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The Guardian

US banking sector outlook downgraded, but regional bank shares surge – as it happened

By Graeme Wearden,

2023-03-14

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4.52pm GMT

Closing post

Time to wrap up….

Ratings agency Moody’s has cut its view on the US banking system to negative from stable, as the ramifications of the collapse of Silicon Valley Bank .

In a note published overnight, it says

Although the Department of the Treasury, Federal Reserve and FDIC announced that all depositors of SVB and Signature Bank will be made whole, the rapid and substantial decline in bank depositor and investor confidence precipitating this action starkly highlight risks in US banks’ asset-liability management (ALM) exacerbated by rapidly rising interest rates.

Financial stocks have rallied in New York , and also in London , with US regional bank shares surging today, after heavy losses on Monday. There were losses in Asia, though, where Japanese banks fell in overnight trading.

Susannah Streeter, head of money and markets at Hargreaves Lansdown , sums up the situation:

‘’US banking stocks are on a rollercoaster ride, rising sharply following the steep sell offs yesterday as worries seem to be lifting a little about contagion from the SVB collapse.

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. First Republic Bank shares have surged 44% but still haven’t made up the punishing losses of recent days, indicating that uncertainty remains about its robustness.

The FTSE 100 has been swept upwards in afternoon trade, helped by the tailwinds from Wall Street.

The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank, the Wall Street Journal is reporting.

SVB Financial Group and two top executives have been sued by shareholders over the collapse of Silicon Valley Bank .

In the UK, MPs on the Treasury Committee are to hold a hearing into the rescue of Silicon Valley Bank UK.

German chancellor Olaf Scholz tried to reassure his citizens about the crisis, saying that Germans should not have major concerns about the fallout of Silicon Valley Bank’s collapse.

The markets rallied after US inflation fell to 6%, raising hopes that the US Federal Reserve will not feel compelled to implement a large interest rate hike this month.

Related: US inflation slows to 6% annual rate amid looming banking crisis

Here are the rest of today’s main stories:

Related: Credit Suisse warns of ‘material weaknesses’ in financial reporting

Related: Mirror and Express publisher warns that up to 420 staff are at risk of redundancy

Related: ‘So many working parents are screwed’: mothers on Britain’s childcare costs

Related: ‘No strategy’: West Yorkshire firms hope the budget supports industry

Related: UK pay growth slowdown adds to inflation squeeze on households

Related: Hunt’s budget aims to push people back to work just as the jobs market weakens

Related: UK hair salons and chippies among indie shops ‘most hit’ by cost of living crisis

Related: Tube strike to cause widespread disruption in London on Wednesday

Related: Ban on forced prepayment meters will continue beyond March, says Ofgem

Updated at 4.54pm GMT

4.42pm GMT

FTSE 100 closes 1.1% higher

With the mood in the City rather brighter today than yesterday, the FTSE 100 index has closed 88.5 points higher tonight.

The index of blue-chip shares gained 1.17% to close at 7637, recovering almost half of Monday’s losses.

Rolls-Royce (+7%), Ocado (+4.1%) and Hargreaves Lansdown (+4%) led the risers.

UK listed banks also rallied, with Barclays up 3.1% and Lloyds Banking Group gaining 2.1%.

Charles Archer of IG, warns though, that the Silicon Valley Bank crisis is “far from over”.

Archer writes :

Across the pond, the Financial Times has reported that larger institutions such as Citi and JPMorgan are being inundated with new depositors fleeing from the thousands of smaller US banks.

For context, it’s worth remembering that while US regulators have guaranteed the deposits of funds held at Silicon Valley Bank and Signature Bank, this protection has not been extended universally.

This leaves depositors elsewhere relying on the FDIC insurance, limited to just $250,000, akin to the £85,000 FSCS limit in the UK. Over 30% of US deposits are held in small banks in the states, and more than 50% of funds are above the FDIC limit.

With new CPI figures showing that annual inflation has slowed to 6%, Federal Reserve Chair Jerome Powell has an unappetising tightrope to walk this month: pausing or pivoting could see inflation become more entrenched or start to rise just as it looked like it might finally get under control, while continuing to increase rates could well see another unexpected economic ‘break.’

3.37pm GMT

With an hour’s trading to go here in London, the FTSE 100 index is up over 1%.

The blue-chip index has gained 89 points, back to 7638, gaining back almost half of Monday’s selloff.

Engineering company Rolls-Royce are the top riser, up 7%, followed by bank Barclays (+3.7%).

