Frankfurt A minus on the German stock market at the start of the week: After the bankruptcy of the Silicon Valley Bank (SVB), the US government announced that all deposits with the money house would be secured – a message that made the Dax start the week slightly in the red. The leading German index initially loses 0.3 percent and falls to 15,381 points.
Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and the US deposit insurance company FDIC announced in a joint statement on Sunday evening that all depositors would be fully protected and would be able to access all of their money from Monday. A similar exemption also applies to Signature Bank in New York, which was closed by its state licensing authority on Sunday.
Will that be enough to restore public confidence in the American banking system?
There is no doubt that the shock from the USA is having an impact. The bankruptcy of the SVB in the USA is stoking fears of further collapses worldwide. It is the biggest collapse of a bank since the global financial crisis of 2008. On Friday, the leading German index Dax closed 1.3 percent lower.
Up until a few days ago, the situation on the markets still looked robust – despite the interest rate turnaround by the central banks. But now investors are wondering how great the risk of contagion from the collapse of the Silicon Valley Bank actually is.
The US deposit insurance took control of the bank on Friday after massive deposit outflows in the previous days. Silicon Valley Bank had $209 billion in assets at the end of 2022, ranking #16 in the US banking industry.
Unrealized losses?
At the start of the week, the focus in Germany is again on bank stocks. On Friday, some of them crashed massively on both sides of the Atlantic. “German banks are now also being targeted by sellers because the start-up financier SVB Financial has revealed something that could also concern them: unrealized losses in the bond portfolio,” said analyst Jochen Stanzl from broker CMC Markets.
The background is that many banks held bonds, the price of which had collapsed at an unprecedented rate. What the market is now fearing is an implosion in banks’ balance sheets, said Stanzl. The investors were now waiting for clarifications from the big financial institutions as to whether and to what extent the problems of SVB Financial also apply to them.
The business of the British subsidiary of the SVB was taken over by the major bank HSBC on Monday morning. This was announced by British Finance Minister Jeremy Hunt on Twitter. SVB UK has around 3,500 business customers, mostly in the technology sector, and has inflows of around £7.5 billion.
More reports on the consequences of the SVB bankruptcy:
Away from the situation surrounding bank stocks, investors are currently looking to the upcoming events of this week. US inflation for February will be released tomorrow, Tuesday. And on Thursday of this week, according to experts, the European Central Bank (ECB) will again fight the stubbornly high inflation in the euro area with a sharp increase in interest rates. Among economists, it is a foregone conclusion that the currency watchdogs around ECB boss Christine Lagarde will raise the key rates by half a percentage point. It would be the sixth increase in a row since the interest rate turnaround in July 2022.
With agency material. Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.