Interactive Investor

Must read: First Citizens buys SVB, Deutsche Bank, Chinese profits slump

27th March 2023 08:53

by Victoria Scholar from interactive investor

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Our head of investment rounds up the morning's big news.

Citizens svb 600

    GLOBAL MARKETS 

    European equities have kicked off the week in a positive mood following a rescue deal for Silicon Valley Bank from First Citizens BancShares Inc Class A (NASDAQ:FCNCA).

    In terms of sectors, banks are leading the gains across Europe. The FTSE 100 is in the green but remains below resistance at 7,500. Most stocks on the UK large-cap index are trading higher with banks like Barclays (LSE:BARC), Lloyds Banking Group (LSE:LLOY), and NatWest Group (LSE:NWG) outperforming. Oil prices are also catching a bid with Brent crude and WTI pushing higher, lifting shares in BP (LSE:BP.).

    China’s industry profits slumped by 22.9% year-on-year in January and February as factory activity fails to bounce back post Beijing’s unwinding of its strict anti-Covid lockdown measures. This put pressure on Chinese markets overnight, with the Hang Seng and Shanghai Composite in the red, whereas the Nikkei and the Australian ASX managed to eke out modest gains.

    SILICON VALLEY BANK 

    First Citizens Bank is acquiring Silicon Valley Bank’s loans and deposits from the Federal Deposit Insurance Corporation (FDIC) and will operate its 17 branches. Around $119 billion of SVB Financial Group (NASDAQ:SIVB)’s deposits and $72 billion of assets will be taken on by First Citizens Bank, while $90 billion of assets will remain with the FDIC, costing the insurance fund around $20 billion. First Citizens has a history of acquiring embattled lenders in FDIC supported deals. 

    SVB’s losses on its bond portfolio losses and the acceleration of customer withdrawals prompted jitters across the sector. Since its collapse on 10 March, the banking sector has been under pressure, exacerbated by the turmoil at Credit Suisse Group AG (SIX:CSGN) which was salvaged in a rescue deal from UBS Group AG (SIX:UBSG). This has sparked contagion fears, with shares in Deutsche Bank AG (XETRA:DBK) tumbling as much as 14% at one stage during Friday’s session amid nervousness about its exposure to commercial property and derivatives, sending the cost of insuring against its bonds sharply higher. 

    The placatory deal for SVB has helped calm market skittishness after the recent price action. Banks are outperforming at the European open, with Deutsche Bank up by more than 6.5% and Credit Suisse up by over 2.5%. Commerzbank AG (XETRA:CBK), Societe Generale SA (EURONEXT:GLE) and BNP Paribas Act. Cat.A (EURONEXT:BNP) are also bouncing on Monday. But there is a long way to go to recoup losses with Deutsche Bank still down over 17% year-to-date. 

    A key underlying driver of the recent market maelstrom has been the sea change in monetary policy after the punchbowl of cheap money was removed. Central banks have been desperately scrambling to keep a lid on spiralling inflation rates with an abrupt ending to the era of rock bottom interest rates which had underpinned asset price growth and long helped businesses to thrive.

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