Updated at 3.37pm GMT

3.16pm GMT

WSJ; Justice Department and SEC Investigating Silicon Valley Bank’s Collapse

The Justice Department and the Securities and Exchange Commission are investigating the collapse of Silicon Valley Bank, the Wall Street Journal is reporting.

The WSJ says:

The separate probes are in their preliminary phases and may not lead to charges or allegations of wrongdoing. Prosecutors and regulators often open investigations after financial institutions or public companies suffer big, unexpected losses.

The SEC and a spokesperson for the Justice Department in Washington have declined to comment.

This comes day after SVB Financial Group and two top executives were sued by shareholders, who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit susceptible to a bank run.

The proposed class action lawsuit against SVB, Chief Executive Greg Becker and Chief Financial Officer Daniel Beck was filed in the federal court in San Jose, California.

Related: Silicon Valley Bank: parent company, CEO and CFO sued amid market turmoil

3.09pm GMT

Full story: US inflation slows to 6% annual rate amid looming banking crisis

Price rises slowed again in February as the annual rate of inflation eased but the report has been overshadowed by a banking crisis ahead of next week’s meeting of the Federal Reserve .

Prices in February were 6% higher than a year ago, down from an annual rate of 6.4% in January and significantly lower than the 9.1% peak of inflation seen in June, my colleague Lauren Aratani reports .

Between January and February, prices rose 0.4% as prices increased in sectors including housing and food.

While February saw the continuation of a downward trend in the 12-month inflation rate, the core prices – which excludes volatile food and energy prices – increased by 0.5% in February compared with a 0.4% monthly gain in January.

More here .

Related: US inflation slows to 6% annual rate amid looming banking crisis

3.02pm GMT

Moody’s cuts outlook on U.S. banking system to negative

Ratings agency Moody’s has changed its outlook on the US banking system to “negative” from “stable” after the collapse of three major banks fueled fears of a contagion.

Moody’s Investors Service said it was making the move in light of three key bank failures in recent days that prompted regulators to step in on Sunday with a dramatic rescue plan for depositors and other institutions impacted by the crisis .

In a report, Moody’s says that the operating environment for US banks is “rapidly deteriorating”.

“We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY.”

As covered this morning , Moody’s also put six US regional banks on watch for a potential downgrade.

Updated at 3.57pm GMT

2.47pm GMT

US president Joe Biden has welcomed the fall in inflation last month, saying:

Today’s report shows annual inflation is down by a third from this summer at a time when the unemployment rate remains near a 50-year low.

That is the slowest annual increase since September 2021. I will continue working to lower costs for hard-working Americans so they have a little more breathing room at the end of the month.

2.44pm GMT

Investors are circling Silicon Valley Bank’s assets, after the bank was seized by federal regulators last week.

Bloomberg reports that Apollo Global Management Inc., Blackstone Inc. and KKR & Co. have expressed interest in snapping up a book of loans held by SVB.

It says:

Apollo, Blackstone and KKR, three of the world’s largest alternative asset managers, are among investors looking to buy pieces of Silicon Valley Bank, according to the people, who asked not to be identified discussing confidential information.

The bank had $73.6 billion of loans as of 31 December 2022. The size of the loan book Apollo and Blackstone are interested in couldn’t immediately be determined.

Blackstone is also looking at other assets it may purchase from the bank, one of the people said.

2.31pm GMT

An index of US regional banks is rallying sharply today.

The SPDR S&P Regional Banking ETF is up over 7%, lifted by banks such as First Republic (+53%).

Updated at 2.34pm GMT

2.23pm GMT

Back in the UK, MPs are to hold a hearing on the collapse of Silicon Valley Bank later this month.

The Treasury committee will quiz the Bank of England on Tuesday 28 March, and examine ask why SVB UK had to be rescued by HSBC on Monday morning.

The committee has also written to the BoE , asking for details about how SVB UK was supervised before its collapse – including the resource allocated to it, the decision to choose HSBC as a purchases, and what lessons can be learned.

Related: ‘It was frantic’: the scramble to save SVB UK and avert a banking crisis

Harriett Baldwin MP, Chair of the Treasury Committee, says:

“This deal is the best possible outcome achieved in incredibly challenging circumstances. We thank everyone who worked tirelessly to achieve this deal.

“Yet, while it’s reassuring that taxpayer funds were not required in this instance, a number of questions remain around the effectiveness of bank regulation and resolution procedures, especially for smaller banks with a significant presence in strategically-important industries. It is important that we reflect on the lessons from this episode to ensure that the post-financial crisis regime to avoid bailouts remains strong.”

Updated at 2.25pm GMT

2.15pm GMT

2.09pm GMT

Meta shares jumps 6% as more job cuts announced

Shares in Facebooks owner, Meta, have jumped almost 6% after it announced plans to lay off another 10,000 workers.

