Proactive Investors - UK banking stocks were hammered on Friday as concerns over the health of the US banking sector dented financial institutions sparking a widespread sell-off.
In London, Lloyds Banking Group (LON:LLOY) fell 3.4%, HSBC Holdings PLC (LON:HSBA) 5.4%, Barclays PLC (LON:BARC) 4% and NatWest (LON:NWG) 3.5%. Insurers were also knocked with Prudential PLC (LSE:LON:PRU) down 3.5% and Legal & General 4% lower.
The mood in Europe was no brighter with Deutsche Bank (ETR:DBKGn) down 7.8%, Banco Santander (BME:SAN) (LSE:BNC) down 6.2% and Societe Generale (EPA:SOGN) falling 5.5%.
Across the pond investors wiped US$52.4bn off the market value of the four largest US banks by assets on Thursday amid a widespread sell-off of financial stocks that analysts linked to investor fears over the value of lenders’ bond portfolios.
The sell-off in JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) was sparked by difficulties at Silicon Valley Bank, a small, technology-focused lender.
On Wednesday, SVB revealed it had lost roughly US$1.8bn following the sale of a portfolio of securities valued at US$21bn, which it offloaded in response to a decline in customer deposits. The losses prompted the bank to announce a share sale to shore up its capital position.
The losses on the sale of the SVB securities shifted investor attention to the risks that might be lurking in the huge bond portfolios held by other US banks.
Victoria Scholar, head of investment, interactive investor noted, “shares in SVB plunged more than 60%, wiping US$80 billion off its market cap with a 22% after-hours slide. First Republic bank also fell sharply, with a double-digit percentage slump amid the fallout for the sector."
"The S&P 500 banks sector fell by more than 6.5% and the VIX, Wall Street’s so-called fear gauge surged more than 18%," she added.
Neil Wilson at markets.com asked whether this was Lehman moment. He felt not.
“SVB does not represent the wider US banking sector, albeit the plummet in SVB stock clearly hit sentiment.”
“It seems as though SVB was just gripping the wrong end of the stick with regards to rising interest rates, parking way too much of its assets in long-dated bonds which it thought safe but are now worth a lot less,” he commented.