Silicon Valley Bank: Shares fall as fears persist about failed US bank

Stock markets in Europe fell on Monday as investors remained spooked by the collapse of Silicon Valley Bank (SVB), despite efforts to limit the fallout.

Bank shares dropped sharply, with Commerzbank and Credit Suisse both down 10%, and Santander down 7%, reflecting fears over the health of the sector.

In London, the FTSE 100 index was down 2.3%, with shares falling even after HSBC agreed to buy SVB's UK arm.

Stock markets in Frankfurt, Paris and Milan also suffered sharp losses.

George Godber, fund manager at Polar Capital, said markets were falling because of "a fear of what else might lie out there".

"The imminent crisis may have been averted but it's alerted people to the fact that there's a group of companies out there with business models who will struggle in a high interest rate environment - as that's what's undone SVB," Mr Godber said.

But he added that the direct impact on UK economy and UK market was limited, "because the UK financial sector is really healthy and well capitalised".

Silicon Valley Bank - which specialised in lending to technology companies - was shut down by US regulators who seized its assets on Friday. It was the biggest failure of a US bank since the financial crisis in 2008.

SVB was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates.

The US has now agreed a rescue deal for customers in the US bank, with all depositors fully protected.

On Monday, HSBC announced it was buying SVB's UK arm for £1. The deal followed a frantic weekend of talks as the government and Bank of England sought a solution, and the news bought relief to UK tech firms who feared going bust without support.

The Bank of England said no other UK banks had been "materially affected" by SVB's collapse. Chancellor Jeremy Hunt also said there was "never a systemic risk" to the UK's financial stability.

Elsewhere, France's economy minister said US bank failures did not create a risk of contagion, and Germany's finance watchdog said SVB's collapse did not pose a threat to financial stability.

But investors nevertheless took fright on Monday, with the US dollar and oil prices also slipping.

Russ Mould, AJ Bell's investment director, said the markets remained "edgy" despite the best efforts of governments and regulators to contain the situation.

"There's plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix," he said.

"Little surprise people are feeling a bit spooked."