This is the second round of significant job cuts announced by the tech giant in four months. It is also instituting a further hiring freeze as part of the company’s “Year of Efficiency”.

In a Facebook post today, CEO Mark Zuckerberg said the job cuts will take place “over the next couple of months.”

Zuckerberg wrote:

“We expect to announce restructurings and layoffs in our tech groups in late April, and then our business groups in late May,”

In a “small number of cases”, it may take through the end of the year to complete these changes, Zuckerberg says, adding:

“Overall, we expect to reduce our team size by around 10,000 people and to close around 5,000 additional open roles that we haven’t yet hired.”

Here’s the story:

Related: Zuckerberg’s Meta to lay off another 10,000 employees

Meta’s shares have jumped 5.5%, or $10, to $191, the highest in over a month.

1.58pm GMT

Scholz plays down threat of SVB meltdown to Germany

German chancellor Olaf Scholz has said today that Germans should not have major concerns about the fallout of Silicon Valley Bank’s collapse.

Scholz said regulators had learned lessons from the global financial crisis in 2008, speaking in Berlin aongside Ilham Aliyev , the President of Azerbaijan.

1.54pm GMT

The tech-focused Nasdaq index has jumped 2% in early trading, as the Wall Street rally gathers pace.

1.43pm GMT

US stock market opens higher, as regional banks surge

The US stock market has jumped at the start of trading, as bank stocks mounted a comeback from Monday’s heavy losses.

The Dow Jones industrial average has gained 1%, up 314 points at 32,133 in a flurry of buying.

The broader S&P 500 index has gained 1.5%, as investors cheer the slowdown in US inflation last month .

And after a brutal day yesterday, US regional banks are bouncing back in early trading, as concerns over their financial health ease.

San Francisco-based First Republic’s shares have surged 57%, back to $49.28. On Monday it fell 62%, from $81 to $31.

Western Alliance Bancorp , of Phoenix, Arizona has gained 52%, while Los Angeles-based PacWest has jumped 55%.

Zions , of Salt Lake City, Utah, has gained 22%.

However, Ronald Temple, chief market strategist at Lazard, argues that US interest rates will actually rise higher than forecast:

“This is exactly the inflation print the Fed did not want. The elevated core inflation in February adds to the evidence of economic strength from last week’s job numbers, signalling the need for tighter monetary policy.

But asset liability management challenges for some banks might limit the latitude to tighten in the near term. Despite banking challenges, persistent inflation means markets are likely wrong to expect rate cuts this year.

The economy remains strong, and the Fed will likely need to hike rates further and keep them higher for longer than markets are currently pricing.”

Updated at 1.46pm GMT

1.26pm GMT

UK bank stocks rise

Bank shares in London have turned higher too.

Barclays are up 4.6% and Lloyds Banking Group have jumped 3%, among the top risers on the FTSE 100 today.

1.20pm GMT

1.19pm GMT

FTSE 100 pushes higher

European stock markets are now rallying, as investors are cheered by the fall in US inflation last month .

The UK’s FTSE 100 index has gained 42 points, or over 0.5%, to 7590 points, having been broadly flat before the inflation report hit the wires.

That recovers about a fifth of Monday’s selloff.

Germany’s DAX has gained 1.6%, while France’s CAC is 1.4% higher.

This suggests that the slowdown in price rises across America last month bolsters expectations of a smaller interest rate rise this month, of 25 basis points.

Updated at 1.19pm GMT

1.07pm GMT

Neal Keane , head of sales trading at the international brokerage ADSS , reckons the US Federal Reserve is still likely to raise interest rates again, despite slowing inflation and the collapse of two banks in recent days.

Keane writes:

“Headline figures show a notable decrease in annual CPI to reach 6% - but with the core rate falling to only 5.5% and MoM inflation rising 0.4%, this piece of the rate hike puzzle will offer little to convince the Fed to pause rate increases in the near term.”

The collapses of Silicon Valley Bank and Signature will “undoubtedly weigh on the Fed’s mind”, with opinion divided on whether it should pause rate hikes immediately, Keane adds:

On balance, a hike of 25bps [a quarter of one percent] still looks the more likely scenario, with further hikes still possible while inflation continues running too high at current levels.”

12.49pm GMT

Gerrit Smit, manager of the $1.7bn Stonehage Fleming Global Best Ideas Equity fund , says investors will be cheered that US inflation continues to fall:

Smit predicts it will allow the Fed to raise its headline interest rates by another quarter-point next week:

Headline inflation dropped to 6.0% as expected, lower than many fears of very sticky inflation.

