As the contagion from the collapse of Silicon Valley Bank (SVB) and Signature Bank rips through the markets, European countries are rushing to reassure the market that their banks pose no risk from the fall out.
Silicon Valley Bank poses little risk to European banks
After yesterday’s symbolic £1 purchase of SVB’s UK assets by HSBC, both Germany and Sweden rushed to reassure the markets of their own infrastructure strength and safeguards.
“The recent collapse of some US banks, does not threaten Sweden’s financial stability,” the country’s financial watchdog said.
“Our assessment is that none of them have any large direct exposure of their own to the US banks that have run into problems,” it said.
In a broader assessment, analysts are confident there’s not an SVB Financial Group lurking among European banks.
Analysts at most major banks played down any parallels between the Silicon Valley lender and European firms, JPMorgan said the industry will be subject to more scrutiny by both investors and regulators.
SVB isn’t “a ‘canary in the coal mine’ read for European banks, given the unique nature of its business,” analysts at Jefferies Financial Group wrote. “Nor is it a ‘tempest in a teapot’, in our view, as the situation does shine a light on prospective unrealized losses” in banks’ bond portfolios.
European bank stocks have benefited over the past months as rising interest rates boosted revenue from day to day banking, allowing lenders to pay larger dividends and repurchase stock.
But the fate of SVB underscores how higher rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses.
For analysts at Deutsche Bank and Citigroup, however, there are few parallels with European lenders, because the latter have more diverse sources of liquid funding, are able to win and retain deposits and they have stronger financial reserves than the US lender.
The Citi analysts said they’re “not aware” of any European banks that rely as heavily on a small group of large depositors as SVB did, with its focus on commercial clients such as early-stage technology and life science or health care companies.
There’s also less risk to capital if banks have to take losses on the sale of securities, the Citi analysts wrote in a note. European lenders being required to hold more high-quality liquid assets than they would expect to see flow out over 30 days of stress.
Only the largest US banks are held to similar rules and SVB was deemed to small, according to Citi analysts. European banks also mainly hold such assets in cash and government bonds, with securities portfolios typically a smaller component.
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