Wall Street turmoil spills over to London as bank stock selloff drives FTSE 100 down 2% after SVB bond woes scare markets
- SVB lost about $1.8 billion in the sale of a bond portfolio valued at $21 billion
- The tech lender offloaded the bonds in response to a drop in customer deposits
- Some investors fear SVB’s woes will spread to the rest of the sector
A sell-off in bank stocks sent the FTSE 100 tumbling 2% on Friday morning as global markets spooked from last night’s unrest on Wall Street.
About $52 billion was wiped off the value of the four largest U.S. banks on Thursday as investors panicked over concerns about the value of lenders’ bond portfolios.
Shares of HSBC fell 5.5%, Standard Chartered 4.2%, Barclays 3.6%, while NatWest and Lloyds fell 3.3% in morning trading on Friday.
As a result, the FTSE 100 fell 2% to 7,720, its lowest in a month, and leaving it down 3.7% from the record high of 8,014.3 hit on February 20.
Banking shares in London fell sharply on Friday after similar heavy losses in the United States
European stock markets were also in the red, with Germany’s DAX down 1.5%, France’s CAC 40 down 1.4% and Italy’s FTSE MIB down 1.9%.
This follows losses in the United States, where banking giants JPMorgan Chase, Bank of America, Wells Fargo and Citigroup saw their share prices plunge between 4% and 6%, wiping $52.3 billion from their cumulative market value.
This sudden crisis of confidence in the banking sector appears to have been triggered by the difficulties of Silicon Valley Bank, a major lender to tech start-ups.
SVB revealed that it lost around $1.8 billion on the sale of a portfolio of bonds valued at $21 billion, which it offloaded in response to a drop in customer deposits.
The losses prompted the tech lender to announce a $2.25 billion capital raise to shore up its capital position.
Banks were the main fallers on the FTSE 100 on Friday morning (chart shows prices at 9.30am)
The value of bonds held by banks has fallen in recent months due to rising interest rates.
SVB was forced to sell them because its depositors were withdrawing their funds, causing its shares to fall by 60%.
SVB’s losses have worried investors that big banks, which also hold large bond portfolios, could be at risk.
Russ Mould, chief investment officer at AJ Bell, said: ‘Many banks hold large bond portfolios and rising interest rates are making them less valuable – the SVB situation is a reminder that many institutions are sitting on d large unrealized losses on their fixed income securities. .’
Markets.com analyst Neil Wilson said the fall in SVB shares clearly hit sentiment, but did not represent the entire US banking sector.
“It appears SVB have grabbed the wrong end of the stick when it comes to rising interest rates, pledging too many of their assets in long-term bonds they thought were safe but are now worth much less.” , did he declare.
“While SVB is unlikely to portend a wider banking crisis, this could be the straw that breaks the camel’s back as far as the market is concerned.”
The FTSE 100 is down around 3.7% from its record high of 8,014.3 hit on February 20
