’White knights are coming to the rescue after a weekend of intense negotiations to stem contagion from the SVB collapse, which sent shockwaves through financial and tech sectors. Investors are waiting with bated breath to see if this rush of regulatory activity to try and limit the fallout from the SVB bank collapse will help soothe volatile markets and so far the bold action appears to be working.
After a number of offers from smaller banks, HSBC has agreed to scoop up the beleaguered UK arm of SVB, which should end the nightmare thousands of tech firms had been experiencing over the past few days. HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition. This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.
Concerted action has also been taken in the US and is helping to calm markets. Deposits at SVB and Signature will be guaranteed by the Federal Deposit Insurance Corporation, but crucially generous loan facilities will be provided to other institutions. Other banks also hold big chunk of US treasuries and other bonds which have plunged in value, which was partly why the sector was sideswiped on Friday, given that this sparked SVB’s collapse. To qualify for the new lending support these assets will be judged at their ‘at par price’, when they were issued, and not marked to market, so the recent volatility in bond markets should not affect their ability to access these new Fed funds.
This is all aimed at malaise spreading to the wider financial sector and, although confidence is being restored, jitters will remain about longer-term repercussions. SVB was considered to be the lifeblood for the tech industry, offering facilities start-ups found hard to access elsewhere in the market, so although the immediate liquidity nightmare looks set to be lifted, worries will still linger about banking options ahead.
With both Silvergate Capital and Signature Bank collapsing, it’s also leaving a gaping hole in financial provision for the crypto sector. There remains an unease about the damage wreaked as the era of cheap money has hurtled to an end. With niggling concerns that mild recessions could be on the way being replaced by a wall of worry about a looming tech crunch, investors will stay on tenterhooks about the direction of interest rates so this week’s CPI numbers in the US will be sharply in focus.
The current turbulence may be unsettling, but long-term investing takes endurance and patience and rather than switching and ditching stocks, riding out the storm is almost always a good strategy when things look rocky. This is the time when the priority should be ensuring investors have a diversified portfolio with a wide range of holdings across different asset classes, sectors and geographies.’’
