The collapse of the Silicon Valley Bank spreads fear in the world stock markets | Economy | The USA Print

All crises include strong stock market falls in their damage menu, but not all market crashes are synonymous with crises. Analysts are wondering what kind of danger they face now. The sudden bankruptcy of the Silicon Valley Bank has some of the ingredients that have peppered the darkest chapters of recent financial history. There is a fallen bank, not well known to the general public because its activity was to provide financing to the start ups who seek to break through in the competitive jungle of technology companies —a risk that traditional commercial banks avoid running with so much joy—; there is a contagion effect on the prices of all the large North American and European banks; and as a backdrop, there is soaring inflation against which the central banks are deploying their entire arsenal.

The trigger, the fall from grace of the Silicon Valley bank, shows dizzying numbers: its shares collapsed 60% this Thursday, and the Nasdaq temporarily suspended its listing this Friday, just when the operations prior to the opening of the market anticipated another colossal bump, over 60%. It will no longer return to the trading floor: US regulators will take over the entity, which has already gone down in history as the second largest bank failure in US history, behind only the collapse of Washington Mutual in 2008.

The closure was ordered by the California State Department of Financial Protection, which designated the Federal Deposit Insurance Corporation as administrator and responsible for returning the funds to their owners. According to a statement from this entity, depositors covered by the insurance, that is, all those with less than $250,000, “will have full access to their insured deposits no later than Monday morning, March 13, 2023.” The uninsured will have a more difficult time: they will receive an advance next week, and a certificate indicating the remaining amount of their funds. When the bank’s assets are sold, they will charge more. It is still unknown how many affected there are, but as of December 31, 2022, the bank had some 209,000 million in assets and 175,400 million in deposits.

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Alarm bells went off when Silicon Valley Bank announced that due to a drop in deposits it was forced to divest an important bond portfolio at a loss, and announced its intention to issue $1.75 billion in new shares to curb the liquidity crisis. .

The reaction of investors was relentless, and the bank’s capitalization closed on Thursday below 6,000 million euros, when a couple of days before it tripled that amount. The stock market punishment, and the speed of the outflow of deposits even forced him to change his plans. according to the newspaper Wall Street Journal, gave up on increasing capital and was desperately looking for a buyer due to his inability to stop the outflow of funds, but it was not possible. Treasury Secretary Janet Yellen stated that she is closely monitoring the situation, not only of Silicon Valley Bank, but of other vulnerable banks, given the possibility that the panic will feed back and amplify the flight of clients.

In such an interconnected industry, questions about the extent to which other firms will be hurt by the implosion of the Silicon Valley funder loom large. And they have already scared away the most conservative money, the one that, just in case, does not wait to see the outcome, in case it is too late. This has created a spiral of fear and nervousness in the indices that group the banks, with reductions of 6.6% this Thursday in the case of those that are part of the S&P 500. None of the big names was spared: Bank of America left 6.20%, Wells Fargo 6.18%, JPMorgan 5.41% and Citigroup 4.10%, in its worst moment since the pandemic. At the end of the day, the Dow Jones, the S&P 500 and the technological Nasdaq, the three big Wall Street indices, were close to a 2% correction. This Friday, the losses returned after the bankruptcy was announced, although at a lower rate.

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Silicon Valley Bank headquarters in Santa Clara (California), this Thursday. David Paul Morris (Bloomberg)

European banks received the crisis with similar movements. At the close of the session on the continent, when the closure of the bank was not yet known, Deutsche Bank lost more than 7%, the British HSBC, the Dutch ING, Banco Santander and the French BNP Paribas and Société Générale fell around at 4%, slightly more than BBVA. This strongly penalized the Ibex 35, the Spanish index that groups the large listed companies in the country, where the presence of banks is important. It closed 1.47% below Thursday.

crypto bankruptcy

While all eyes were focused on the future of the financial group, in full withdrawal of funds from its clients other fronts were opened. This Friday the employment data in the United States was released, and although it may seem contradictory, Wall Street’s premise was that the worse the better. The cooling of the labor market is the key requirement for inflation to deflate and, therefore, for the Federal Reserve to park the rate hikes that are dragging the economy into recession. Finally, the US economy created 311,000 jobs in February, although the unemployment rate rose two tenths, to 3.6%. The data did not change the bad course of the day.

In addition, in the peephole is the bankruptcy of Silvergate Capital, a bank specializing in services for cryptocurrency businesses, which has announced its liquidation due to the difficult regulatory environment and the poor evolution of the crypto industry in recent times. Silvergate was the victim of the bankruptcy of FTX, one of the largest cryptocurrency buying and selling platforms, which has not returned the funds to its clients. Bitcoin falls 8% this Friday and loses the $20,000 barrier, its lowest level in two months. Only gold, a traditional refuge value in times of turbulence, resists with its green price, above $1,860 an ounce.

Despite the disaster, the world stock markets are experiencing a very positive start to 2023. The Ibex 35 has risen by more than 10%, slightly above the Frankfurt and Paris parquets. The US technology Nasdaq also accumulates double-digit gains, ahead of the S&P 500 (2% up) and the Dow Jones (2% down).

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