Wall Street turmoil spreads to London as bank sell-offs drag the FTSE 100 down 2% after SVB bond woes startle markets
- SVB lost about $1.8 billion selling a $21 billion bond portfolio
- The tech lender redeemed the bonds in response to a drop in customer deposits
- Some investors fear that SVB’s woes could spread to the rest of the sector
A sell-off in banking stocks dragged the FTSE 100 down 2% Friday morning after global markets were shaken by last night’s Wall Street turmoil.
About $52 billion was wiped from the value of the four largest U.S. banks on Thursday as investors panicked over concerns about the value of lenders’ bond portfolios.
HSBC Shares decreased by 5.5 percent, Standard chartered decreased by 4.2 percent, Barclays fell 3.6 percent, while NatWest And Lloyd’s were 3.3 percent lower in morning trading on Friday.
As a result, the FTSE 100 fell as much as 2 percent to 7,720, its monthly low, trailing 3.7 percent after a record high of 8,014.3 on February 20.
Bank shares in London fell sharply on Friday after similarly heavy losses in the US
European stock markets were also in the red, with Germany’s DAX down 1.5 percent, France’s CAC 40 down 1.4 percent and Italy’s FTSE MIB down 1.9 percent.
It follows losses in the US, where banking giants JPMorgan Chase, Bank of America, Wells Fargo and Citigroup saw their share prices fall 4 percent to 6 percent, wiping $52.3 billion from their cumulative market value.
This sudden crisis of confidence in the banking sector appears to have been fueled by difficulties at Silicon Valley Bank, a leading lender to tech startups.
SVB revealed that it had lost approximately $1.8 billion selling a portfolio of bonds valued at $21 billion, which it had redeemed in response to a drop in customer deposits.
The losses prompted the technology lender to announce a $2.25 billion capital raise to bolster its capital position.
Banks were the biggest fallers on the FTSE 100 Friday morning (chart shows prices at 9.30am)
The value of bonds held by banks has fallen in recent months due to rising interest rates.
SVB was forced to sell them because the depositors withdrew their money, causing the shares to plummet by 60 percent.
The losses at SVB worried investors that larger banks, which also hold large bond portfolios, may be at risk.
Russ Mould, director of investment at AJ Bell, said: “Many banks have large bond portfolios and rising interest rates are making them less valuable – the SVB situation reminds us that many institutions have large unrealized losses on their fixed income holdings.”
Neil Wilson, an analyst at Markets.com, said the fall in SVB shares clearly hit sentiment, but did not represent the broader US banking sector.
“It seems that SVB just grabbed the wrong end of the stick with regard to rising interest rates, parking far too much of its assets in long-dated bonds it deemed safe, but are now worth a lot less,” he said.
While SVB is unlikely to predict a broader banking crisis, it could be the straw that breaks the camel’s back for the market.
The FTSE 100 is down about 3.7% from its all-time high of 8,014.3 on February 20