By Chris Dorrell
The banking sell-off eased in Europe today while US regional banks are poised to rebound as investors continue to digest the implications of Silicon Valley Bank’s collapse.
Fears of contagion sparked a brutal sell-off in Europe yesterday with the European Stoxx bank index falling 6.7 per cent.
But Europe’s lenders have had a calmer day today. AJ Bell’s investment director Russ Mould said “there was a sense some calm had been restored to markets after a bruising few sessions.”
NatWest was up 2.4 per cent, Lloyds 2.7 per cent and Barclays 4.9 per cent around midday. Banks on the continent were also higher with Deutsche Bank up 4.1 per cent, UBS 3.0 per cent, Santander 3.5 per cent and BNP Paribas 3.0 per cent. The European Stoxx bank index was up 2.6 per cent.
Investors had been concerned that European banks might face problems in their bond portfolios, with many large lenders sitting on big unrealised losses due to rising interest rates.
But TwentyFour Asset Management’s Gary Kirk said he thought UK and European banks were generally in “robust shape”.
“The granularity in their loan exposure, diversity in their deposit base, the excess capital buffers held and the current strength of the net interest margins point(s) to…a very low risk of (similar issues) occurring closer to home, particularly for the larger lenders.”
US lenders seemed set to recover many of their losses today too, with futures for banks rising ahead of the market open.
In pre-open trading today futures in First Republic were up over 50 per cent, PacWest Bancorp was up over 41 per cent and Western Alliance Bancorp traded up over 30 per cent.
Regional lenders saw huge share price falls on Monday over fears that depositors would continue to remove their cash despite President Joe Biden’s best efforts to calm the situation.
Among the Wall Street giants, futures in Citi were up 4.0 per cent while Bank of America was up 4.9 per cent.
Hargreaves Lansdown’s Susannah Streeter said US banking stocks are on a “rollercoaster ride”.
“Hope is rebounding that the backstop of deposits of failed banks will stem further withdrawals and that more generous loan terms to struggling banks could help restore confidence,” she continued.
Asian stocks suffered overnight, however, with Mould suggesting markets were playing “catch up” on the US market turmoil.
Japan’s Topix Banks index tumbled 7.4 per cent, its worst day in more than three years with Japan’s three systemically important banks all slumping. MUFG closed down 8.6 per cent, Mizuho down 7.1 per cent and SMFG down 7.8 per cent
HSBC and Standard Chartered were both trading lower, reflecting the sell-off that hit Japan.
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