Earthquake in the banking sector. Last Thursday the Silicon Valley Bank (SVB), whose activity is focused on granting loans to the technology sector, reported losses of 1.8 billion dollars in a portfolio of mortgage-backed securities worth 21 billion dollars, which was seen forced to sell to save their accounts. We are talking about assets that double those of the famous bankruptcy of Long Term Capital Management (LTCM) at the end of the 1990s.
This bond divestment was carried out to cover a significant outflow of deposits. The shares of SVB reached more than 85% in two days–before the negotiation was suspended– The entity, which today Friday was closed by the Californian regulator until Monday the 13th, would even be negotiating its sale. Savers will only be able to withdraw up to $250,000, guaranteed by the deposit guarantee fund.
The world stock markets have been dyed red as the shares of the big banks suffered from the uncertainty. The Ibex has fallen 1.47%, its biggest drop in two months. Spanish entities ended the session with falls of up to 5%. In the rest of Europe, the bleeding has been even worse, with Deutsche Bank losing more than 7% and ING, Société Generale suffering cuts of 4%. The Eurostoxx bank index has seen its worst day since March 2022.
The big question analysts are asking is whether there is systemic risk, as was the case with the Lehman Brothers failure in 2008. US Treasury Secretary Janet Yellen has said on Capitol Hill that she was aware of the latest developments and was monitoring the situation, calling it “a cause for concern, when banks experience losses”.
In general, the increase in rates and the withdrawal of liquidity from the system can put pressure on the value of assets, altering the balance sheets of entities, with a risk of suffering an increase in delinquency. "The key is whether there is a massive outflow of bank deposits and this remains to be seen," reasons Xavier Brun, a UPF professor and director of equities at Trea Asset Management. “However, this is unlikely to happen. In the case of Lehman Brothers nobody trusted anyone, with SVB it is different. De facto it has operated as a venture capital fund financing start-ups. And it is in crisis because this type of economic agent has now had to adapt to the new cycle of raising interest rates and withdrawing stimuli. The next turn may be for real estate, because after the good unemployment data, Jerome Powell's pulse will not tremble and he will continue with his restrictive policy, ”he adds.
We would therefore be facing a serious situation, but with a limited moment of impact. “SVB has a less diversified balance sheet structure than other banks and is more exposed to deposit outflows due to a very specific type of customer: the tech entrepreneur. We believe the risk of a large deposit outflow and consequent bond divestments and equity issuances is low, especially for European banks that are more diversified," Guy de Blonay, equity manager at Jupiter AM, wrote in a note. .
