Stock markets hit again by banking worries

 

Banking shares have fallen sharply again as investors remain nervous following the collapse of Silicon Valley Bank (SVB) in the US last week.

The failure of SVB has raised fears that other banks could also be facing problems.

Shares in Swiss banking giant Credit Suisse hit a new low after they plunged by 20%.

The fall came after Credit Suisse's largest investor said it could not give the bank any more financial help.

Share indexes across Europe - including the UK's FTSE 100 - were down by about 2.5% by mid-morning.

The FTSE 100 has fallen 6% in the past week to reach a three-month low.

"Investors remain nervous about what might be lurking in the shadows," said Russ Mould, investment director at AJ Bell.

"It's no wonder that investor sentiment remains cautious towards the big banks given that credit agency Moody's downgraded its outlook on the US banking system to 'negative'."  

Credit Suisse's shares slumped after it revealed on Tuesday that its auditor, PwC, had identified "material weaknesses" in its financial reporting controls.

That prompted major investor the Saudi National Bank to say it would reject calls to inject further funds into the Swiss lender.

The wider problems in the banking sector began last week with the collapse of SVB, the US's 16th-largest bank.

The bank - which specialised in lending to technology companies - was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008.

SVB's UK arm was snapped up for £1 by HSBC.

In the wake of the SVB collapse, New York-based Signature Bank also went bust, with the US regulators guaranteeing all deposits at both.

But fears have persisted over the fallout from the collapse and trading in bank shares has been volatile this week.

On Monday, trading was temporarily halted in several smaller US banks as shares slumped, although Tuesday saw stock prices rebound.

However, credit ratings giant Moody's has warned of more pain ahead for the US banking system.

On Tuesday, it cut its outlook for the sector to "negative" from stable, warning of "a rapid deterioration in the operating environment".

One of the problems that hit SVB was that it was forced to sell US government bonds that it held in order to raise money.

But the value of these bond holdings had fallen over the past year as the US Federal Reserve increased borrowing costs to try to curb inflation.   

Many other central banks - including the Bank of England - have also been raising interest rates. As rates rise, the value of bond portfolios has declined.

The falls mean many banks could be sitting on significant potential losses - though the change in value would not typically be a problem unless other pressures force the firms to sell the holdings.

"The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable." 

https://www.bbc.com/news/business-64964881