European stocks tanked Monday as investors shrugged off global efforts to stem a fast-moving crisis emanating from the US banking sector.
Germany’s finance watchdog insisted the collapse of Silicon Valley Bank (SVB) posed no threat to financial stability, and France’s economy minister declared US bank failures had no contagion risk.
However, European equities tipped deep into the red as the morning progressed, with bank shares falling particularly hard in Italy and Switzerland.
Frankfurt and Paris stock markets dropped by about three percent, while Milan dived almost five percent at one stage and Zurich shed 1.7 percent.
London dipped 2.3 percent with losses capped after HSBC agreed to buy SVB’s UK division for a nominal £1 ($1.2).
The dollar fell as the turmoil sparked uncertainty over the US Federal Reserve’s plans to hike interest rates, while oil prices also slid.
– ‘Weakest link’ –
“Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe,” City Index analyst Fiona Cincotta told AFP.
“Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links as fears rise.”
Asian stocks diverged on US pledges to backstop troubled lenders after the collapse of SVB was followed by the failure of Signature Bank.
US authorities unveiled sweeping measures to ease concerns over the health of the banking system but it was insufficient to soothe market fears of an imploding banking sector.
Friday’s collapse of SVB, which specialised in venture-capital financing largely in the tech sector, came after a huge run on deposits left it unable to stay afloat on its own.
That came in response to its announcement of a stock offering and sale of securities to raise much-needed cash. Its shares collapsed 60 percent in New York on Thursday and trading was suspended Friday morning, before regulators closed it down.
The crisis has sent shockwaves worldwide, with traders on red alert over any more bank failures.
“Markets… could continue to be volatile throughout the week as a major domino effect could cause widespread risk-off moods leading to further losses for stocks and riskier assets,” said XTB analyst Walid Koudmani.
SVB is the largest retail bank to fall since the 2008 financial crisis.
Its problems had built up as the US Federal Reserve’s interest rate hikes meant securities it owned were selling for significantly less — a problem other banks could face.
On Sunday, New York regulators said they had closed another lender, Signature Bank.
– Fed plans –
The crisis forced the Fed, the Treasury Department and Federal Deposit Insurance Corp. to promise to fully protect all depositors and give backup to any lenders struggling to find cash, providing easier terms on short-term loans.
In a joint statement, they said SVB depositors would have access to “all of their money” starting Monday, March 13, and that taxpayers will not have to foot the bill.
President Joe Biden vowed to hold “fully accountable” the people responsible for “this mess” and said he would deliver remarks on Monday morning on maintaining a resilient banking system.
The SVB crisis will complicate the Fed’s plans to further hike interest rates as it struggles to rein in inflation, with investors now expecting it will lift them just 25 basis points at its next meeting, rather than the 50 points tipped last week.
“The Fed is now in question over even a 25-point hike at the next meeting,” Strategic Alpha analyst Maurice Pomery told AFP.
“The issue for me is that many businesses were constructed on zero interest rates, leverage and debt model — which with rising rates is no longer viable,” he warned.
– Key figures around 1015 GMT –
London – FTSE 100: DOWN 2.3 percent at 7,567.70 points
Frankfurt – DAX: DOWN 2.7 percent at 15,007.54
Paris – CAC 40: DOWN 2.7 percent at 7,026.06
Milan – FTSE MIB: DOWN 4.2 percent at 26,130.42
Zurich – SMI: DOWN 1.7 percent at 10,581.10
EURO STOXX 50: DOWN 3.0 percent at 4,103.82
Tokyo – Nikkei 225: DOWN 1.1 percent at 27,832.96 (close)
Hong Kong – Hang Seng Index: UP 2.0 percent at 19,695.97 (close)
Shanghai – Composite: UP 1.2 percent at 3,268.70 (close)
New York – Dow: DOWN 1.1 percent at 31,909.64 (close)
Dollar/yen: DOWN at 133.56 yen from 135.09 yen on Friday
Euro/dollar: UP at $1.0672 from $1.0643
Pound/dollar: UP at $1.2066 from $1.2035
Euro/pound: UP at 88.45 pence from 88.40 pence
West Texas Intermediate: DOWN 1.8 percent at $75.28 per barrel
Brent North Sea crude: DOWN 1.7 percent at $81.36 per barrel
