The difficulties of the Californian bank Silicon Valley Bank (SVB), which on Wednesday night collapsed 60% on the Stock Market, and which yesterday was suspended from trading and intervened after pointing to a similar collapse in the scores prior to the opening of the market , spread fear in the world stock markets, which were dyed red in a general way due to the risk of contagion to the rest of the financial sector.
The SVB crisis is caused by a flight of deposits paradoxically motivated by the rise in interest rates, which is traditionally interpreted as favorable for the financial sector as long as its delinquency and bad credit do not skyrocket.
The SVB specializes in financing nascent technology companies, and the technology sector –which is usually highly leveraged by its expansion plans– is one of those that suffer the most –as in general are stocks and sectors considered growth– with the rise in rates, as has been seen in recent months with plans for massive layoffs in the large multinationals in the sector.
The risk of interest rate rises for the companies financed by SVB led to a significant flight of deposits from the bank due to a precautionary principle and a loss of confidence in its sectoral investments. This movement was fueled in turn by the outflow of savings from bank accounts in search of the highest yield offered by debt and the rest of fixed income since the cycle of aggressive rises in interest rates by banks began. central banks, and this was aggravated in the case of the SVB because its depositors are mostly companies, with less fidelity than individual retail savers.
The flight of deposits caused the bank serious liquidity problems, which led the entity to hastily sell assets from its portfolio for an amount of 21,000 million dollars – with the consequent loss of value for having been acquired in many cases before the current rise of rates and, consequently, at a higher price, given that both parameters have an inverse correlation– and to announce on Thursday a capital increase of 1,700 million. All this triggered misgivings even more and led to disinvestment by its shareholders, which precipitated its collapse on the Stock Market.
Fear spread through world stock markets, with widespread falls, especially in financial values. The selective Spanish Ibex 35 fell 1.74%. Among the banks, Sabadell lost 5.11%; Bankinter, 4.22; Santander, 4.21; BBVA, 3.41; Unicaja, 2.53; and CaixaBank, 1.8%. In other European markets, London fell 1.67%, Milan, 1.55; Frankfurt, 1.3; and Paris, 1.3%. Asia also closed negative. Gold, as a refuge value, rose 1.8% last night.
US regulators took over and closed the SVB yesterday for lack of liquidity and insolvency, and in order to protect insured deposits, and entrusted its management to the country’s Deposit Guarantee Fund.