Silicon Valley Bank collapse presents low risk for Canadian sector: analysts
TORONTO –
As regulators transfer to handle the gorgeous collapse of Silicon Valley Bank, analysts say there’s restricted fallout threat for the Canadian monetary sector.
“Not only should the failure of 1/8Silicon Valley Bank 3/8 not have significant negative implications for our banks, but this crisis should actually be viewed as further vindication of the Canadian banking model,” mentioned Scotiabank analyst Meny Grauman in a shopper be aware Monday, highlighting the steadiness of Canada’s diversified main banks.
U.S. regulators closed the California-based financial institution on Friday after a financial institution run, the place fearful depositors involved about its solvency withdrew billions of {dollars} all of sudden. Over the weekend U.S. regulators introduced measures to safeguard the monetary system, together with a assure that every one deposits on the financial institution could be honoured. They promised the identical for Signature Bank, which regulators pressured closed on Sunday.
Canada’s banking regulator mentioned late Sunday that it had seized the Canadian belongings of Silicon Valley Bank, whereas emphasizing the restricted nature of the disaster and the truth that the financial institution would not maintain any business or particular person deposits in Canada.
“This situation is the result of circumstances particular to Silicon Valley Bank in the United States,” mentioned Superintendent of Financial Institutions Peter Routledge in a press release.
The financial institution had a heavy lending deal with rising expertise and biotech corporations, which skilled large development in the course of the first two years of the pandemic earlier than the sector pulled again. Tens of 1000’s of tech employees have been laid off in current months, from each giant and small corporations, amid the downturn.
As nicely, the financial institution’s funding portfolio was overly reliant on long-term fixed-rated bonds, which dropped in worth as rates of interest climbed. That situation shouldn’t be actually a priority for Canadian banks, mentioned Grauman.
“The reality is that both the largest U.S. banks and the Canadian and 1/8Latin American 3/8 banks we cover have much less significant securities holdings on a relative basis.”
Canadian banks are additionally a lot much less uncovered to the expertise sector, mentioned National Bank analyst Gabriel Dechaine, mentioning that monetary disclosures amongst banks that escape the sector of their reporting have publicity of between one and three per cent on their mortgage books.
He mentioned, nevertheless, that any broader fallout in Silicon Valley Bank’s house market of California may expose the Bank of Montreal to greater threat by way of its current Bank of the West acquisition. Royal Bank of Canada additionally has a presence within the state from its acquisition of City National in 2015.
It’s unclear how the disaster will have an effect on TD Bank Group’s pending acquisition of U.S. financial institution First Horizon, but it surely may enable TD to barter higher phrases, mentioned Dechaine.
The collapse of Silicon Valley Bank, the most important financial institution failure in U.S. historical past after the collapse of Washington Mutual in 2008, has additionally pushed down inventory costs for quite a few different monetary establishments.
Those embrace The Charles Schwab Corp. that’s down over 30 per cent since final Wednesday, of which TD owns a 12 per cent stake. Dechaine famous that each 10 per cent drop in Schwab’s share worth interprets right into a $1.8 billion decline in TD’s stake within the firm.
Companies on this story: (TSX:BMO; TSX:TD; TSX:RY)
This report by The Canadian Press was first printed March 13, 2023.
