Western European stock indexes are down sharply on Monday on the news about the bankruptcy of two banks in the U.S. and fears that the problems could spill over to the European banking industry.
The Stoxx Europe 600 composite index of the region’s largest companies fell 2.43% to 442.73 points by 11:25 a.m. The sub-index of the banking sector fell by almost 4%, writes Bloomberg.
The British FTSE 100 stock index was down 2.21%, the German DAX – 2.88%, the French CAC 40 – 2.59%. Italy’s FTSE MIB and Spain’s IBEX 35 lost 4.3% and 3.4%, respectively
As it was reported, the U.S. bank Silicon Valley Bank was taken over by the Federal Deposit Insurance Corporation (FDIC). The FDIC will sell Silicon Valley Bank’s assets, which will allow it to make payments on uninsured deposits. The bank’s bankruptcy was the largest since the 2008 financial crisis.
Regulators also shut down a smaller New York-based Signature Bank, which was popular with cryptocurrency holders.
The Federal Reserve (Fed) responded by announcing a new mechanism for providing funds to financial institutions to make sure they “have the ability to meet the needs of all their depositors.” The U.S. Treasury Department will allocate up to $25 billion from the stabilization fund to support the program.
The mechanism, called the Bank Term Funding Program (BTFP), provides loans of up to one year to banks, savings associations, credit unions and other financial institutions. The Fed would accept US Treasuries, federal agency bonds, mortgage bonds and a variety of other securities as collateral for these loans.
“Had it not been for regulatory support, the market would have opened much lower. However, many are selling stocks not because of a lack of confidence, but at the behest of risk management departments,” wrote Guillermo Hernandez Sampere, head of trading at MPPM GmbH. – We thought the system was more solid after (the bankruptcy – IF) of Lehman. We hope it will be a short-term storm, but it will not pass without consequences.”
Shares of Credit Suisse, the most troubled of Europe’s leading banks, fell nearly 10%, marking a new historic low. Commerzbank AG dropped 11.6%, making it the biggest loser on the Stoxx Europe 600 index.
HSBC Holdings Plc dropped 3.4% on the news that the bank is buying the British unit of Silicon Valley Bank for £1.
The key event for markets this week will be the release of February U.S. inflation data on Tuesday. Analysts polled by Trading Economics forecast that inflation in the U.S. slowed to 6% last month from 6.4% in January.
Sanofi (SPB: SNY) is down 1.4 percent. The French drugmaker reached an agreement to buy U.S. biopharmaceutical company Provention Bio Inc. for $2.9 billion.
Provention’s main asset is the drug TZIELD, the only U.S. regulatory-approved treatment designed to slow the onset of Stage 3 Type 1 diabetes.
The market value of Porsche AG drops 3.5 percent. The German luxury carmaker reported revenue growth of 13.6% last year, but the figure was worse than market forecasts.