This is a welcome reprieve, and we can expect the Fed to continue on its +25bps pathway despite the SVB scare.”

12.47pm GMT

The US inflation report puts the Federal Reserve in a ‘somewhat tricky position’, says John Leiper, chief investment officer, Titan Asset Management.

Although the rate of price increases slowed, the Fed will want to get inflation down towards its 2% target by raising interest rates again.

However, the collapse of Silicon Valley Bank shows the impact of its previous rate rises, and the risks from tightening policy quickly.

Leiper says:

“It’s been an eventful week for markets and today’s inflation print doesn’t change that. Headline inflation came in-line with expectations although core inflation picked-up slightly month-on-month. This keeps the Fed in a somewhat tricky position.

The Fed cannot fall behind the inflation curve, its credibility is at risk if it does, but equally the lagged impact of prior tightening is now starting to show its face, as evidenced by the recent Silicon Valley Bank failure. This remains a delicate balancing act for Jerome Powell and markets won’t like the ongoing uncertainty.”

12.41pm GMT

12.40pm GMT

US inflation rate lowest since 2021

At 6.0% last month, annual US inflation is the lowest since September 2021.

The core inflation rate (which excludes food and energy) was the lowest since December 2021 at 5.5% per year.

Energy prices increased 5.2% in the 12 months to February, while the food index increased 9.5% over the last year.

12.34pm GMT

US inflation rate falls, but shelter costs keep rising

Newsflash: US inflation has eased, but still remains sharply above the Federal Reserve’s target.

The consumer prices index in America slowed to an annual rate of 6.0% in February, down from 6.4% in January.

That matches economists expectations, and means inflation is running three times above the Fed’s target of 2%.

Core inflation eased a little, to 5.5% from 5.6%.

During February alone, inflation was 0.4%, a slowdown on the 0.5% increase in the CPI in January.

The index for shelter was the largest contributor to inflation in February, accounting for over 70% of the monthly increase, with the indexes for food, recreation, and household furnishings and operations also contributing.

The food index increased 0.4% over the month with the food at home index rising 0.3%.

But energy prices eased by 0.6% during the month, helped by falling prices of natural gas and fuel oil.

Updated at 12.39pm GMT

12.31pm GMT

Economics professor Ricardo Reis has written a very interesting thread about the implications of the SVB collapse for the US Federal Reserve’s interest-rate-hiking cycle.

12.11pm GMT

European bank shares have shaken off their earlier losses.

The European Stoxx banks index is now up 0.3% today, a small recovery after its biggest falls in a year.

Credit Suisse has recovered some ground – its share are now 1.7% today, having dropped over 4% at one stage this morning.

Credit Suisse Group chief executive Ulrich Körner told Bloomberg TV this morning that the bank has seen inflows of client funds on Monday, as the collapse of Silicon Valley Bank rocked the financial markkets.

Körner said:

We got inflows yesterday, which is a positive sign I would say.

We even saw materially good inflows yesterday.”

Updated at 12.20pm GMT

11.58am GMT

In the UK supermarket sector, Sainsbury’s is buying back the freehold on 21 of its supermarkets in a £431m deal.

Analysts said the deal, which unwinds a sale and leaseback joint venture, gives Sainsbury’s fewer liabilities and more control over its assets as it faces higher costs and tightening consumer spending.

Sainsbury’s said it wanted to sell and lease back a further four stores which were part of the joint venture while one vacant store would be sold outright.

Updated at 11.58am GMT

11.43am GMT

UK banks not seeing deposit 'flight to quality' after SVB collapse - Lloyds CEO

British banks are not yet seeing a “flight to quality” in deposits among customers nervous about the safety of their money following the collapse of Silicon Valley Bank last week, Lloyds chief executive Charlie Nunn has said today.

Nunn told a Morgan Stanley event today ( via Reuters ) that:

“What’s happened with SVB is relatively idiosyncratic compared to the UK”

As covered at 9.03am , major US banks including JPMorgan and Citigroup have seen a wave of customers applying to shift their accounts to larger lenders.

Nunn doesn’t see signs that this is happening in the UK, though, saying:

“We haven’t seen what we’ve seen in the US, which is the flight to quality.

“But let’s see how that plays out and we’ll see how people feel over the next period of time.”

11.14am GMT

Corporate insolvencies jump almost a fifth in England and Wales

The number of company insolvencies in England and Wales has jumped by 17%, in a sign that economic tensions in the UK are increasing.

There were 1,783 registered company insolvencies across England and Wales in February, new figures from the Insolvency Service show.

