The global banking sector suffered on the stock market on Friday, a consequence of concerns about the difficulties of the American SVB Financial Group, a privileged financial partner of many technology companies.
This “small panic was triggered on the theme of the bankrun”, a chain reaction which begins with massive withdrawals of customers, explains to AFP David Bénamou, director of investments of Axiom Alternative Investments.
First cause, the announcement Wednesday by SVB Financial Group, parent company of Silicon Valley Bank (SVB), of a capital increase of 2.25 billion dollars to overcome its difficulties.
In the middle of the day on the Paris Stock Exchange, the title of Societe Generale lost 4.77% to 25.44 euros, BNP Paribas 3.02% to 60.75 euros and Crédit Agricole 2.94% to 10.97 euros.
Elsewhere in Europe, the German bank Deutsche Bank lost 7.33%, the British Barclays 3.84%, the Italian Intesa Sanpaolo 2.21% and the Swiss UBS 3.19%.
Banks listed in Hong Kong and Japan were also heavily penalized.
With the announcement of SVB’s difficulties, linked to significant customer withdrawals, the managing director of the financial group would have urged them “not to withdraw their deposits from the bank and not to sow fear or panic”, according to sources cited Thursday by the wall street journal.
Mass withdrawals would force the bank to sell assets to obtain the necessary liquidity. If these assets include bonds issued a year ago or more, their value has fallen sharply since their purchase due to rising interest rates.
The group hastily sold a $21 billion portfolio of financial securities, resulting in an estimated loss of $1.8 billion.
Investors “also saw in the bank’s difficulties the impact of the inversion of the yield curve (when short-term rates are higher than long-term ones, editor’s note)”, underlined in a note Christian Parisot, from broker Aurel BGC. Banks generally borrow short-term to make medium- and long-term loans.
Not to mention that another American financial player is going through a bad patch: the parent company of Silvergate Bank, present in cryptocurrencies, announced on Wednesday that the establishment was going to be put into liquidation.
Guardrails
This downward movement is in line with Wall Street on Thursday: Bank of America lost 6.20%, Wells Fargo 6.18% and Citigroup 4.10%.
After having unscrewed by more than 60% on Thursday, the title of the SVB group could still fall by 45% on Friday according to electronic exchanges preceding the opening. The prices of other US banks were expected to fall slightly.
Stephen Innes, analyst at SPI Asset Management, wants to be reassuring, estimating in a “low” note the risk “of a capital or liquidity incident among the big banks”.
Since the financial crisis of 2008-2009 and the bankruptcy of the American bank Lehman Brothers, banks have had to give guarantees of solidity to their national and European regulators.
For example, they must demonstrate a higher minimum level of capital intended to absorb any losses. This hard equity ratio, also called CET1, is the work of the Basel Committee in Switzerland.
The European Banking Authority is also subjecting fifty major banks on the continent to stress tests. The results for the last financial year, published at the end of July 2021, showed that the establishments were well able to withstand a serious economic crisis without too much damage.
There is also a European-wide so-called single resolution fund (SRF), funded by the banks and intended to help an establishment in the sector in the event of bankruptcy.
As a last resort and to avoid a devastating domino effect, governments could be tempted to take out the portfolio to save an institution deemed too big to fail (“too big too fail”).
Analysts also observe that this correction comes after a rather good start to the year for banks on the stock market: compared to their values at the start of the year, prices are still on the rise.