Markets on edge after US bank collapse

Markets are nervous after the collapse of Silicon Valley Bank in the US last week.

Financial markets are in for a nervous start to the week after the collapse of America’s Silicon Valley Bank (SVB) sent shockwaves through the world’s financial markets on Friday.

Several of the world’s biggest banks saw their share prices fall after SVB, a technology-focused lender, revealed a US$1.8 billion ($2.9b) loss on the sale of a portfolio of securities, sending its shares into freefall. US bank regulators took over the bank on Friday.

An already weak Wall Street declined for a second day in volatile trading as investors worried that SVB’s failure could be a sign of broader woes in the sector.

The S&P closed down 1.5 per cent, taking its losses for the week to 4.5 per cent, the worst week in almost six months.

The technology-based Nasdaq Composite fell by 1.8 per cent on the day and 4.7 per cent lower for the week.

Market Lister, investment director at Craigs Investment Partners, said the news from the US was likely to make for a nervous start to the week.

“It is obviously a developing story, so more will come to light I’m sure, but markets are certainly going to start the week on the back foot and in a negative mindset, until they get some comfort that this sort of issue is isolated - if it is ringfenced - and that it is dealt with,” he said.

“Even if it is a small bank, in the scheme things - which it is - a bank failure is still a big deal.

“You don’t see them every day and we haven’t seen one for more than 10 years.”

SVB was a lender to Silicon Valley start-ups.

The bank had seen massive growth over the last four or five years - supported by tech startups that performed well in the low-interest-rate Covid era.

“One would think that finances of those involved in that sector - whether its individuals, customers, or investors - would be quite intertwined.

“The markets will shoot first and ask questions later until they have something more concrete to latch on to,” Lister said.

Lister said the SVB’s failure comes at a time when bearish factors - high interest rates, high inflation and low growth - were already weighing on the markets.

“It will see us start the week on a cautious footing before we get some more clarity.”

Anxiety over SVB has spilled over into the crypto markets.

Circle, the operator of one of the world’s largest stablecoins, has said US$3.3 billion ($5.4b) of its reserves are trapped in SVB, triggering a fall in the value of its token,

The announcement from Circle overnight on Friday prompted the company’s USDC crypto token to lose its peg to the US dollar.

US exchange Coinbase said it was temporarily pausing conversions between USDC and the US dollar.

Rival exchange Binance also said it would pause automatic conversions of USDC to BUSD, a stablecoin that carries the Binance branding, the Financial Times reported.

The collapse of SVB, the second-largest bank failure in US history, is beginning to fan out to customers, in a further blow to the crypto market which is still recovering from a confidence crisis last year that took down many of its biggest names, the paper said.

Trading in the US financial markets restarts on Monday night (NZ time).