Bank sell-off spreads to Japan as SVB collapse shakes global markets

Shares of Japan’s biggest banks dropped sharply on Tuesday as global markets reacted to a banking sector sell-off in the US triggered by the collapse of technology-focused lender Silicon Valley Bank.

Traders in Tokyo said they were expecting a second day of massive equity market support from the Bank of Japan to fend off a deeper rout after Japan’s Topix slumped more than 3.1 per cent in morning trading, led by the country’s biggest lenders.

Shares of MUFG, Mizuho and SMFG fell between 7.5 per cent and 8.1 per cent in early trading, as traders bet that the collapse of SVB may derail sharp interest rate increases from the US Federal Reserve, which would dent investor hopes of higher bank profits.

“The probability of Fed rate hikes appears lower, JGB yields are down and the yen is stronger. It’s a huge change of market environment and that is why bank stocks are falling,” said Mizuho Securities chief equity strategist Masatoshi Kikuchi.

The BoJ revealed on Monday evening that it had stepped into the Tokyo equity market for the first time since early December 2022, buying $5.2bn worth of exchange traded funds.

The Topix Banks index was down as much as 7.6 per cent on Tuesday, putting it on track for its worst day in more than three years.

“Once you saw the Topix falling below 2 per cent on Tuesday, you could pretty much tell the BoJ was going to be buying again. I think we can expect this to become the pattern until this is resolved,” said one Tokyo based equity broker.

SoftBank, one of the Asian companies analysts believed to be most exposed to any broad tech industry fallout triggered by the SVB collapse, dropped 3.4 per cent in early trade. Shares of Mizuho, SoftBank’s largest lender, shed more than 7.5 per cent of their value in the morning session.

South Korea’s Kospi was down 1.9 per cent. Hong Kong’s Hang Seng index shed 0.9 per cent while China’s CSI 300 declined 0.5 per cent.

US Treasury prices eased on Tuesday, with the yield on the 10-year note gaining 3 basis points to 3.543 per cent and the yield on the two-year note adding 2 basis points to 4.054 per cent. Yields move inversely to price.

That followed a decline of 0.62 percentage points in the yield on the two-year note on Monday, the biggest single-day drop since 1987.

The latest moves came despite efforts in the US and UK to insulate markets and depositors from the fallout of SVB’s implosion.

The Federal Reserve announced an emergency lending facility that it said would guarantee all depositors could retrieve their funds on Sunday, while the UK government helped broker a deal for HSBC to purchase the bank’s local arm.

US president Joe Biden tried to reassure Americans that their funds were safe, saying the country would do “whatever is needed” to avert a crisis.

Despite the regulatory interventions US bank stocks plunged on Monday. The KBW Nasdaq Bank index fell 11.7 per cent in the US, with regional banks plummeting most sharply over concerns that smaller lenders could have more precarious balance sheets.

First Republic Bank fell 61.8 per cent, Western Alliance Bancorp lost 47.1 per cent and KeyCorp dropped 27.3 per cent.