Markets in Europe and Asia plummeted Friday after a sharp sell-off 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 works with nearly half of all venture capital-backed technology and healthcare companies in the United States, was forced to raise capital after it sold a portion of its portfolio of U.S. Treasury bonds at a loss to buy a . rapid decline in customer deposits.
The Nasdaq exchange suspended trading on SVB shares Friday at 8:35 a.m. ET after they fell 49% in premarket trading. Shares in the company fell 60% on Thursday.
“Many banks have large bond portfolios and rising interest rates are making them less valuable – the SVB situation is a reminder that many institutions have large unrealized losses on their fixed income holdings,” said Russ Mould, investment director at UK broker AJ Bel.
The European benchmark Stoxx Europe 600 index fell 0.9% in early trading, while the London bank-heavy FTSE 100 (UKX) index fell 1.4%.
The Stoxx Europe 600 Banks Index, which tracks 42 major European banks, including those in the United Kingdom, fell by more than 4% Friday morning before recovering slightly.
Shares of banking giant HSBC (HSBC) plunged 4.5% on Friday. Shares of Barclays (BCS) fell 3.6%, Deutsche Bank (DB) 6.8% and Italy’s Unicredit (UNCFF) 4%.
In Asia, Hong Kong’s Hang Seng (HSNGY) led the region’s losses, falling 3%, while China’s Shanghai and Korea’s Kospi fell 1.4% and 1% respectively.
Asian markets are also under pressure this week as China failed to announce a major economic stimulus at the National People’s Congress.
Meanwhile, Japan’s Nikkei finished 1.7% lower on Friday as the country’s central bank decided to leave its ultra-low interest rates unchanged.
US stocks fell in pre-market trading before recovering to post modest gains by 9:07 am ET.
The losses come after US bank stocks posted the biggest declines in almost three years on Thursday. The KBW Bank Index, which tracks 24 leading U.S. banks, fell 7.7%, the largest drop in nearly three years.
The Dow closed lower Thursday by 543 points or 1.7%. The S&P 500 was down 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 been dealing with rising equity valuations since last fall.
On the one hand, high interest rates have been a boon to banks, allowing them to earn higher returns on loans to households and businesses, and because savers are putting more of their money into savings accounts.
But on the other hand, some big banks that had picked up expensive government bonds and other bonds when interest rates were very low are suffering losses now that borrowing costs have risen and bond prices have fallen. Went down.
Banks that are heavily exposed to the technology sector, such as the SVB, are at particular risk as cash-hungry startups take their deposits.