Deposit and lending buyer Silicon Valley Bank helped European lenders’ shares to a partial recovery on Monday after the sector was hit last week by concerns over systemic banking stress and a credit crunch.
There are also hopes for added support for bank funding, as Bloomberg News reported that US authorities are in the early stages of considering expanding emergency lending in a bid to stave off the worst banking shock since the 2008 global financial crisis.
The sudden collapse of tech-centric SVB earlier this month destabilized the sector and brought some of Europe’s biggest banking brands into the investor highlight.
Signs that its outage is being handled easily by authorities may also help construct confidence.
Over the weekend, First Residents BancShares Inc bought all of SVB’s loans and deposits and gave the Federal Deposit Insurance Corporation ownership of its shares value as much as $500 million in return, the FDIC said in a press release.
Customers retain access to their accounts, North Carolina-based First Residents said, with branches opening Monday.
The collapse of SVB will cost the deposit insurance fund about $20 billion, the FDIC estimates.
“The move is positive for financial stability and the enterprise capital industry,” said Gary Ng, senior economist at Natixis Hong Kong.
European bank stocks opened higher on Monday after a hot previous session.
Germany’s biggest lender Deutsche Bank, which fell 8.5% on Friday as the cost of insuring its bonds against default risk soared, rose 4.5% in trading early Monday.
The broader index of the largest European banks rose by 1.4% after falling by almost 4% in the previous session.
The First Residents deal for SVB sealed the first weekend in weeks with no news of recent bank failures, bailouts or help from the authorities.
“You are sweeping Silicon Valley to a different buyer, which is nice,” said Sydney-based IG Markets analyst Tony Sycamore.
“But the greater problem is the guarantee of deposits in any respect other (regional) banks in the US … it’s kind of of calm before the next storm.”
Last week ended with flashing indicators of tensions in the financial markets.
Bank stocks in Asia were mixed on Monday – mostly stable in Australia and Tokyo but falling in Hong Kong, where Standard Chartered shares fell nearly 4% as prices caught up with Europe’s crazy Friday.
S&P 500 futures rose 0.5%.
The collapse of SVB sent US depositors fleeing smaller banks to larger cousins, while a loss of confidence forced Credit Suisse into the arms of rival UBS last week.
In March, the Stoxx European Banks Stock Index fell greater than 18% and the KBW US Regional Banks Index lost 21%, and investors are excited to see what happens next.
“I do not think you’ll be able to sit here and say, ‘Well, it’s all done, Silicon Valley Bank and Credit Suisse and, you understand, life will return to normal,'” Australia and Latest Zealand Banking Group CEO Shayne Elliott said in an interview posted on the bank’s website.
“This stuff are inclined to roll over for a very long time,” Elliot said.
CARROTS, STICKS AND ACRONYMS
The sudden rise in bank tensions has raised questions on whether major central banks will proceed to push for aggressive rate of interest hikes to quell inflation and whether a tightening of lending will hurt the global economy.
A U.S. Federal Reserve policymaker said Sunday that tensions in the banking sector are being closely monitored for a possible credit crunch, with a European Central Bank official also signaling a possible tightening of lending.
In Europe, bank bonds are under pressure and credit default swaps or the cost of insolvency insurance are exorbitantly high.
In the US, where flows to money market funds have increased by greater than $300 billion to a record $5.1 trillion in the last month, the focus is on depositor confidence.
The SBV deal may partly reinforce this. First Residents said it might acquire $110 billion in assets, $56 billion in deposits and $72 billion in loans, in addition to expanding operations in California.
It can share further potential losses with the FDIC, and the FDIC retains roughly $90 billion in divestiture securities.
“In actual fact, you will get a mixture of carrots, sticks and acronyms to make sure the desired final result is achieved, allowing (authorities) to proceed using rates of interest to fight inflation,” said Rabobank strategist Michael Every.
“It appears to be part and parcel of it.”