Silicon Valley Bank's Rapid Collapse Fueled Losses On Wall Street

Barry Adams
10 Mar, 2023
New York City

The rapid collapse of a major bank located in the Silicon Valley stunned the market and raised the memories of the worst of the Great Recession in 20008-09. 

Silicon Valley Bank, the 16th largest bank in the U.S. with more than $175 billion in deposits suffered a bank run following its announcement to raise capital on Thursday following the losses in its bond portfolio.  

The announcement was viewed by the highly interconnected venture community as a sign of larger trouble and urged its client companies to withdraw deposits. 

The 40-year institution that survived many ups and downs of the tech industry was gone in 48 hours after social media posits ricocheted in the tech community urging employees and depositors to safeguard their bank funds. 

The Silicon Valley Bank run lasted only two working days, forcing a sell-off in regional and smaller banks from coast to coat and dragged the market averages down in the final three hours of trading. 

The Silicon Valley Bank's collapse is the second largest bank failure in U.S. history following the demise of Washington Mutual Bank in 2008 with a deposit base of $188 billion.   

The turmoil in bank stocks overshadowed the February jobs report showing a robust employment market but investors focused on a moderate wage gain and interpreted a decline in inflationary pressures. 

Employers expanded payrolls at a brisk pace and businesses in leisure and hospitality, education and healthcare led the gains. 

The latest employment report offered another signal to policymakers as consumers shift spending to services and experiences from goods, driving the demand higher in travel and hospitality segments.  

Service inflation, excluding the housing market, is still running ahead of the overall inflation by a wider margin, making it difficult for policymakers to decide the future rate path. 

Crude oil and natural gas prices turned lower in volatile trading and hovered near recent one-year lows. 

While stocks accelerated declines, bond yields plunged after wage gains moderated, lifting hopes that policymakers may stick to smaller interest rate hikes of 25 basis points at the next meeting in two weeks. 

 

Strong Job Gains In February 

Total nonfarm payroll employment increased 311,000 in February following the downwardly revised 504,000 in January, the U.S. Bureau of Labor Statistics reported Friday.  

Both the unemployment rate, at 3.6%, and the number of unemployed persons, at 5.9 million, edged up in the month. 

February payroll gain took the six-month average to 343,000 with notable job gains occurring in leisure and hospitality, retail trade, government, and health care.

In February, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents, or 0.2%, to $33.09 and increased 4.6%.

 

Stock Indexes Trend Lower 

Banks were added to the list of declining sectors including home builders, technology and specialty retailers. 

A total of 31 stocks in the widely followed S&P 500 index traded at new 52-week lows.  

The S&P 500 index dropped 1.5% to 3,861.59 and the Nasdaq Composite index declined 1.7% to 11,38.89. 

For the week, the S&P 500 index dropped 4.6% and the Nasdaq Composite index fell 4.7%. 

 

Bond Yields Dropped After Wage Gains Moderated In February 

The yield on 2-year Treasury notes dropped 23 basis points to 4.59%, 10-year Treasury notes declined 31 basis points to 3.68% and 30-year Treasury bonds fell 18 basis points to 3.69%. 

Crude oil price increased 83 cents to $76.55 a barrel and natural gas price fell 10 cents to $2.43 a thermal unit. 

 

U.S. Stock Movers 

Banks drifted lower after Silicon Valley Bank's parent announced a plan to raise as much as $2 billion. 

Regional banks M&T Bank, Fifth & Third Bank, KeyCorp, Comercia and Signature Bank declined between 2% and 5%. 

Allbirds Inc plunged 44% to $1.34 after the company said quarterly sales declined for the first time in its history and also announced a restructuring plan including shakeup in executive ranks. 

Oracle Corporation declined 2.7% to $84.46 after the database company reported, slightly lower-than-expected, revenue of $12.4 billion in its latest quarter. 

Gap Inc declined 3.5% to $11.07 after the specialty apparel retailer reported a fall in quarterly revenue and larger loss. 

 

European markets closed lower on the final day of the week and investors reviewed inflation and trade data in the region. 

Germany's inflation held steady in February and France's trade deficit shrank in January after the fall in energy prices but Spain's retail sales surged following the increase in non-food sales. 

Investors also reviewed the latest U.S. employment report which showed solid gains in February. 

Nonfarm payrolls increased 311,000 in February after business in leisure and hospitality and education and healthcare expanded payrolls, the U.S. Labor Department reported on Friday.  

However, the wage gains moderated and jobless rate increased to 3.6% from 3.4% in the previous month. 

 

Germany's Inflation Held Steady In February 

Germany's consumer inflation held steady in February as previously reported, DeStatis or the Federal Statistics Office said on Friday.  

The consumer price index increased 8.7% in the month matching the flash estimate and inflation rate in December. 

Core inflation, which excludes energy and food, rose 5.7% in February.  

Energy inflation from a year ago slowed to 19.1% in February from 23.1% in the previous month however food inflation accelerated to 21.8%, following a 20.2% increase in January.

Goods inflation slowed to 12.4% and service inflation was 4.7% in February. 

Harmonized index of consumer prices on an annual basis increased to 9.3% in February from 9.2% in January and increased to 1.0% from 0.5% in the previous month. 

 

France's Trade Deficit Shrank In January 

The recent decline in energy prices helped France to shrink its international trade gap, the Customs Office said in a report Friday. 

International trade deficit shrank to Є12.9 billion in January from Є14.7 billion in December but the trade gap rose from Є8.7 billion in similar month a year ago. 

On a monthly basis, exports fell 2.2% and imports declined 4.5% from the previous month in January. 

From the previous year, exports increased 9.8% and imports advanced 15.7%. 

 

Spain's Retail Sales Advanced for the Second Month In a Row 

Spain's retail sales rose 5.5% in January following the 4.8% rise in December, the statistics office INE said in a report on Friday. 

Retail sales expanded at the fastest pace in 20 months after non-food products sales rose 15.7% and food products sales decreased 1.7%.  

 

European Indexes & Yields 

Banks led the decliners and leading banks in Germany, UK, France and Spain fell between 3% and 6% following a bank run in the U.S. 

Silicon Valley Bank with bank deposits of $175 billion was closed down by the industry regulators after customer deposits accelerated. 

The DAX index declined 1.3% to 15,427.97, the CAC-40 index fell 1.3% to 7,220.67 and the FTSE 100 index dropped 1.7% to 7,748.35.

The yield on 10-year German Bunds eased to 2.46%, French bonds fell to 2.96%, UK gilts to 3.6% and Italian bonds to 4.3%. 

The euro inched higher to $1.06, the British pound to $1.201 and the Swiss franc to 92.1 cents. 

Brent crude oil increased $1.20 to $82.87 a barrel and the Dutch TTF natural gas increased Є8.80 to Є52.40 per MWh. 

 

Europe Movers 

Casino Guichard Perrachon SA declined 5.6% to €8.12 after the French discount grocery store chain reported a smaller loss in the full-year 2022. 

Sandvik  AB decreased 3.3% to kr 208.0 after the Swedish engineering company said it plans to set up a new production unit in Malaysia and invest kr 350 million over the next three years. 

Berkeley Group Holdings PLC decreased 0.5% to 4,015.17 pence after the UK-based homebuilder held its 2023 outlook despite the ongoing economic slowdown.