That’s up from 1,518 in February 2022, and a third more than before the pandemic – showing the stresses in the UK economy ahead of tomorrow’s budget.

Most of the company failures were Creditors’ Voluntary Liquidations (CVLs), where directors decide to liquidate their firms because they are insolvent. Compulsory liquidations more than doubled, to 158.

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Nigel Fox , a Director in the Restructuring & Recovery team at Evelyn Partners , explains

The effect of Covid restrictions will mean that many businesses will have much less cash to weather the storm caused by such factors as the huge hike in energy costs and the 40 year high in inflation, together with rising interest rates.

“It is therefore more important than ever for businesses to be vigilant to watch out for the warning signs of potential insolvency and to take appropriate advice as early as possible. Such advice could help directors avoid the personal liability that might arise if they carried on trading when there was no potentially viable plan to successfully ride out the difficult times.”

There are indications that overall corporate insolvency numbers might be starting to plateau, perhaps mirroring the fact that inflation might also have peaked, says Inga West, Restructuring and Insolvency Counsel at law firm Ashurst:

West adds:

Eyes will be on the budget this week to see what recovery measures are being announced to support British Business battle its way through the harsh economic conditions.

The stark rise in corporate insolvency figures has been driven almost entirely by near record levels of creditor voluntary liquidations. This is an insolvency process favoured by SMEs. Interestingly, administration numbers remain lower than pre-pandemic - suggesting that larger companies are finding a way to hang on - perhaps hoping for a boon from the Chancellor.”

10.41am GMT

Credit Suisse shares fall 4% near record lows

Shares in Credit Suisse have dropped by over 4% this morning, after it reported that ‘material weaknesses’ have been found in its financial reporting controls.

Credit Suisse’s shares have dropped as low as 2.12 Swiss francs this morning, close to the record low hit during yesterday’s trading.

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Credit Suisse’s share price over the last decade Photograph: Refinitiv

As reported at 8.41am , Credit Suisse’s bonds have also weakened to record lows this morning, as it released its delayed annual report.

In the annual report released today, Credit Suisse said

“management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements”.

Credit Suisse was forced to delay the release of its annual report from last week after the Securities and Exchange Commission raised last-minute queries related to cash-flow statements from 2019 and 2020. The banks says those discussions have now been concluded.

AJ Bell investment director Russ Mould says investors are not in a forgiving mood with Credit Suisse:

“While the immediate fallout from the SVB collapse may have been contained for now, the edginess around the banking sector isn’t helped by the latest revelations from Credit Suisse as it identified material weaknesses in reporting controls.

“It may have been a ‘technical’ issue according to the Swiss bank but in the current environment and given the company’s recent sketchy track record, investors were hardly in a forgiving mood.

Last month, Credit Suisse reported its biggest annual loss since the 2008 global financial crisis after clients pulled billions from the bank following a series of scandals.

Credit Suisse was hard hit by the collapse of U.S. investment firm Archegos in 2021 , and the freezing of billions of supply chain finance funds linked to insolvent British financier Greensill.

Related: Credit Suisse ‘seriously breached’ obligations on Greensill, says regulator

A year ago, a massive leak exposed the hidden wealth of Credit Suisse clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes.

Related: Revealed: Credit Suisse leak unmasks criminals, fraudsters and corrupt politicians

Updated at 10.43am GMT

10.20am GMT

Oil price falls as SVB collapse stirs recession fears

Oil prices have dropped again today, as the fallout from the collapse of Silicon Valley Bank rattles markets.

With fears of a fresh financial crisis high, Brent crude has dropped by 2% to $79 per barrel, close to its lowest level this year.

Oil also weakened yesterday, as the failure of SVB over the weekend stirred fears of a potential recession.

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The price of a barrel of Brent crude oil this year, in US dollars Photograph: Refinitiv

The turmoil that has erupted in the financial system has triggered widespread risk aversion, says Craig Erlam , senior market analyst at OANDA.

If we see markets settle down, that could prevent a break of the lows but oil traders, like those elsewhere, will remain nervous about the prospect of further turbulence.

Suddenly, a break below the lows looks a much greater risk which may keep pressure on in the short term.

10.06am GMT

Moody's puts six US regional banks on downgrade watch

Rating agency Moody’s has placed six US lenders, including First Republic Bank , at risk of a downgrade, following the collapse of Silicon Valley Bank.

First Republic, Western Alliance Bancorp, Intrust Financial Corp., UMB Financial Corp., Zions Bancorp . and Comerica are all on review for a downgrade.

It’s the latest sign of concern over the health of regional financial firms – whose shares all fell sharply on Monday.

