- Problems at two US lenders spark panic
- Risk of contagion looks minimal for now
- UK banks well-capitalised and well-regulated
UK banking stocks were marked down by 5% or more heading into the weekend as investors fled the sector after the US banking sector suffered its worst one-day fall since 2020.
Shares in global lender HSBC (HSBA) were the worst performers in the FTSE 100, losing 5.5% to 588p, while Barclays (BARC) and NatWest (NWG) shares were down 3% apiece at 158p and 284p respectively.
WHY ARE BANK SHARES FALLING?
The US KBW Bank index fell 8% overnight and more than $50 billion was wiped off the value of the four largest US lenders, Bank of America (BAC:NYSE), Citigroup (C:NYSE), JPMorgan Chase (JPM:NYSE) and Wells Fargo (WFC:NYSE).
The sell-off in US banks followed news that two Californian lenders were struggling to stay afloat.
Silvergate Capital (SI:NYSE) announced on Wednesday it would wind down its operations after it lost almost $1 billion due to the collapse of the crypto-currency exchange FTX and its deposit base shrank dramatically, sending its shares crashing.
The same day, SVB Financial (SIVB:NASDAQ) launched a $2.25 billion share sale in an attempt to shore up its balance sheet after its deposit base also fell sharply.
The firm, which is largely backed by venture capital firms and lends money to Silicon Valley-based start-up companies, also revealed it had lost $1.8 billion on the sale of $21 billion of securities, raising questions over the value of its assets.
SVB Financial shares plummeted 60% on Thursday, wiping out nearly $10 billion in value, and are indicated down another 35% in today’s pre-market trading.
The fall in US banks sparked fears of contagion among financial stocks in general, with some European stocks faring even worse than their UK counterparts.
Shares in Sweden’s Swedbank (SWED-A:STO) were 6% lower and shares in Deutsche Bank (DBK:ETR) were up to 8% lower.
ARE THE UK BANKS IN DANGER?
Although fears of contagion are understandable, if anything the turmoil among smaller, more risky lenders is likely to drive deposits - and by extension profits - to the larger, better-capitalised banks.
That means the big UK lenders could actually benefit from a ‘flight to safety’ by depositors, so today’s knee-jerk selling may be an opportunity for longer-term investors to add to holdings.
On the other hand, the situation at SVB is likely to result in greater risk-aversion on the part of both lenders and investors which for smaller companies and start-ups means access to capital will only get harder.
