European shares were lower on Monday as markets continued to panic over the failure of Silicon Valley Bank.
GER30– Daily Chart
The GER30 share index dropped 366 points, -2.26%, as investors sought to take risk off the table in the European banking system. The GER30 index has some support near the 14,500 level, but the 13,800 level is also in play.
A joint statement by US regulators on Sunday failed to have the desired effect of stemming panic at US regional banks. Another bank failure was noted, with Signature Bank being taken over by regulators on Saturday.
Signature Bank Collapses
Signature Bank fell two days after regulators shut down Silicon Valley Bank as they tried to restore calm before markets opened Monday. The move added further panic as trading was halted in regional banks such as PacWest and Western Alliance, down -52% and -82%, respectively.
Signature marks the third-largest bank for failing in the US, behind Silicon Valley Bank and Washington Mutual in 2008. That has led to a drop in treasury yields as traders expect the Federal Reserve to halt its aggressive rate hike cycle.
Bank shares in Europe plunged as fears over the embattled Credit Suisse grew. The bank’s shares tumbled by 12% and traded at a new record low. The stock is now down 20%, and contracts to insure the company’s debt were at a record high.
Panic Escalates Amidst Deepened Banking Turmoil
The Swiss lender delayed the release of its annual report after last-minute requests from regulators, and they also upset investors with a turnaround plan. Credit Suisse also saw a massive loss of customer deposits from its wealth management division as investors feared the bank’s future.
European banks had been a crowded trade after investment bank analysts had touted the sector for a continued rebound. Hedge funds were also piling into European bank shares, and that would bring the risk of a sell-off.
All eyes will now be on this week’s European Central Bank meeting, where investors expect the ECB to back off from an expected 50bps interest rate hike.
