Europe’s biggest asset manager Amundi on Tuesday said it does not believe that the collapse of Silicon Valley Bank and the ensuing US banking crisis is an event that poses a systemic threat.
In a note to investors, Amundi’s top investment team, including Monica Defend (photo), Vincent Mortier and Matteo Germano, noted that the European banking sector “is in far better shape” than in the 2008 financial crisis. Nevertheless, they urged investors to watch out for areas of vulnerability.
“While being a negative for the market, the SVB failure is more of an idiosyncratic story rather than a systemic issue. Compared to the Lehman crisis, the bank is not leveraged, has no big derivatives exposure and no relevant global connections,” Amundi said.
“Yet, this event highlights the need to carefully assess the lagging impacts of higher rates, particularly when it comes to non-systemically important financial institutions and some other non-banking financial institutions, which lack strict regulation.”
‘Some cracks may start to appear’
In terms of the overall investment strategy, Amundi said it continues to advise investors to be cautious. “Overall we confirm a cautious stance as with the inversion of the yield curve suggests some cracks may start to appear,” it said.
In terms of monetary policy, Amundi said it expects the Federal Reserve will become less aggressive in its fight against inflation. The European Central Bank’s monetary policy may also be affected.
‘Less aggressive’ Federal Reserve
“The tightening of financial conditions stemming from the SVB crisis may lead to a less aggressive Fed than expected only one week ago and could force the ECB to reassess its policy path. Yet market moves have been extreme and we believe now is not the time to fight the Fed, as inflation remains a key factor to watch.”
The events have changed Amundi’s investment view on the banking sector, with a newly emerged preference for larger European banks as, since the Great Financial Crisis, the big systemic banks now are well capitalised and highly regulated. Overall, this event adds to the case of selection and differentiation among banks, it said.
Bank earnings in focus
“Overall we favour large banks versus small banks,” Amundi said. “Particularly in Europe, the sector is in far better shape compared to the previous crisis and we don’t see any risks, such as the one the US regional banking sector is exposed to, amid its better management of duration risk and stringent regulatory requirements. The effect on banks could be more connected to their earnings trajectory, which is our focus at the moment.”