Health concerns of US banks lead to global stock market sell-off | Business news

The future of a respected American lender is at the center of attention as banking and other financial stocks around the world take a beating over concerns about their ability to handle the rising cost of money.

Stock trading in SVB Financial Group, the parent company of major startup lender Silicon Valley Bank, was halted Friday after a second straight day of heavy declines amid reports it was seeking an emergency sale.

The turmoil prompted its UK namesake, SVB UK, to confirm that it was not affected by the chaos as it operated as a “self-contained, independent banking institution”.

“Silicon Valley Bank UK has been an independent subsidiary since August 2022 with a separate balance sheet for the SVB Financial Group and an independent UK board of directors,” it said in a statement to Sky News.

Trouble began in the US on Thursday afternoon when Wall Street bank shares lost $80 billion in value after SVB and another California-based bank revealed the distress.

First, a major crypto-focused lender called Silvergate announced it was winding down after major losses related to the collapse of the FTX exchange last year.

Then, a short time later, SVB announced a share sale to strengthen its balance sheet.

It noted a higher-than-expected cash burn and rising cost of capital.

SVB shares lost 70% of their market value, while shares of major US banks were swept along, such as JPMorgan Chase, which ended more than 5% lower on Thursday.

Banks and other financial stocks in Asia and Europe followed in deals on Friday.

Credit Suisse shares reached an all-time low, while Deutsche Bank fell 8%.

In London, HSBC and Standard Chartered led the FTSE 100 down in a sell-off that also hit other sectors hard, such as insurance and investment funds.

Ocado’s potential exposure to the tech finance issues led it to lead the fallers at the close by 6.5%.

The FTSE 100 lost 1.7%, or 131 points, to finish the week at 7,748.

Trading in SVB shares was halted on Friday after a further 66% plunge in premarket trading amid reports of a high deposit withdrawal rate.

Sky’s colleagues at sister news operation CNBC reported that the company was discussing its options, including the possibility of a sale, as its attempts to raise capital had failed.

SVB could not yet respond.

Market experts said the widespread sell-off of bank stocks followed SVB’s attempt to raise $2.25 billion, which was in response to a $1.8 billion loss on the sale of a $21 billion portfolio.

The portfolio included US government bonds and mortgage-backed securities.

Investors have been concerned about the impact of rising interest rates for months, most recently after signals from the US Federal Reserve chairman during the week that it was far from ending the cycle of rate hikes to cool inflation.

While that would normally be beneficial for bank stocks, holders of US Treasury bonds and mortgage-backed securities – such as major financials – are struggling as significant volumes were bought when interest rates were at a low point.

The broader picture for US equities on Friday was more stable, despite several banks taking major hits after a crucial employment report indicated that domestic hiring and wage growth had slowed significantly in February.

That data somewhat allayed fears about future rate hikes.

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RJ Grant, head of trading at New York’s Keefe, Bruyette & Woods, said of the catalyst for the sell-off: “The hike in Silicon Valley made everyone nervous about people’s capital levels and what deposits are doing.

“It just drives people crazy because Silicon Valley has historically been a very strong, well-run bank. If they
Now that we’re in trouble, people are wondering what about other banks that are lower quality and don’t have the reputation that Silicon Valley Bank has.”

ING economist Rob Carnell said: “I think there is speculation that there are broader problems within the US banking system, or that there is potential.”

Neil Wilson, chief market analyst at markets.com, said he didn’t see the reaction as a Lehman Brothers moment marking a financial crisis.

“SVB does not represent the broader US banking sector, although the fall in SVB stock has clearly hit sentiment,” he noted.

Russ Mold, director of investment at AJ Bell, said the irony of losses on supposedly safe US Treasuries at SVB has not gone unnoticed by market participants.

He added: “This makes investors question who is exposed to whom and they are not taking any risk by selling bank stocks left, right and center.”