Big Banks In Focus as Silicon Valley Bank Collapses
March 13 2023 - 05:01AM
Finscreener.org
The last week was pretty volatile
for the stock market as major indices such as the
S&P 500,
Nasdaq, and
Dow Jones fell by 4.8%,
5.1%, and 4.5%, respectively in the past five trading
sessions.
Silicon Valley Bank (NASDAQ:
SIVB)
dominated the headlines for all the wrong reasons. Silicon Valley
Bank, or SVB, the backbone of the start-up ecosystem in the U.S.,
just collapsed. But what exactly happened?
SVB ended 2021 with more than
$180 billion in deposits which it invested in long-duration
fixed-income securities such as mortgages. This strategy caused an
asset-liability mismatch and exposed SVB to interest rate risk as
bond yields moved higher.
In the last few months, the
demand for bank withdrawals gained pace, which meant SVB had to
sell its investments at a loss.
SVB reported a loss of $1.8
billion on its bond portfolio, as $80 billion worth of bonds had a
yield of just 1.5%.SVB collapsed because it had the highest-risk
deposit base along with the lowest bank-loan to deposit ratio among
U.S banking peers.
More than 50% of VC-backed
start-ups in the U.S. have a banking relationship with SVB. But 97%
of total deposits totaling $160 billion remain
uninsured.
Garry Tan, the CEO of Y
Combinator, called the fallout an "extinction-level event for
startups". The collapse was the largest in the U.S. banking sector
since the financial crisis of 2008.
SVB was among the top-20 banks in
the U.S. and the possibility of contagion dragged several other
bank stocks lower.
In addition to the extensive
coverage of this saga lets see what else can investors expect in
the next few days.
All eyes on the inflation report
Next week, weU+02019ll be
receiving the latest reports on inflation in the United States. The
Consumer Price Index (CPI) for February is due on Tuesday and is
expected to show a likely increase of 0.4% in consumer prices
compared to JanuaryU+02019s 0.5% gain. On a yearly basis, prices
are projected to have risen 6.2%, a slight deceleration from
JanuaryU+02019s rate of 6.4%.
Following this, the Producer
Price Index (PPI), which tracks inflation from the standpoint of
goods manufacturers and wholesalers, will be released on Wednesday.
The projected rise for last monthU+02019s producer prices is 0.3%,
lower than JanuaryU+02019s stronger-than-expected gain of 0.7%. On
an annual basis, producer prices are likely to have gone up by
5.7%, which is a slight deceleration compared to JanuaryU+02019s 6%
gain, and a considerable difference from March 2020U+02019s 40-year
high of 11.7%.
Retail sales and consumer spending
The U.S. Census Bureau and the
University of Michigan are set to release key economic indicators
this week. On Wednesday, the Census Bureau will unveil retail sales
figures for February, providing insights into the state of consumer
spending.
Retail sales, which are not
adjusted for inflation, are expected to show a modest increase of
0.2% from the previous month, following a robust 3% gain in
January. Despite the slowdown in the economy, consumer spending has
remained resilient thanks to high nominal wage gains, a tight labor
market, and excess savings accumulated during the
pandemic.
On Friday, the University of
Michigan will release its preliminary March reading of the Consumer
Sentiment Index (MCSI), which gauges consumer confidence in the
U.S. The index reading is expected to rise to 67.5 from 67 in
February, marking the highest reading since December
2021.
The rebound in consumer sentiment
has been noticeable in recent months after hitting an all-time low
of 50 in June 2021, surpassing previous record lows set during the
Great Recession and the stagflationary era of the 1970s and early
1980s.
SVB Financial (NASDAQ:SIVB)
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From May 2023 to Jun 2023
SVB Financial (NASDAQ:SIVB)
Historical Stock Chart
From Jun 2022 to Jun 2023