Moody’s pointed to concerns over the lenders’ reliance on uninsured deposit funding and unrealized losses in their asset portfolios.

In a statement, Moody’s cited the “material” amount of deposits above the Federal Deposit Insurance Corporation threshold of $250,000, saying:

“The review for downgrade reflects the extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows.”

Moody’s also downgraded Signature Bank and withdrew its credit rating. That’s not a surprise, though given the lender was shut down over the weekend…

10.02am GMT

In the energy sector, British Gas owner Centrica plans to extend the lives of two nuclear power stations by two years, as part of efforts to strengthen the UK’s energy security.

Heysham 1 on the north-west coast of England near Lancaster and the Hartlepool power station in County Durham are now expected to close in March 2026.

These extensions are expected to add 6TWh (terawatt hour) to Centrica’s electricity generation volumes between 2024 and 2026. This is equivalent to around 70% of Centrica’s total electricity generated from nuclear power last year.

Chris O’Shea , Centrica’s chief executive, said:

“I’m delighted we’ve been able to work with EDF to strengthen the UK’s energy security by extending the life of these critical power stations.

“This continues our action to bolster security of supply in our core markets which includes reopening the Rough gas storage facility in the UK, sanctioning new gas-fired electricity generation capacity in Ireland, and securing increased volumes of gas and renewable power for our customers. We will continue to focus on supporting energy security in our core markets during these uncertain times.”

The news comes after a similar announcement from EDF last week .

Updated at 10.02am GMT

9.37am GMT

Certain aspects of the Silicon Valley Bank situation were unique, UBS Wealth Management point out this morning:

It had the highest ratio of securities to total assets of any US bank; a far higher-than-average proportion of its depositors were corporate clients in the technology sector; and its uninsured deposit mix was one of the highest in the industry.

That made it especially vulnerable both to deposit outflows and to mark-to-market losses when it attempted to meet those outflows.

However, to some extent, the fundamental challenge faced by Silicon Valley Bank is also faced by other US banks, UBS say.

Mark Haefele , chief investment officer at UBS Global Wealth Management , explains:

“From here, in order to minimize the risk of deposit outflows, many smaller banks may be forced to further increase deposit rates.

As demonstrated by equity market performance on Monday, this is not good for any bank’s profitability, though those banks with higher capital ratios, smaller pools of securities relative to total assets, strong brands, and diversified funding sources should be better able to weather the current market dynamics.

9.31am GMT

Investors are also on edge today because we get the latest US inflation report at 12.30pm UK time.

The annual Consumer Prices Index is expected to drop to 6% in February, down from 6.4% in January.

But core inflation is only expected to dip slightly, to 5.5% from 5.6%.

In normal times, high inflation would spur the Federal Reserve to keep raising interest rates to squeeze out price pressures.

But having seen Silivon Valley Bank blow up, having been caught out by the rapid rise in borrowing costs which hit the value of its bonds, the Fed may be more reluctant to tighten policy further.

But if inflationary pressures remain hot, the Fed will still feel pressure to act….

9.18am GMT

9.17am GMT

BoJ: Japanese banks have sufficient buffers to counter risks from SVB collapse

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A security officer patrolling around the Bank of Japan (BoJ) headquarters in Tokyo. Photograph: Yuichi Yamazaki/AFP/Getty Images

The Bank of Japan says Japanese financial institutions have sufficient capital buffers to absorb losses caused by various external factors, including risks caused by the collapse of Silicon Valley Bank.

A BOJ official told reporters in Tokyo:

“Japanese financial institutions’ direct exposure to Silicon Valley Bank is small, and thus the impact is likely limited,”

The BoJ released an annual report that looks at the strength of Japan’s financial institutions.

It found that they have continued to channel funds to borrowers smoothly, despite stress factors such as supply constraints and rising overseas interest rates.

But, the report also pointed to challenges facing regional banks, such as analysing the impact of heightened market volatility on their portfolios….

“Some regional financial institutions have suffered a substantial increase in valuation losses” and failed to adequately assess their risk tolerance against profits, it said.

9.08am GMT

ECB's Stournaras: No impact from SVB collapse on euro zone's banks

The collapse of Silicon Valley Bank is not expected to affect the euro zone’s banks, Greek central bank chief Yannis Stournaras has said.

Stournaras, a member of the ECB’s Governing Council, told Kathimerini newspaper:

“We don’t see SVB (Silicon Valley Bank) having an impact on the euro zone’s banks or the Greek ones.”

What a difference a decade makes. 10 years ago, Stournaras was Greece’s finance minister , when the eurozone debt crisis threatened to push Greece into bankrupcy. Today, Greece is hoping to secure an investment-grade credit rating .

