A quick recap
A quick catch-up of the key points so far today.
Announcing the deal, Noel Quinn, HSBC Group CEO said his bank would help SVB UK customers “grow in the UK and around the world.”
The Bank of England and HM Treasury confirmed that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
Chancellor Jeremy Hunt said it was important to find a rescue deal for SVB UK that didn’t involve taxayer funds.
We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
Speaking before the announcement, prime minister Rishi Sunak insisted “our overall financial system is sound and there’s nothing to worry about there”.
Sunak was in close contact with Hunt during his 14-hour flight to the US yesterday where the PM will hold talks with Joe Biden and Australia’s prime minister Anthony Albanese.
Dozens of companies listed in London updated shareholders on their exposure to the collapse of Silicon Valley Bank and its UK branch.
But there has been more losses in the financial markets, with Europe’s main indices falling around 2%.
Investor have dumped bank stocks around the world. In London, Standard Chartered is down 6% with Barclays losing 5%.
Today’s outcome for SVB UK is the “best possible” outcome, Andrew Griffith insists.
“There has been no bailout”, the City minister tells parliament, adding that customers, taxpayers and the banking system are all winners from the purchase by HSBC.
Shareholders and creditors, not depositors, will bear the losses from the rescue, he says.
The Bank of England has used its powers to execute a “mandatory reduction in capital instruments in SVB UK, restoring it to viability”, Griffiths explains.
City minister: Uk banking system remains safe, sound and well-capitalised.
Over in parliament, City minister Andrew Griffith is updating MPs about the situation with Silicon Valley Bank.
Griffith explains that the government has acted to limit the damage to the UK’s tech and life sciences sector.
He confirms that the goverment, working in concert with the Bank of England, has facilitated the purchase of SVB UK by HSBC early this morning.
HSBC are Europe’s largest bank, listed in London, with 39 million customers globally,
Those affected are now secure, in the knowledge that their deposits are protected and they can bank as normal.
Customers should not notice any changes he says, adding;
The wider UK banking system remains safe, sound and well-capitalised.
Griffith says the government used stabilising powers granted in the 2009 Banking Act.
We have forstalled disruption in the tech sector, and supported confidence in the UK financial system.
FTSE 100 posts biggest loss since last July
Ouch. Britain’s blue-chip share index has posted its biggest one-day fall since last summer.
The FTSE 10 index has just closed for the day down 199.7 points at 7548 tonight, as the markets were rocked by the fallout from the collapse of Silicon Valley Bank.
That is the FTSE 100’s lowest close since 3rd January, meaning it has lost most of its gains in early 2023 in the last few weeks since hitting record hight in February.
It’s a fall of 2.58%, the biggest one-day fall since early July last year.
Bank shares ended in the big fallers, with Standard Chartered down 6.9% and Barclays losing 6.3%.
The FTSE 250 index of medium-sized UK companies also had a rough day, losing 2.75%.
But the big losses today remain in US regional banks, where some big names are nursing some major falls:
Charles Archer, markets analyst at IG, writes that there are “real questions over whether regulators have now opened the financial floodgates” with last night’s rescue package:
Late on Sunday, US regulators announced that ‘depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.’ They also guaranteed deposits at the smaller and similarly troubled Signature Bank.
While shareholders, most creditors, and the bank itself will be allowed to collapse unless a buyer can be found, there are now real questions over whether regulators have now opened the financial floodgates. Depositors at any failed bank will now demand similar treatment over deposit security, and while this step was clearly necessary to maintain financial stability, there is an argument to be made that this was a Pandora’s Box that should have stayed firmly shut.
Despite regulatory reassurance, Western Alliance Bank has seen shares fall by 75%, First Republic Bank by 67%, and PacWest Bancorp by 35%. Internationally, banks as large as HSBC and Barclays see smaller share price falls, while troubled Credit Suisse has fallen to its lowest ever market value as default swaps hit another record.
There is a risk that depositors at smaller banks will withdraw cash in favour of the security of those presumed to be too big to fail. This risk is compounded by the speed of social media — panic can now spread at lightning speed.
Ackman: FDIC needs to explicitly guarantee all deposits now
Billionaire investor and hedge fund manager Bill Ackman is calling on US banking regulators to explicitly guarantee all deposits now.
“Hours matter,” he says in a tweet.
The current scheme guarantees up to $250,000.
We also need a modern version of our deposit insurance regime, but that will take some time, and that’s ok as long as all deposits are guaranteed in the interim.
Ackman also argues that regional bank stocks are an “incredible bargain” right now as long as the government does the “right thing”.
Ackman also suggests that Warren Buffett (who recommends being greedy when others are fearful) may be investing in regional banks as their shares slide.
This is not without real risk, but it does offer very attractive asymmetry. I would be surprised if Warren isn’t putting capital to work in his favorite regional banks now.
Shares in Charles Schwab have partially rebounced from this morning’s losses, after the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following Silicon Valley Bank’s collapse.
Schwab shares are currently down around 15%, after earlier plunging as much as 23%.
Joseph Stiglitz: Silicon Valley Bank’s failure is predictable – what can it teach us?
