Markets rattled as bank shares hammered
Global markets took a beating on Friday as US jobs data boosted the likelihood of further aggressive interest rate hikes, while bank shares wobbled amid the collapse of SVB.
After sharp losses on Thursday, Wall Street's top indices had managed to peek into the green before regulators closed the troubled Silicon Valley Bank, sending stocks tumbling into the red again.
European equity markets ended sharply lower, with London stocks sliding 1.7 percent while both Paris and Frankfurt dropped 1.3 percent.
Asian stocks also posted steep losses.
Markets were rocked after SVB, which specialises in venture-capital financing, on Thursday announced a stock offering and offloaded securities to raise much-needed cash as it struggled with falling deposits.
In reaction, the firm's shares collapsed 60 percent in New York on Thursday and trading was suspended Friday morning, before regulators announced they had closed the bank.
The move makes SVB the largest retail bank to fail since 2008.
"It's the second day of concerns around the banking sector and questions whether this reflects any systemic risk," said Angelos Kourkafas of financial services firm Edward Jones.
"Probably, the answer to that is no. But still, confidence is a bit shaken," he said.
SVB's problems were sparked by customer withdrawals that led the company to liquidate securities positions whose values had plummeted due to the Federal Reserve's interest rate hikes.
The quick jump in interest rates meant that securities they had bought were selling for significantly less.
That is a situation that probably holds true for other banks and could pose a problem if they need to raise funds.
"What today and this week shows is that we are beginning to feel the effect of Fed tightening on the markets and the economy," Kourkafas said.
In the United States, hard-hit banks included First Republic Bank which slumped 14.8 percent, and Comerica, which slipped five percent.
Larger banks like JPMorgan Chase and Bank of America had a mixed performance on Friday.
In London, shares in banking giant HSBC slumped 4.7 percent, while Standard Chartered fell 4.4 percent, Barclays 4.1 percent and Lloyds 3.5 percent.
In the eurozone, Deutsche Bank tanked 10 percent at one stage and closed down 7.4 percent, while French lender Societe Generale slumped 4.5 percent.
- Fed rate hike expected -
Meanwhile, US jobs data came in stronger than expected with 311,000 jobs created last month, suggesting more effort may be needed to cool the world's biggest economy. Analysts expect further interest rate hikes are likely.
Earlier this week, Federal Reserve Chair Jerome Powell warned that the US central bank was prepared to speed up the pace of interest rate hikes and could lift rates higher than earlier anticipated if needed to rein in stubborn inflation.
The Fed has been closely eyeing the jobs market, with labor demand exceeding the supply of available workers.
But Fawad Razaqzada, market analyst at City Index and FOREX.com, said the situation has become more complicated for Powell given the tremors SVB caused in the banking sector.
"The dilemma is that if he opts for more hikes, there is a risk that some regional banks might collapse, while not doing anything could exacerbate inflationary pressures again," he said.
The dollar fell sharply against its main rivals despite the likelihood of higher US interest rates.
- Key figures around 2150 GMT -
New York - Dow: DOWN 1.1 percent at 31,909.64 points (close)
New York - S&P 500: DOWN 1.5 percent at 3,861.59 (close)
New York - Nasdaq: DOWN 1.8 percent at 11,138.89 (close)
London - FTSE 100: DOWN 1.7 percent at 7,748.35 (close)
Frankfurt - DAX: DOWN 1.3 percent at 15,427.97 (close)
Paris - CAC 40: DOWN 1.3 percent at 7,220.67 (close)
EURO STOXX 50: DOWN 1.3 percent at 4,229.53 (close)
Tokyo - Nikkei 225: DOWN 1.7 percent at 28,143.97 (close)
Hong Kong - Hang Seng Index: DOWN 3.0 percent at 19,319.92 (close)
Shanghai - Composite: DOWN 1.4 percent at 3,230.08 (close)
Euro/dollar: UP at $1.0643 from $1.0586 on Thursday
Pound/dollar: UP at $1.2035 from $1.1922
Euro/pound: DOWN at 88.40 pence from 88.77 pence
Dollar/yen: DOWN at 135.09 yen from 136.15 yen
West Texas Intermediate: UP 1.3 percent at $76.68 per barrel
Brent North Sea crude: UP 1.5 percent at $82.78 per barrel