Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Silicon Valley Bank Urges Clients To "Stay Calm" After 60% Stock Tumble

Silicon Valley Bank Urges Clients To "Stay Calm" After 60% Stock Tumble

The immediate risk for many banks may not be existential, according to analysts, but it could still be painful.
Silvergate Capital Corp.'s abrupt shutdown and SVB Financial Group's hasty fundraising have sent US bank stocks diving and tongues wagging across the industry: Could this be the start of a much bigger problem?

The issue at both of the once-highflying California lenders was an unusually fickle base of depositors who yanked money quickly. But below that is a crack reaching across finance: Rising interest rates have left banks laden with low-interest bonds that can't be sold in a hurry without losses. So if too many customers tap their deposits at once, it risks a vicious cycle.

Across the investing world, "people are asking who is the next one?" said Jens Nordvig, founder of market analytics and data intelligence companies Exante Data and Market Reader. "I am getting lots of questions about this from my clients."

Indeed, amid deposit withdrawals at SVB, its chief executive officer urged customers on Thursday to "stay calm."

The immediate risk for many banks may not be existential, according to analysts, but it could still be painful. Rather than facing a major run on deposits, banks will be forced to compete harder for them by offering higher interest payments to savers. That would erode what banks earn on lending, slashing earnings.

Small- and mid-sized banks, where funding is usually less diversified, may come under particular pressure, forcing them to sell more stock and dilute current investors.

'Terrible Kicking'

"Silicon Valley Bank is just the tip of the iceberg," said Christopher Whalen, chairman of Whalen Global Advisors, a financial consulting firm. "I'm not worried about the big guys but a lot of the small guys are going to take a terrible kicking," he said. "Many of them will have to raise equity."

Every bank in the S&P 500 Financials Index tracking major US firms slumped on Thursday, taking the benchmark down 4.1% - its worst day since mid-2020. Santa Clara-based SVB tumbled 60%, while First Republic Bank in San Francisco fell 17%.

Another S&P index tracking mid-size financials dropped 4.7%. The worse performer there was Beverly Hills-based PacWest Bancorp, down 25%.

Ironically, many equity investors had piled into financial stocks to ride out the Federal Reserve's interest-rate hikes, betting it would pave the way for lenders to earn more. For them, this week has been a shock.

"The cost of deposits rising is old news, we've seen that pressure," said Chris Marinac, an analyst at Janney Montgomery Scott. But suddenly "the market has really focused on it because there's an obvious surprise with the capital raise from Silicon Valley Bank."

SVB announced the stock offering as its clients - firms backed by venture capital - withdrew deposits after burning through their funding. The lender liquidated substantially all of the securities available for sale in its portfolio and updated a forecast for the year to include a sharper decline in net interest income.

Hours after CEO Greg Becker urged clients to "stay calm" on a conference call Thursday, news broke that a number of prominent venture capital firms, including Peter Thiel's Founders Fund, were advising portfolio companies to pull money as a precaution.

At Silvergate the problem was a run on deposits that began last year, when clients - cryptocurrency ventures - withdrew cash to weather the collapse of the FTX digital-asset exchange. After losses from rapidly selling securities, the firm announced plans Wednesday to wind down operations and liquidate.

US bank stocks also came under pressure this week after KeyCorp warned about the mounting pressure to reward savers. The regional lender lowered its forecast for growing net interest income in the current fiscal year to 1% to 4%, down from 6% to 9%, because of the "competitive pricing environment." Its stock fell 7% on Thursday.

'More Insulated'

Regulators talk openly about spending less time policing the balance sheets of small banks, giving them room to innovate, with some dabbling in financial-technology platforms or cryptocurrencies.

Authorities have instead devoted much of their time and attention since the 2008 financial crisis to ensuring the stability of large "systemically important" banks such as JPMorgan Chase & Co. and Bank of America Corp.

They've forced the biggest lenders to hold ever-larger amounts of capital aside - sometimes over the loud complaints of bankers - so that their health would be beyond reproach at moments like this. Smaller lenders by contrast have been handled with "a very light-touch approach," Michael Barr, the Fed's vice chair for supervision, said during a speech Thursday.

"There are obviously larger institutions that are also exposed to these risks too, but the exposure tends to be a very small part of their balance sheet," he said. "So even if they experience the same deposit outflows, they are more insulated."
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Trump Announces Coca-Cola to Shift to Cane Sugar in U.S. Production
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Air India Pilot’s Mental Health Records Under Scrutiny
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
Moonshot AI Unveils Kimi K2: A New Open-Source AI Model
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Bitcoin Reaches New Milestone of $116,000
Severe Heatwave Claims 2,300 Lives Across Europe
Declining Beer Consumption Signals Cultural Shift in Germany
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
Western Europe Records Hottest June on Record
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
China’s Central Bank Consults European Peers on Low-Rate Strategies
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
×