Wrapup 1: A suitor for SVB soothes broader markets, but default stress stalks banks

First Citizens Bancshares (Tennessee)

27/03/2023 05:13

By Anirban Sen and Renju Jose
       March 27 (Reuters) - A potential buyer for Silicon
Valley Bank helped cast an uneasy calm over fragile markets on
Monday, which have been roiled by worries of a credit crunch and
wider systemic banking stress.
    First Citizens BancShares Inc  FCNCA.O  was in advanced
talks to acquire SVB  SIVB.O  from the Federal Deposit Insurance
Corp, a person familiar with the matter told Reuters. North
Carolina-based First Citizens has around $109 billion in assets
and total deposits of $89.4 billion.
    Bloomberg News, which first reported the development, said a
deal could be reached soon.
    That gave markets some respite as it was the first weekend
in several weeks that did not bring news of fresh banking
collapses, rescue deals or emergency help from authorities to
shore up confidence.
    "It's nice that there's a buyer about," said IG Markets
analyst Tony Sycamore in Sydney, and that the weekend passed
without new incident, but without details on pricing there was
little solid to cling to ahead of European trade opening.
    "It's a little bit of calm before the next storm."
    Last week ended with indicators of financial market stress
flashing and Germany's biggest lender Deutsche Bank  DBKGn.DE 
in the crosshairs, with its shares down 8.5% on Friday and the
cost of insuring its bonds against default up sharply.
    On Monday, bank shares in Asia were mixed - steady in
Australia  .AXFJ  and Tokyo  .IBNKS.T  but slipping in Hong Kong
 .HSCIF , where Standard Chartered  2888.HK  shares fell 3.5%.
    S&P 500 futures  ESc1  rose 0.5% and European futures
 STXEc1  rose 1.1%.
    The collapse of SVB little more than two weeks ago has
reverberated around the world, sending U.S. depositors fleeing
smaller banks for larger cousins while the hit to confidence
forced Credit Suisse into the arms of rival UBS last week.
    In March, the Stoxx index of European bank shares  .SX7P  is
down more than 18% and the U.S. KBW regional bank index  .KRX 
has lost 21%, with investors on edge about what's next.
    "It's clearly not over," Australia and New Zealand Banking
Group Chief Executive Shayne Elliott said in an interview posted
to the bank's website, where he said the turmoil has the
potential to escalate into a bigger financial crisis.
    "I don't think you can sit here and say, 'Well, that's all
done, Silicon Valley Bank and Credit Suisse and, you know, life
will go back to normal,'" Elliott said. "These things tend to
roll through over a long period of time."

    CARROTS, STICKS AND ACRONYMS    
    The sudden spike in tensions for banks has raised questions
about whether major central banks will continue to pursue
aggressive interest rate hikes to tamp down inflation, and
whether tightened lending will hurt the global economy.
    In Europe, bank bonds are under pressure and credit default
swaps, or the cost of insurance against defaults, uneasily high.
Deutsche Bank's five-year CDS hit their highest since late 2018
on Friday, data from S&P Global Market Intelligence showed.
    In the U.S., where flows into money market funds have risen
by more than $300 billion in the past month to a record atop
$5.1 trillion, focus is on depositors' confidence in regional
lenders -- which could take some salve from an SVB sale.
    The FDIC has been trying to sell Silicon Valley Bank assets
for several weeks, and had asked for separate offers for SVB
Private and SVB after failing to sell them together.    
    The FDIC did not immediately respond to Reuters requests for
comment, nor did SVB or First Citizens. Details or a price were
not available, though a deal could suggest a skerrick of
confidence in the sector.
    "Effectively you're going to get a combination of carrots,
sticks, and acronyms in order to ensure you get the outcome you
want and that allows (authorities) to still use interest rates
to combat inflation," Rabobank strategist Michael Every said.
    "This seems to be part and parcel of that."
        
  

 (Additional reporting by Maria Ponnezhath in Bengaluru and Tom
Westbrook in Singapore; Writing by Tom Westbrook; Editing by
Jacqueline Wong)
 ((tom.westbrook@tr.com; +65 6973 8284;))