By Chris Prentice
(RockedBuzz via Reuters) – Troubled US bank stocks rallied on Tuesday as the sell-off triggered by the collapse of Silicon Valley Bank gave way to bargain hunting by investors, hopeful that confidence-boosting efforts would stave off a wider financial crisis.
Regulatory scrutiny over last week’s disappearance of SVB – the largest US bank failure since the 2008 financial crisis – has intensified as the US Department of Justice opens an investigation, a source close to the company said. question. The Securities and Exchange Commission has launched a parallel investigation, according to the Wall Street Journal.
The closure of SVB on Friday – followed two days later by the collapse of New York-based Signature Bank – shocked global markets, forced US President Joe Biden to hastily ensure that the financial system is safe and prompted measures emergencies that give banks access to more funding.
Fears of possible contagion have subsided, but have not been completely allayed.
A gauge of credit risk among euro zone banks hit its highest level since mid-July on Monday as ratings agency Moody’s trimmed its outlook on the US banking system to negative from stable citing a “rapid deterioration in the operating”.
The VIX Volatility Index, Wall Street’s “fear meter,” edged closer to a six-month high overnight. But shares of US regional banks, which have been hit hardest so far, rallied in hopes that the market’s worst debacle has passed.
The S&P 500 regional banks index rebounded 1.4%, leaving it with a 26% loss over the past five sessions. First Republic Bank climbed 27%, while KeyCorp jumped more than 7%. Among large US banks – where sources say customers have been moving deposits over the past week – Citigroup regained nearly 6% and Wells Fargo added 4.6%.
“If we don’t see high-profile bankruptcies in the near future, then fears will subside,” said Jack Ablin, chief investment officer at Cresset Capital.
Hedge fund Citadel helped send a signal of confidence in the sector by buying a 5.3% stake in Western Alliance Bancorporation, which was among lenders swept up by fears of contagion.
There were other signs of a change in mood. Anson Funds, which manages $1.6 billion, bought an unknown number of shares in First Republic on Monday, associate portfolio manager Rob Mills told RockedBuzz via Reuters.
RATES RETHINK
A mad rush to reassess interest rate expectations has also hit markets as investors bet the US Federal Reserve will be reluctant to hike next week.
Traders currently see a 77% chance of a 25 basis point hike at the meeting, while expectations of no rate hike have dropped to 23%. Earlier last week, a 25 basis point hike was expected, with a 70% probability of 50 basis points.
“Part of the stabilization today is that people feel the Fed may back away from some of the hawkish expectations,” said Matthew Keator, managing partner at wealth management firm Keator Group. “If the Fed isn’t careful, it could create some unintended shocks to the system.”
US Treasury yields rose on Tuesday, a day after major declines, as investors consolidated positions and weighed the monetary policy impact of the banking system turmoil against stubbornly high inflation.
To be sure, analysts say uncertainty remains in the financial sector. Investors are concerned about the health of smaller banks, the prospect of tougher regulation and the preference of authorities to protect depositors before shareholders.
In the US, Senate Banking Committee Chair Sherrod Brown urged Congress to issue regulations to strengthen stress tests and capital and liquidity standards for banks, and said he hoped the Fed would not raise rates next week. meeting.
GRAPH – SVB, Signature Bank are first bank failures since 2020 SVB, Signature Bank are first bank failures since 2020
https://www.reuters.com/graphics/USA-BANKS/SILICONVALLEY/zdpxdxzlwpx/chart.png
INVESTIGATIONS
As markets adjusted to the impact of the SVB collapse, regulars turned their attention to the circumstances surrounding the bank’s collapse. The Justice Department investigation is in the early stages and may not lead to any wrongdoing charges or charges filed, a source said.
Officials are also looking into share sales by officials of SVB Financial Group, which owned the bank, the WSJ said, citing people familiar with the matter.
Spokesmen for the SEC, SVB and the Justice Department declined to comment.
The New York financial regulator said its decision to shut down Signature Bank “has nothing to do with cryptocurrencies” and instead cited “a significant crisis of confidence in the bank’s leadership” after SVB’s demise.
The signature and three former top executives were also subpoenaed on Tuesday by shareholders who accused the bank of fraudulently claiming it was financially strong just three days before it was seized by a state regulator. The signature did not immediately respond to requests for comment.
GRAPH – Rise and fall of SVB and Signature Bank
https://www.reuters.com/graphics/USA-BANKS/SILICON%20VALLEY/lgvdkorwzpo/chart_eikon.jpg
Apollo Global Management Inc, Blackstone Inc and KKR & Co Inc have expressed interest in a loan portfolio held by SVB, Bloomberg News reported Tuesday, citing people familiar with the matter.
The portfolio is seen as an attractive buy and was not a contributing factor to the run-up that caused SVB’s demise, he added.
Acquisition giants Ares Management ARES.N and Carlyle Group CG.O are also looking to buy the loan book, the Financial Times reported, citing people familiar with the matter.
(Reporting by Alun John and Sinead Cruise in London, Medha Singh and Mehnaz Yasmin in Bengaluru, Rae Wee and Tom Westbrook in Singapore, Chuck Mikolajczak in New York and Trevor Hunicutt in Washington; Screenplay by Lincoln Feast, Shri Navaratnam, Alexander Smith and Deepa Babington; Editing by Mark Potter, Matthew Lewis and Anna Driver)
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