Economics professor Joseph Stiglitz says that the collapse of Silicon Valley Bank represents more than the failure of a single company. Instead, it shows deep failures in the conduct of regulatory and monetary policy.
Like the 2008 crisis, it was predictable and predicted. Let’s hope that those who helped create this mess can play a constructive role in minimising the damage, and that this time, all of us – bankers, investors, policymakers, and the public – will finally learn the right lessons. We need stricter regulation, to ensure that all banks are safe. All bank deposits should be insured. And the costs should be borne by those who benefit the most: wealthy individuals and corporations, and those who rely most on the banking system, based on deposits, transactions, and other relevant metrics.
It has been more than 115 years since the panic of 1907, which led to the establishment of the Federal Reserve system. New technologies have made panics and bank runs easier. But the consequences can be even more severe. It’s time our framework of policymaking and regulation responds.
The market is sending a consistent message today: it fears that a US recession is about to start.
So says George Saravelos, a strategist at Deutsche Bank, who writes:
We are now pricing in Fed cuts rather than hikes, the yield curve is bull steepening sharply, commodities and equities are down with cyclicals under-performing. This is all consistent with an imminent US recession
Back in the markets, bitcoin has jumped to its highest level since 21 February, touching $24,618.
Other crypto assets have also stabilised today, having been hit by the collapse of SVB late last week.
The issuer of the USD Coin stablecoin said it remained redeemable with the dollar, after it hit a record low on Saturday after it emerged that $3.3bn of the reserves backing it were held at Silicon Valley Bank.
Jeremy Allaire, CEO of USDC issuer Circle, said in a tweet on Sunday that the company’s $3.3 billion USDC reserves deposit – about 8% of its total – held at SVB would be fully available when U.S. banks open on Monday.
“Circle’s USDC operations will open for business, including with new automated settlement via our new partnership with Cross River Bank.”
Another clip from President Biden speaking earlier, explaining why investors in failed US banks won’t be bailed out:
Simon Harvey, head of foreign exchange analysis at Monex Europe shows here how the markets have clashed their expectations for interest rate increases:
HSBC was given ring-fencing waiver to help smooth SVB deal
The UK government cleared the way for HSBC to buy the British arm of Silicon Valley Bank by waiving certain restrictions on what types of customers could be taken on by its UK retail bank.
HSBC was given an exemption over rules that do not allow complicated corporate customers to be housed within ring-fenced banks, Andrew Griffith, the City Minister, said in a letter Monday to the Treasury Select Committee.
He later told Bloomberg TV that neither the government nor the Bank of England gave HSBC any guarantees. More here.
First Republic Bank’s shares are continung to plunge today as news it had obtained fresh financing failed to assuage investor fears of contagion in the banking sector after SVB Financial Group’s downfall last week.
The U.S. regional lender’s stock is down around 70%, as it continued to face concerns of deposit outflows.
Reuters reports trading was halted for volatility at one point.
First Republic on Sunday secured additional financing through JPMorgan Chase & Co and the U.S. Federal Reserve, giving it access to a total of $70bnin funds through various sources.
Lloyd Blankfein, the former CEO of Goldman Sachs, reckons only a few more banks will have similar issues to SVB (he doesn’t name them, though).
He tweets that government actions have removed the reasons for bank runs, and that the biggest banks have much tougher regulation and stress testing.
The collapse of Silicon Valley Bank is a timely reminder that “a tough money squeeze” by central bankers can do more damage than just slow things down, points out Garry White, chief investment commentator at Charles Stanley
The technology sector is already reducing its workforce and experiencing more constrained profits and cashflows from the reduction of growth. Technology companies that used Silicon Valley Bank as an industry friendly service provider could not afford to lose their deposits which was often money held there to pay the wages and their suppliers.
“The action to protect the deposits was necessary to prevent bankruptcies by companies that had money but could not access it, and to stop that spilling over into losses for their suppliers. These events provide a further limit to how high the Fed needs to take rates to slow the economy.”
Biden fails to stop market selloff
Joe Biden’s words of reassurance today have done little to calm markets as “worries raced around that other smaller US banks could become the latest dominos to fall”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules. So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading. The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.
The wider banking system will bear the brunt of the bail out of banking customers, as the money will come from fees institutions pay into the deposit insurance fund.
The realisation that regulatory action isn’t stopping the rot has led to sharp falls in some of Wall Street’s biggest banking names in early trade such as Wells Fargo down 7.5%, Citigroup down 6%, and Bank of America down 7%. Despite the pretty bold regulatory action investors have still been shaken by the events of the past few days and are highly nervous about spilling over and creating pools of fresh problems.
The freefall of shares in a raft of smaller lenders including First Republic bank, Western Alliance Bancorp and PacWest Bancorp shows the extent of the contagion concerns with shareholder confidence evaporating.
The Swiss financial regulator said today it was seeking to identify any potential contagion risks for the country’s banks and insurers following the collapses of Silicon Valley Bank on Friday, and Signature Bank on Sunday.
FINMA said in a statement:
“FINMA takes note of the media reports on Silicon Valley Bank and Signature Bank in the USA and is closely monitoring the situation,”
Shares in Swiss banks continue to fall today, amid the wider losses in the banking sector, with Credit Suisse currently down 11.7% and UBS down 7.6%.