Analyst Longo: “Limited crisis, contained risk of contagion”. Sapelli: “Beacon on crash but incomparable with Lehman”
Operations of Silicon Valley Bank (SVB), the 16th largest bank in the United States, which was shut down by regulators on Friday after its shares plunged, will resume on Monday, with the US Federal Deposit Insurance Corporation (Fdic) in load. All insured depositors will have “full access” to “insured” deposits by Monday morning and official checks “will continue to clear,” the Fdic said. Deposit insurance, as defined by the FDIC, means that deposits are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category.
The move came after the Santa Clara-based bank announced on Wednesday that it had lost $1.8 billion in sales of U.S. treasuries and mortgage-backed securities it had invested in, due to the interest rate increase. The bank was also facing a contraction in deposits as the tech industry struggled. Panic ensued, causing the stock price to soar and triggering a run on the bank that holds $210 billion in assets.
THE ANALYSIS – “For now, the Silicon Valley Bank crisis seems to be something limited and contained. It is a bank that capitalizes 6 billion, therefore very little and it is not a systemic bank, so there should be no fear of contagion” he explains to Adnkronos Vincenzo Longopremium manager of Ig, commenting on the crash of Svb and the effects that were seen on the markets, in the United States and in Europe, at the end of the week.
“We have been used to seeing the crypto sector and the realities working on crypto under pressure for months”, recalls Longo, reassuring however that “the bigger institutions obviously have a very diversified nature of revenue, so it is difficult that the impact of a single asset could bring the institution to its knees”. And also “the exposure of some entities to this bank is limited to a few hundred million dollars”, but “the point is to see if other entities may have the same problem” of Silicon Valley Bank.
And so “fear over the ‘Svb case’ contributed yesterday and part of Thursday’s session to bring down the markets in an already particularly tense context for monetary policy, which has become increasingly aggressive, with the approach of rate hikes from the Fed that doesn’t seem to stop this year.”
So be careful to believe that the poor performance of the stock exchanges at the end of the week is only due to the collapse of Silicon Valley Bank, it is rather a “combined effect that has also led the main US institutions to be affected by the case of Svb, however – he reassures the premium manager of Ig – the contagion risk is really contained at the moment and it is more the combination of several factors, as well as the Fed rate hike, which is going to make an already particularly tense climate nervous”.
Even if it is “very premature” to fear a crisis such as that of 2008, there are “systemic risks”, even if they do not “concern the SVB or the banking sector in general, which, on the contrary, with this trend of rate hikes sees margins certainly more favourable. The point – highlights the analyst – comes from the real economy in trouble, because the context is becoming restrictive and many of these realities have to re-pay their debts at decidedly higher rates, because for a year now the world has changed, and this can bring many companies to their knees, risking bank exposures becoming insolvent and bringing back in this context a word we have learned over the last ten years: ‘non-performing loan’ This is perhaps the most perverse effect of such a significant rate hike”, concludes Longo.
Observe the economist at Adnkronos Julius Sapelli: “I would say that we need to carefully watch the balance sheet data and the statements in the next few days. But it is absolutely incomparable with the collapse of Lehman Brothers”.
“Let’s stay calm, let’s not cry wolf, otherwise we’ll fuel the spiral” Sapelli warns, remarking that “we now have tools that we didn’t have at the time, namely, a convergence of central banks in the face of these crises and again the International Bank of Payments moves. Then I know that internal control tools like the Federal Deposit Insurance Corporation have been put in place. They are tools that act as shock absorbers.”
“It is certain that financial leverage in the hi-tech sector had skyrocketed but as soon as a headwind arrives, as there seems to be, starting from China, given that Xi Jinping has weakened them, things do not go very well”, he says about the Chinese tech giants.
“However, I must say that in recent years many steps have been taken in managing financial crises, so I think they are already working on this crisis”, adds the expert. As for the effects on bank stocks on the stock exchanges, he comments: “Of course, everyone is exposed to these stocks, it was the investment recommended by everyone, probably if we began to rethink investments from a savings point of view rather than an increase in risk to earn especially the banks, it would be better but it’s a vicious circle and it takes a lot to break it”.