The six largest Wall Street banks have lost a total of almost $165 billion in market capitalization since the start of the month. The triggers for investors to leave the shares of financial companies were concerns about the situation around the Swiss bank Credit Suisse and the collapse of Silicon Valley Bank (SVB).
Investors began withdrawing funds from the securities of leading US banks. This is reported Financial Times (FT). The total capitalization of the six largest Wall Street banks – Citigroup, Morgan Stanley, Bank of America, Goldman Sachs, JP Morgan Chase and Wells Fargo – has decreased since the beginning of the month by about $165 billion, or 13%. This was the result of investors’ concern about the situation around Credit Suisse and the possible consequences for the banking system of the United States of the collapse of Silicon Valley Bank.
Investors, FT experts note, do not believe that the fate of Silicon Valley Bank awaits the largest US banks. Moreover, as already noted, the collapse of this Californian bank provoked an influx of customers, which some of the banks are barely able to cope with. Nevertheless, investors began dumping bank shares aggressively, fearing increased regulatory oversight, the prospect of having to pay higher deposit rates, and rising debt defaults if the United States slipped into a depression.
“The market does not like uncertainty. And now there is a lot of uncertainty. Final Consequences… (collapse of SVB.— “uh”) remains to be seen,” Barclays banking analyst Jason Goldberg was quoted by the FT as saying.
In turn, one of the major investors in the banking sector said to the newspaper that the expectations of tightening the rules set by market regulators in terms of liquidity and capital requirements are “quite reasonable”. This, in turn, means higher costs and lower profits.
In addition, investors reduce the value of the assets of the largest banks in the country. So, if at the beginning of 2022 the KBW Index ratio (a weighted index assessing the market capitalization of the country’s largest banks) was 1.5 to the book value of assets, then last week, for the first time since 2020, it fell below 1.
Banks also suffered because of the likely impact on them of the crisis around the Swiss bank Credit Suisse, whose shares on Wednesday sank by 30%, forcing it to ask for help from the Central Bank of the country.
According to Oppenheimer & Co’s Chris Kotovsky, the Swiss bank’s situation was “kind of a repeat of the 2011 European banking crisis” and made investors curious about the potential risks.
However, say experts and investors themselves, the current dumping of securities in the banking sector is unlikely to last long. Many investors see it as a “collateral damage” of the initial SVB panic and say they are ready to reinvest in bank securities if the current stock dump makes their prices more attractive. According to one FT source familiar with the investment strategy of a large asset management company, the whole situation “potentially creates a lot of opportunities.” But, as he noted, before rushing into the purchase, “we must be sure that the risk of contagion has passed.”