SITUATION UPDATE – “Calm down, calm down and face reality!” insisted Bruno Le Maire this Monday afternoon while European locations remain bright red.
The bankruptcy of Silicon Valley Bank (SVB) and several small US banks caused a wave of panic in the markets. According to Mirabaud Equity Research, this is even “the largest bankruptcy of a financial institution based in the United States since Washington Mutuel at the height of the 2008 financial crisis.” Markets are still in the red this Monday and the authorities are trying to reassure investors about possible contagion.
Markets that fluctuate a lot
The New York Stock Exchange ended Monday on a mixed note, having overcome banking sector slippage thanks to giant capitalizations and strong performance of defensive stocks on the back of a sharp fall in bond rates. The Dow Jones fell 0.28%, the Nasdaq added 0.45% and the broader S&P 500 fell 0.15%.
European stock markets closed sharply lower on Monday, destabilized by the failure of three US banks that sent the European banking sector crashing and fueled fears of contagion. The CAC 40 lost 2.90% in Paris, the Dax in Frankfurt 3.04%, the FTSE 100 in London 2.58% and the Milan Stock Exchange 4.03%. Bond rates fell significantly, with French 10-year debt yielding 2.83% around 1645 GMT vs. 3.01% at close on Friday, while its German equivalent was worth 2.28% vs. 2.50% .
Despite the context, bitcoin is skyrocketing
After the difficulties of the last week, the cryptocurrency star is taking on colors this Monday. By evening, Bitcoin was up more than 12% to $24,100. In addition to confidence in the solidity of the brand, such dynamics can also be explained by encouraging messages from the US political and financial authorities, which, in particular, guarantee the deposits of depositors. Which calms the fears of investors and stockbrokers in these turbulent times.
Joe Biden claims to be doing the ‘necessary’
US President Joe Biden still wanted to reassure, saying on Monday that the US banking system is “reliable.” “We will not rest on our laurels” and “we will do whatever is necessary,” he said after US authorities placed California bank SVB, close to technology circles, under guardianship.
During a speech at the White House, he addressed investors directly: “Your deposits will be available when you need them.” He also promised that U.S. taxpayers would not be liable for losses resulting from a bank failure and called on Congress to “strengthen” regulation of the sector.
The US central bank announced on Monday that it will study the terms of supervision and regulation of the California bank. “Developments related to the Silicon Valley bank require careful, transparent and timely analysis by the Federal Reserve,” Fed Chairman Jerome Powell said in a statement.
SEE ALSO – SVB Bankruptcy: ‘Americans Can Be Confident Banking System Is Safe’ Says Joe Biden
There is no risk of “infecting” in Europe, authorities assure
For Paolo Gentiloni, European Commissioner for Economic Affairs, the failure of these banks does not pose a “significant risk” to the European financial system. “There is no direct contagion and the possibility of an indirect impact is something we need to monitor, but at the moment we do not see a significant risk,” he said in Brussels ahead of a meeting of eurozone finance ministers.
The same sentiment is for the Banque de France, which points out this Monday that French institutions are “not at risk”. “Calm down, calm down and face reality!” French Finance Minister Bruno Le Maire told investors on Monday. “The reality is that the French banking system is not affected by the SVB. There is no connection between different situations” in the United States and in Europe, he said when asked about the fall in European bank stocks. At 1505 GMT, BNP Paribas shares fell 6.7% to €56.24 and Societe Generale shares fell 6.2% to €23.94. In Italy, Unicredit fell 8.3% to €17.07. In Spain, Santander fell 7.9% to 3.32 euros. Deutsche Bank in Frankfurt fell 5.6% to 10.07 euros.
SEE ALSO – SVB bankruptcy: ‘no special warning’ in France, reassures Bruno Le Maire
Read alsoBankruptcy of SVB: European stock markets plummet, banks fall
Credit Suisse shaken by the stock market
Credit Suisse, seen by investors as the “weakest link” in Switzerland’s banking sector, experienced severe turmoil in the stock market on Monday following the US SVB’s bankruptcy. At 1419 GMT, Credit Suisse shares shed 12.78% after falling to 14.6%. By comparison, its Swiss rival UBS added 7.82% to CHF 17.68, impacting the Swiss Stock Exchange’s benchmark SMI, which fell 1.74% as a result of a broad correction across all European banks.
Shares of Credit Suisse lost more than 81% of their value after the bankruptcy of the British financial company Greensill in March 2021, which marked the beginning of a series of scandals. Stocks have become very volatile and react very strongly to bad news.
Government rates are falling
In the secondary market, where government debt securities are traded, the interest rate on a two-year loan in the US was 4.02% around 14:45 GMT, i.е. more than half a percentage point lower than Friday’s close. movement not seen since 1987. In the same deadline, the rate in Germany – the country that investors consider the safest in Europe – experienced an unprecedented drop of 0.55 percentage points and fell to 2.51%.
The fall was also significant for interest rates on 10-year loans, the maturity of which is a benchmark. In three sessions, the American rate fell from 4% to 3.45%, the German one from 2.64% to 2.19%, the British one from 3.78% to 3.32% and the French one from 3.13% to 2. .75%.
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