ECB may slow rate hikes over SVB fallout
Silicon Valley Bank headquarters in Santa Clara, California. Picture: Philip Pacheco/Bloomberg
Irish bank shares fell sharply today as the impacts of Silicon Valley Bank's (SVB) collapse continues to materialise which could include a reduction in the pace of interest rate hikes by the ECB.
AIB was down over 6.5% at 10 am, dropping fast from a previous close price of €3.84.
Similarly, Bank of Ireland also saw prices drop, falling by just over 7% after 10am, down from a close price of €9.88.
Permanent TSB’s share price fell by 8% shortly just after 9.30am before recovering slightly to just 4% below the bank’s previous close price of €2.51.
Concerns over the banking sector mean the European Central Bank’s plans for more big interest-rate hikes are set to meet stronger opposition this week.
Dovish policymakers are likely to argue that the economic environment has shifted and that more caution is warranted.
The European Central Bank’s plans for more big interest-rate hikes are set to meet more opposition this week after the collapse of Silicon Valley Bank, according to officials with knowledge of the matter.
The drop mirrored that of other European banking stocks which logged their steepest one-day fall this year even as authorities stepped in to limit the fallout from the sudden collapse of SVB.
The pan-European STOXX 600 closed the day 2.3% lower, with bank, financials and insurer stocks, along with energy stocks, bearing the brunt of selling pressure.
European banking stocks dropped 5.7%, notching their worst two-day selloff since the Russia-Ukraine war broke out early last year.
Germany’s Commerzbank slumped 12.7%, France’s Societe Generale and Spain’s Sabadell fell 6.2% and 11.4%, respectively.
However, euro zone banking supervisors saw limited consequences for the region’s banks from the collapse of the US lenders, while Moody’s Investors Service noted that Europe’s banks were unlikely to get hit by bond portfolio losses.
In addition, Morgan Stanley analysts noted that strong liquidity in European banks’ balance sheet structure should avoid any forced unwinding or selling of bond portfolios.
Swiss financial regulator FINMA on Monday said it was seeking to identify any potential contagion risks for the country’s banks and insurers.
Credit Suisse shares hit a new low, while the cost of insuring its debt against a default rose to an all-time high. “FINMA is evaluating the direct and indirect exposure of the banks and insurance companies it supervises to the institutions concerned,” it said. “The aim is to identify any cluster risks and potential for contagion at an early stage.”
In a further reflection of investor concern about Credit Suisse’s outlook, the price of some of its bonds fell sharply, with some at record lows. Struggling to recover from a string of scandals, Switzerland’s second-biggest bank has begun a major overhaul of its business, cutting costs and jobs and creating a separate business for its investment bank.
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