9.03am GMT

Large US banks inundated with new depositors as smaller lenders face turmoil

Large US banks are being inundated with requests from customers trying to transfer funds from smaller lenders, the Financial Times is reporting.

JPMorgan Chase, Citigroup and Bank of America are among the large financial institutions are trying to accommodate customers wanting to move deposits quickly from Silicon Valley Bank and other regional lenders.

They are taking extra steps to speed up the normal sign-up or “onboarding” process, according to several people familiar with the matter.

The failure of SVB has caused what executives say is the biggest movement of deposits in more than a decade.

Wealthier customers, who have more than the $250,000 maximum guaranteed by federal insurance, are among those looking to move balances into larger banks (although all deposits at SVB and Signature Bank are guaranteed by the package announced on Sunday night ).

One senior banker, referring to Chicago’s busy aviation hub, said:

“The calls have been coming in today like airplanes stacked on a snowy day at O’Hare airport.”

9.00am GMT

Related: Tell us: are you affected by the Silicon Valley Bank collapse?

8.53am GMT

The European banks index has dipped in early trading, down 0.3%.

That indicates some calm in Europe this morning, after banking stocks posted their biggest losses in a year on Monday.

Updated at 8.55am GMT

8.45am GMT

Bank shares drag FTSE 100 lower

London’s stock market is open, and bank shares are continuing to drop – although not as sharply as yesterday.

HSBC are down 1.8%, and Standard Chartered has lost 1.6%.

The blue-chip FTSE 100 index has dipped by 0.3%, or 20 points, to 7528 points, the lowest since 3 January, on top of Monday’s 200-point tumble.

Energy stocks are also weaker, as the oil price comes under pressure.

Victoria Scholar, head of investment at interactive investor says:

“European markets have opened mixed with the FTSE 100 underperforming. Land Securities, British Land and Rightmove are among the outperformers on the UK index amid hopes of a dovish tilt from the Bank of England.

Most European banks continue to face selling pressure with HSBC and Standard Chartered near the bottom of the FTSE 100. Credit Suisse is leading the declines across European financials after the Swiss lender said it found ‘material weakness’ in its internal financial reporting controls, adding to its woes.

Markets in Asia fell sharply overnight with the Nikkei, the Kospi and the Hang Seng down more than 2% each. In Japan its biggest banks suffered steep losses with the TOPIX Banks index down by more than 7% as President Biden’s address failed to soothe investors.

Updated at 9.17am GMT

8.41am GMT

Elsewhere in banking this morning, Credit Suisse’s bonds are falling after it released its delayed annual report.

The annual report, delayed from last week, showed that Credit Suisse has identified “material weaknesses” in its internal controls over financial reporting and said it had not yet stemmed customer outflows.

It says:

“As of December 31, 2022, the Group’s internal control over financial reporting was not effective, and for the same reasons, management has reassessed and has reached the same conclusion regarding December 31, 2021.”

Credit Suisse said customer “outflows stabilized to much lower levels but had not yet reversed as of the date of this report”

Some Credit Suisse bond prices have hit record lows; yesterday, the cost of insuring its debt hit record highs.

8.28am GMT

More investors are expecting America’s central bank to start cutting interest cuts by the end of the year, following the collapse of Silicon Valley Bank.

The CME FedWatch Tool , which tracks investor expectations for the trajectory of rates, suggests that the Federal Reserve could raise its benchmark rate by a quarter-point, or 25 basis points, to 4.75%-5.00%, at its meeting next week.

But by December, the markest suggest rates will have fallen back to around 4%-4.25%, or half a point lower than current levels.

There has been a “Titanic repricing” in expectations for US interest rate moves this year, say ING .

In the US, markets now see only a 50% chance of a 25bp hike in March, and fully price in 67bp of cuts by year-end.

Jim Reid , strategist at Deutsche Bank , says yesterday’s dramatic session was “up there with some of the wilder days I can remember”.

I always thought that with inflation where it was, that central banks would keep hiking until they broke something, which was especially likely with the yield curve so inverted. Now they have broken something, is that enough for a pause?

Much will depend on whether markets and contagion risk can calm quickly enough. If the FOMC meeting was today I strongly suspect they wouldn’t hike but a week is a long time in these markets.

8.19am GMT

Global financial stocks lose $465bn on SVB impact worry

Global financial stocks have lost $465bn in market value in two days as investors cut exposure to lenders from New York to Japan in the wake of Silicon Valley Bank’s collapse, Bloomberg has calculated.

