The epicenter of the stock market earthquake that plunged major Spanish banks’ values this Friday is miles from Plaza de la Lealtad 1. The size and growth of Unicaja, realizing losses of up to $1,800 million, due to the liquidity problems of Silicon Valley Bank (SVB), a small US startup specializing in startup finance. global bank scare hit banks around the world in the form of sharp drops in the stock market. The first victims were the four largest US banks, which lost $52,000 million on the stock market this Thursday. In addition, the S&P 500 banking sub-index fell by 7.5%. These falls have moved to Europe.
The Stoxx 600 Banks index, which brings together Europe’s major financial groups, fell as much as 4.5% this Friday. HE Santander while up to 6.5% of its value is left in the early stages of the session, sabadell 5.72% and Unicaja lost 5.14%. At the close of the session, the most depreciated Spanish side this Friday was Sabadell (-5.26%), followed by Santander (-4.55%), Bankinter (-4.24%) and BBVA (-3.75). These results dragged the selector leaving 1.69%. Eurostoxx closed with 1.61% loss.
On the other hand, German German bank down to 8%, Italian Banca Generalli fell 3% and French Crédit Agricole lost up to 3%. Asian markets were also affected. The yen fell and Japanese government bond yields fell. How is it possible for a California overdraft to cross the ocean and lower Old World valuations?
The answer must be sought in investors’ fear that the SVB’s plight could be mirrored across all banking groups. And what happens to this asset has to do with the increase in the exchange rate, that is, the increase in the price of money.. A priori, it may seem like the banking business, which is basically lending money to third parties and charging interest for it, will do better if the cost of money is higher. But this premise shows only part of the truth.
The fact is that banks, in addition to taking advantage of the increase in interest rates, also affected. Businesses keep bonds in their portfolios when they are trading on the secondary market and acquired when money was much cheaper before. What will happen to these assets now? They are much less valuable. In addition, the increase in interest rates increased the profitability of treasury bills and government treasury bills, which were already more profitable than bank deposits. This increases the money of the savers to be directed to these products, and this is to the detriment of the banks.
If you buy a house for 100,000 euros and your neighborhood deteriorates, if you want to sell it, you can probably do it for just 60,000 euros. Also, if you are faced with the payment of other debts, you will have a liquidity problem, you will not have enough money to meet other financial obligations.
That’s what happened to the SVB. Liquidity problem arose when this asset tried to sell the bonds it held in its portfolio. Sold $21 billion worth of shares but still can’t cope with all the withdrawals it’s pulling. It attempted to raise $2,250 million in capital and recognized a loss of $1,800 million. “As a result of this lawsuit, the market is detecting depreciation in the portfolios of the banks. As the status of each is unknown, investors prefer to bail out and sell banking-related shares,” says Darío Garcia. An analyst at XTB.
SVB shares fell another 60% in electronic activity this Friday ahead of the Wall Street opening and its listing was suspended. “Right now, Several options are under consideration and one of them will be a bank bailout by the SEC.“, explains Óscar Martínez, deputy manager of portfolio management at Norbolsa.
According to CNBC, sources unidentified by the network said the SVB was in talks to sell it after the bank’s attempts to raise capital failed. Like this, the bank would hire consultants to investigate a possible transaction.