West News Wire: The unstable markets on Monday, which had been shaken by concerns of a credit crunch and systemic bank stress, have been somewhat calmer thanks to the discovery of a buyer for Silicon Valley Bank’s deposits and liabilities.
The Federal Deposit Insurance Corp received equity appreciation rights in First Citizens BancShares Inc’s stock worth up to $500m in exchange for buying all of SVB’s loans and deposits, the FDIC stated in a statement.
On Monday, 17 former SVB locations will become First Citizen locations. First Citizen purchases SVB assets worth roughly $72 billion at a discount of $16.5 billion, while the FDIC estimates that SVB’s failure will cost the deposit insurance fund about $20 billion.
The deal has given markets some respite as it was the first weekend in several weeks that did not bring news of new banking collapses, rescue deals or emergency help from authorities to shore up confidence.
“You sweep Silicon Valley off to another buyer, which is good, but the bigger issue is guaranteeing deposits at all those other (regional) banks,” said IG Markets analyst Tony Sycamore in Sydney.
“It’s a little bit of calm before the next storm.”
Last week ended with indicators of financial market stress flashing and Germany’s biggest lender Deutsche Bank in the crosshairs, with its shares down 8.5 percent on Friday and the cost of insuring its bonds against default up sharply.
On Monday, bank shares in Asia were mixed steady in Australia and Tokyo but slipping in Hong Kong, where Standard Chartered shares fell 4 percent.
S&P 500 futures rose 0.5 pecent and European futures rose 1 percent.
The collapse of SVB a little more than two weeks ago has reverberated around the world, sending US depositors fleeing smaller banks for larger cousins while the hit to confidence forced Credit Suisse into the arms of rival UBS last week.
In March, the Stoxx index of European bank shares is down more than 18 percent and the US KBW regional bank index lost 21 percent, with investors on edge about what’s next.
“It’s clearly not over,” Australia and New Zealand Banking Group Chief Executive Shayne Elliott said in an interview posted to the bank’s website, where he said the turmoil has the potential to escalate into a bigger financial crisis.
“I don’t think you can sit here and say: ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal,’” Elliott said. “These things tend to roll through over a long period of time.”
The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to tamp down inflation, and whether tightened lending will hurt the global economy.
In Europe, bank bonds are under pressure and credit default swaps (CDS), or the cost of insurance against defaults, uneasily high. Deutsche Bank’s five-year CDS hit their highest since late 2018 on Friday, data from S&P Global Market Intelligence showed.
In the US, where flows into money market funds have risen by more than $300bn in the past month to a record atop $5.1 trillion, the focus is on depositors’ confidence in regional lenders – which could take some salve from an SVB sale.
The SBV deal comes after several weeks of looking for a suitor and after the FDIC called for separate offers for SVB Private and SVB.
Some $90bn in securities remains with the FDIC for sale, it said.
“Effectively you’re going to get a combination of carrots, sticks, and acronyms in order to ensure you get the outcome you want and that allows (authorities) to still use interest rates to combat inflation,” Rabobank strategist Michael Every said.
“This seems to be part and parcel of that.”