They explain:

Losses widened today, with the MSCI Asia Pacific Financials Index dropping as much as 2.7% to the lowest since Nov. 29. Mitsubishi UFJ Financial Group Inc. slid as much as 8.3% in Japan, while South Korea’s Hana Financial Group Inc. fell 4.7% and Australia’s ANZ Group Holdings Ltd. lost 2.8%.

There are concerns that financial firms could see an impact from their investments in bonds and other instruments on the SVB-induced worry. Treasury yields plunged Monday amid expectations the Federal Reserve will hold off raising rates due to turmoil in the banking system.

8.13am GMT

Volatility is likely to remain the name of the game in the markets today, say ING .

US stock futures point at a marginally positive open this morning, but markets are constantly monitoring incoming news on the health of other financial institutions, in particular US regional banks.

8.01am GMT

Silicon Valley Bank: parent company, CEO and CFO sued amid market turmoil

SVB Financial Group and two top executives have been sued by shareholders over the collapse of Silicon Valley Bank , as global stocks continued to suffer on Tuesday despite assurances from US president Joe Biden.

The bank’s shareholders accuse SVB Financial Group chief executive Greg Becker and chief financial officer Daniel Beck of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.

The proposed class action was filed on Monday in the federal court in San Jose, California.

It appeared to be the first of many likely lawsuits over the demise of Silicon Valley Bank (SVB), which US regulators seized on 10 March after a surge of deposit withdrawals.

Related: Silicon Valley Bank: parent company, CEO and CFO sued amid market turmoil

8.00am GMT

Introduction: Bank share sell-off spreads to Asia as SVB collapse shakes markets

Good morning.

The collapse of Silicon Valley Bank is gripping the financial markets, as global bank shares slide despite reassurances from President Joe Biden on Monday.

There have been fresh losses in Asia-Pacific stock markets today, as bank stocks continues to fall.

Japan’s Topix Banks index is on track for its worst day since March 2020, early in the pandemic, currently down 7.4%. Mitsubishi UFJ Financial Group is down 8.66%, with Mizuho Financial Group losing 7.1%

This has pulled Japan’s Topix index down by 2.7%.

Elsewhere, Hong Kong’s Hang Seng index has dropped by 2.35%.

South Korea’s KOSPI index has lost 2.4%, with its Hana Financial Group down almost 4%. Australia’s S&P/ASX is down 1.4%.

Stephen Innes, managing partner at SPI Asset Management, says:

The collapse of Silicon Valley Bank on Friday has brought on the highest volatile market conditions of 2023 so far.

Shares in a number of America’s regional banks closed sharply lower on Monday night, hours after president Joe Biden tried to reassure depositors and investors, saying:

Americans can rest assured that our banking system is safe.

Your deposits are safe.

On Sunday night, the Federal Reserve and Treasury boosted lenders’ access to quick cash, and guaranteed deposits at Signature Bank (which was closed down on Sunday night) and Silicon Valley Bank.

But other regional banks still came under pressure, with San Francisco-based First Republic losing 62% and Arizona-headquartered Western Alliance Bank off 47%.

On Monday, there were heavy falls on European stock markets, with the UK’s FTSE 100 index sheddding 200 points, or 2.58%, to end at 7548 points, the lowest since the start of January.

Markets are expected to open calmer today, though….

Silicon Valley Bank’s collapse last week was the largest bank failure in over a decade.

It came after SVB made a $1.8bn loss on a sale of securities, due to the drop in prices of government bond and mortgage-backed securities as interest rates have risen. That left it struggling to meet withdrawal requests from customers .

Expectations of further sharp rises in borrowing costs are being reassessed too, with central banks likely to be warier of breaking another part of the financial system.

Yesterday was “a wild session on Wall Street as the failure of Silicon Valley Bank revealed the unintended consequence of the Fed’s tightening cycle”, says IG analyst Tony Sycamore :

As noted in recent months and in wider financial circles, the Fed has historically continued tightening until something breaks.

While the Fed’s move to backstop uninsured deposits will likely prevent further banking runs, a potential banking crisis threat trumps high inflation any day of the week.

Reflecting this, the rates market experienced the most significant 2-day fall in U.S. treasury yields since the 1987 crash (yields are now at 4% from 5.08% last week). After being 70% priced for a 50bp rate hike last week, there is now just 12bps priced for next week’s FOMC meeting.

The agenda

  • 7am GMT: UK unemployment report

  • 8am GMT: European finance ministers hold an ECOFIN conference

  • 10.15am GMT: MPs hold hearing on “Prepayment meters: warrants and forced installations”

  • 12.30pm: US CPI inflation report for February

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