California banking regulators said they closed SVB Financial Group to protect deposits in the largest bank failure since the financial crisis. A capital crisis at SVB had already put pressure on bank stocks globally.
SVB had tried but failed to shore up its balance sheet through a stock sale proposed late on Wednesday. The same day, crypto-lender Silvergate Capital said it would have to wind down after huge losses from the FTX cryptocurrency exchange collapse.
"There's concern cracks may be appearing in the financial system as a result of the Federal Reserve's aggressive rate hikes," said Carol Schleif, chief investment officer, BMO family office in Minneapolis. "The fear is whether it's broader than one industry's bank and one segment of the economy."
While many investors were looking through their bank holdings for signs of risk, Schleif said much of the weakness in regional bank stocks stemmed from a "proverbial shoot first ask questions later situation."
The KBW regional banking index and the S&P 500 financials index were under pressure throughout the session. According to preliminary data, the S&P 500 lost 56.64 points, or 1.45%, to end at 3,861.78 points, while the Nasdaq Composite lost 199.20 points, or 1.76%, to 11,139.16. The Dow Jones Industrial Average fell 342.20 points, or 1.06%, to 31,912.66. Investors had expected to be more focused on economic data than bank stocks. Before the market opened the non-farm payrolls report showed the U.S. economy added more jobs than expected in February while average hourly earnings rose 0.2% last month after gaining 0.3% in January and unemployment rose to 3.6%. The data had eased concerns that the Fed could raise rates by 50 basis points at its March meeting after hawkish remarks from Fed Chair Powell this week,
But investors were more focused on uncertainties around the bank system, said John Praveen, managing director & Co-CIO at Paleo Leon in Princeton, New Jersey.
"Whatever positive vibes came out of the labor market report were upstaged by negative vibes from the SVB situation," said Praveen.
In individual stocks, Gap Inc fell after the apparel
retailer posted a bigger-than-expected fourth-quarter loss and
forecast full-year sales below Wall Street estimates.
Oracle Corp slid after the software firm missed
third-quarter revenue estimates.
(Reporting by Sinéad Carew and Saqib Iqbal Ahmed in New York,
Amruta Khandekar and Shristi Achar in Bengaluru
Editing by Vinay Dwivedi and David Gregorio)
