A suitor for SVB soothes broader markets, but default stress stalks banks

By Anirban Sen and Renju Jose

(Reuters) -A potential buyer for Silicon Valley Bank helped cast an uneasy calm over fragile markets on Monday, which have been roiled by worries of a credit crunch and wider systemic banking stress.

First Citizens BancShares Inc was in advanced talks to acquire SVB from the Federal Deposit Insurance Corp, a person familiar with the matter told Reuters. North Carolina-based First Citizens has around $109 billion in assets and total deposits of $89.4 billion.

Bloomberg News, which first reported the development, said a deal could be reached soon.

That gave markets some respite as it was the first weekend in several weeks that did not bring news of fresh banking collapses, rescue deals or emergency help from authorities to shore up confidence.

“It’s nice that there’s a buyer about,” said IG Markets analyst Tony Sycamore in Sydney, and that the weekend passed without new incident, but without details on pricing there was little solid to cling to ahead of European trade opening.

“It’s a little bit of calm before the next storm.”

Last week ended with indicators of financial market stress flashing and Germany’s biggest lender Deutsche Bank (ETR:) in the crosshairs, with its shares down 8.5% on Friday and the cost of insuring its bonds against default up sharply.

On Monday, bank shares in Asia were mixed – steady in Australia and Tokyo but slipping in Hong Kong, where Standard Chartered (OTC:) shares fell 3.5%.

rose 0.5% and European futures rose 1.1%.

The collapse of SVB little more than two weeks ago has reverberated around the world, sending U.S. depositors fleeing smaller banks for larger cousins while the hit to confidence forced Credit Suisse into the arms of rival UBS last week.

In March, the Stoxx index of European bank shares is down more than 18% and the U.S. KBW regional bank index has lost 21%, with investors on edge about what’s next.

“It’s clearly not over,” Australia and New Zealand Banking Group Chief Executive Shayne Elliott said in an interview posted to the bank’s website, where he said the turmoil has the potential to escalate into a bigger financial crisis.

“I don’t think you can sit here and say, ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal,'” Elliott said. “These things tend to roll through over a long period of time.”

CARROTS, STICKS AND ACRONYMS

The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to tamp down inflation, and whether tightened lending will hurt the global economy.

In Europe, bank bonds are under pressure and credit default swaps, or the cost of insurance against defaults, uneasily high. Deutsche Bank’s five-year CDS hit their highest since late 2018 on Friday, data from S&P Global (NYSE:) Market Intelligence showed.

In the U.S., where flows into money market funds have risen by more than $300 billion in the past month to a record atop $5.1 trillion, focus is on depositors’ confidence in regional lenders — which could take some salve from an SVB sale.

The FDIC has been trying to sell Silicon Valley Bank assets for several weeks, and had asked for separate offers for SVB Private and SVB after failing to sell them together.

The FDIC did not immediately respond to Reuters requests for comment, nor did SVB or First Citizens. Details or a price were not available, though a deal could suggest a skerrick of confidence in the sector.

“Effectively you’re going to get a combination of carrots, sticks, and acronyms in order to ensure you get the outcome you want and that allows (authorities) to still use interest rates to combat inflation,” Rabobank strategist Michael Every said.

“This seems to be part and parcel of that.”