Markets in Europe and Asia tumbled Friday following a sharp selloff in banking stocks in the United States as a major tech lender said it had to sell shares to plug a hole in its finances.
SVB Financial Group (SIVB), which is partnered with nearly half of all venture-backed tech and health care companies in the United States, was forced to raise capital after it sold part of its portfolio of US Treasuries at a loss to cover a rapid decline in customer deposits.
The Nasdaq exchange suspended trading in SVB shares at 8.35 a.m. ET Friday after they fell 49% in premarket trading. Stocks in the company cratered 60% on Thursday.
“Lots of banks hold large portfolios of bonds and rising interest rates make these less valuable — the SVB situation is a reminder that many institutions are sitting on large unrealized losses on their fixed-income holdings,” commented Russ Mould, investment director at UK broker AJ Bell.
Europe’s benchmark Stoxx Europe 600 index fell 0.9% in early trading, while London’s bank-heavy FTSE 100 (UKX) index slid 1.4%.
The Stoxx Europe 600 Banks index, which tracks 42 big European banks, including those in the United Kingdom, sank by more than 4% Friday morning before recovering slightly.
Shares in banking giant HSBC (HSBC) tumbled 4.5% Friday. The shares of Barclays (BCS) were down 3.6%, Deutsche Bank (DB) 6.8% and Italy’s Unicredit (UNCFF)4%.
In Asia, Hong Kong’s Hang Seng (HSNGY)led losses in the region, sinking 3%, while China’s Shanghai and Korea’s Kospi fell 1.4% and 1% respectively.
Asian markets have also been pressured this week because China has failed to announce any major economic stimulus during its National People’s Congress.
Meanwhile, Japan’s Nikkei ended Friday down 1.7% as the country’s central bank decided to keep its ultra-low interest rates unchanged.
US stocks dipped in pre-market trading, before recovering to post modest gains by 9.07 a.m. ET.
Fall from grace
The losses come after US bank stocks logged the largest falls in nearly three years on Thursday. The KBW Bank Index, which tracks 24 leading US banks, fell 7.7%, its biggest drop in almost three years.
The Dow closed lower by 543 points, or 1.7%, Thursday. The S&P 500 fell by 1.9% and the Nasdaq Composite was down 2.1%.
The selloff is a sharp turnaround for the global banking sector, which, until Thursday, had enjoyed surging stock valuations since last fall.
On one hand, high interest rates have been a boon for banks, helping them make heftier returns on loans to households and businesses, and as savers deposit more of their money into savings accounts.
But, on the other, some large banks that had scooped up expensive Treasuries and other bonds when interest rates were very low, are sitting on losses as borrowing costs have risen and bond prices have gone down.
Banks heavily exposed to the tech sector, like SVB, are particularly at risk as cash-hungry startups withdraw their deposits.