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Severe Turbulence in the Banking Sector
By Trackinsight
May 9, 2023
- Banks
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The banking sector is experiencing a severe bout of turbulence, with investors fleeing small and medium-sized banks in the wake of the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank (acquired by JPMorgan as part of the receivership deal after the rise in interest rates seen over the last 12 months has battered their assets). Many hedge funds have increased their short positions against regional banks, including First Horizon National Corporation, Western Alliance Bancorporation, and PacWest. Indeed, these financial institutions have suffered heavy losses, with PacWest plunging 43% in just one week. This turmoil marks the most significant upheaval to have roiled the banking sector since the 2008 bankruptcy of Lehman Brothers.
Investors now fear that more failures may be in store, with bankers under stress. This in turn explains why the Financial ETFs have taken a hit: for example, the iShares S&P U.S. Banks UCITS ETF and the Xtrackers MSCI USA Banks UCITS ETF lost 7.866% and 7.884% week-over-week.
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