The FTSE 100 and European stocks were higher this Monday after the deal for Silicon Valley Bank eased concerns about the banking sector.
The FTSE 100 (^FTSE) rose 0.83% to 7,468 points at the open, while the CAC 40 (^FCHI) in Paris advanced 1.13% to 7,094 points. In Germany, the DAX (^GDAXI) climbed 0.95% to 15,099.
SVB deal soothes broader markets
A buyer has been found for Silicon Valley Bank (SVB) , the troubled US regional lender which sparked global turmoil in the banking sector following its sudden collapse earlier this month.
First Citizens Bank will acquire Silicon Valley Bank’s loans and deposits from the Federal Deposit Insurance Corporation (FDIC) and will operate its 17 branches, US regulators announced this Monday.
They estimate the lender’s collapse would lead to $20bn (£16.3bn) of losses for a deposit insurance fund paid for by banks.
“You sweep Silicon Valley off to another buyer, which is good,” said IG Markets analyst Tony Sycamore in Sydney.
“But the bigger issue is guaranteeing deposits at all those other (regional) banks…it’s a little bit of calm before the next storm.”
SVB, a key lender to the tech industry since the 1980s, became the biggest US bank to fail since 2008 when regulators seized it after a sudden run on deposits.
Its UK arm was bought by HSBC (HSBA.L) for £1 in the days afterwards.
Victoria Scholar, head of investment at Interactive Investor, said: “Around $119bn of SVB’s deposits and $72bn of assets will be taken on by First Citizens Bank while $90bn of assets will remain with the FDIC, costing the insurance fund around $20bn.
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“First Citizens has a history of acquiring embattled lenders in FDIC supported deals. SVB’s losses on its bond portfolio losses and the acceleration of customer withdrawals prompted jitters across the sector. Since its collapse on 10 March, the banking sector has been under pressure, exacerbated by the turmoil at Credit Suisse (CS) which was salvaged in a rescue deal from UBS (UBS).
“This has sparked contagion fears with shares in Deutsche Bank (DBK.DE) tumbling as much as 14% at one stage during Friday’s session amid nervousness about its exposure to commercial property and derivatives, sending the cost of insuring against its bonds sharply higher.”
Meanwhile, the chairman of Saudi National Bank (1180.SR) has resigned days after comments he made shortly before Credit Suisse’s rescue.
Ammar Al Khudairy is leaving “due to personal reasons” and will be replaced by chief executive Saeed Mohammed Al Ghamdi, according to a statement.
Shares in Credit Suisse fell to a record low after Al Khudairy said during an interview that Saudi National Bank would “absolutely not” be open to further investments in Credit Suisse if there was another call for additional liquidity.
Saudi National Bank confirmed to CNBC last week that it had been hit with a loss of around 80% on its investment in Credit Suisse.
US and Asia
Across the pond, S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the green as trade began in Europe.
Wall Street reversed earlier losses to close in positive territory on Friday as markets capped off a bumpy week following the Federal Reserve’s interest rate decision on Wednesday and further pressure in the banking sector.
The Dow Jones (^DJI) rose 0.41% to close at 32,237 points. The S&P 500 (^GSPC) climbed 0.56% to finish at 3,970 points and the tech-heavy NASDAQ (^IXIC) gained 0.31% to 11,823.
On Friday, St Louis Fed president James Bullard raised his 2023 interest rate projection to 5.625%. This would outpace the Fed’s latest “dot plot” projections, which suggest rates will continue to tick higher in 2023, but only slightly, with benchmark interest rates seen peaking at 5.1% this year, on par with the Fed’s previous December projection.
In Asia this Monday, Tokyo’s Nikkei 225 (^N225) rose 0.33% to 27,476 points, while the Hang Seng (^HSI) in Hong Kong slipped 0.99% to 19,718. The Shanghai Composite (000001.SS) also lost ground, falling 0.44% to 3,251 points.
FTSE 100
Back in London, bank shares were among the leading risers, with Barclays (BARC.L) rallying 1.94%, Standard Chartered (STAN.L) gaining 0.81% and NatWest (NWG.L) and Lloyds (LLOY.L) both up 1.8%.
“Investors better understand the problems facing American banks today are not remotely similar to the subprime mortgage crisis when underwater borrowers defaulted on loans en masse,” Stephen Innes, managing partner at SPI Asset Management, said.
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“Instead, banks are warehousing long-duration high-quality paper but fund the book at higher short-term rates; hence they are bleeding profits on mismatched interest rate positions,” he added.
Standard Chartered jumped after agreeing to sell its Jordanian business. The lender said it would sell the business to Arab Jordan Investment Bank (AJIB) as part of its plan to narrow its focus to faster-growing markets in the region.
Shares in AstraZeneca (AZN.L) rose 1.3% after it announced positive high-level results from its Neuro-TTRansform phase III trial for eplontersen.
Pound vs dollar
The pound (GBPUSD=X) gained ground as turmoil in the financial markets and central bank interest rate decisions caused significant turbulence
Against the dollar, the pound was up 0.11% and was heading in the direction of $1.22.
Sterling (GBPEUR=X) lost steam against the euro as confidence appears to be returning to the European markets and banks, with the pound trading at €1.13.
Oil markets
Meanwhile, Brent crude (BZ=F) advanced and was trading at around $75 per barrel, amid easing concerns about turbulence in the banking sector and renewed optimism around demand from China, the world’s biggest crude oil importer.
Watch: Silicon Valley Bank acquired by First Citizen Bank
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