 Banks index, which tracks 42 large European banks, including those in the UK, sank by more than 4% on Friday. Shares in banking giant HSBC tumbled by nearly 5% and the shares of Barclays were down 3.4%. Deutsche Bank was down 7.4% and Italy’s Unicredit was down 3.6%. Both the London FTSE 100 and Europe’s benchmark Stoxx Europe 600 index also registered significant falls. The Hang Seng in Hong Kong led losses in the region by sinking 3%, whilst China’s Shanghai and Korea’s Kospi fell 1.4% and 1% respectively.
China has been under particular scrutiny as it delayed announcing any significant economic stimuli during its National People’s Congress. The sharp decline came after the banking sector had experienced soaring stock valuations throughout last autumn. Fears are rising over the vulnerabilities of the banking sector following the removal of the Unlimited Federal guarantee protection that was introduced in the aftermath of the 2008 financial crisis. Rising interest rates have made bonds of underperforming banks less attractive. The banking situation is a reminder that many institutions are currently sitting on large unrealised losses on their fixed-income holdings.
The Japanese Nikkei ended 1.7% down on Friday whilst US stocks also dipped in pre-market trading. Futures on the benchmark S&P 500 index fell by 0.43%, according to the latest figures, while futures on the tech-heavy Nasdaq Composite dropped 0.2%.