Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fallout from SVB’s collapse.
There’s plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix. Little surprise people are feeling a bit spooked.
For now, the panic which set in late last week appears to have been contained but whether the market can regain the confidence which saw the FTSE 100 hit a record high earlier this year remains to be seen.
AJ Bell investment director Russ Mould said: “The funding environment for technology and start-up companies is certainly looking a lot less healthy and focus may start to turn to the asset managers and private equity funds which are invested in these firms.
“The frenzied announcements from UK small caps which emerged first thing this morning look like they can be put on hold for now as HSBC emerges as a white knight to buy up the UK arm of tech and start-up lender SVB for £1 and take on all its deposits and liabilities.
“Hopefully the swift action and HSBC’s ample liquidity means companies will be able to get the cash they need to meet payroll requirements.
“Failures in the financial sector are often revealing of sensitivities to which investors had previously not given a huge amount of thought. SVB’s sudden collapse was a reminder that many banks are sitting on large unrealised losses in their bond portfolios.
“The difference for SVB is it had to realise these losses to shore up its balance sheet and when it announced plans for a rescue share issue a run on the bank ensued.
“The company saw a surge in deposits in the run up to and during the pandemic and arguably didn’t have the necessary systems and financial controls in place to handle the growth it was seeing. It put lots of money into long-dated bonds just before interest rates went up and these assets were particularly sensitive to rate hikes.
“Most big banks don’t have the liquidity problems SVB does – though the enforced closure of crypto-focused Signature Bank of New York over the weekend shows there are some others out there – so this does not look like anything on a par with the credit crunch in 2007.
“Another key difference from 15 years ago is there has been no state-backed rescue for SVB shareholders and bondholders – they will have to take their licks. Only depositors are being protected.”