March 14 (Reuters) – Battered U.S. bank stocks recovered some ground on Tuesday, as a sell-off triggered by the collapse of Silicon Valley Bank gave way to bargain hunting by investors hoping confidence-building efforts can avert a wider financial crisis.
DEVELOPMENTS
* Rating agency Moody’s cut its outlook on the US banking system to negative from stable “to reflect the rapid deterioration of the operating environment.”
* The Republican chairman of the House Financial Services Committee urged confidence in the US banking system and said the Federal Reserve and regulator FDIC “acted swiftly and boldly” within the law. Without giving details, he also said he wanted to hear from banks and regulators.
* The regulatory probe into SVB’s death has been intensified by the US Department of Justice’s opening of an investigation, a source familiar with the matter said. The Securities and Exchange Commission launched a parallel investigation, according to the Wall Street Journal.
The SEC and a spokeswoman for the Justice Department in Washington declined to comment. SVB did not immediately respond to a request for comment.
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* Apollo Global Management Inc (APO.N), Blackstone Inc (BX.N) and KKR & Co Inc (KKR.N) have expressed interest in a book of loans held by SVB, Bloomberg News reported, which mentions people who are familiar with the matter.
* Democratic US Senator Elizabeth Warren called on Federal Reserve Chair Jerome Powell to recuse himself from an internal review of recent bank failures, saying his actions were “directly that contributed” to them.
* Senate Banking Committee Chairman Sherrod Brown urged Congress to enact regulations to strengthen stress tests and capital and liquidity standards for banks, and said he hopes the Fed will not raise rates when it meets next.
* Chancellor Olaf Scholz said Germans should not have major concerns and that regulators had learned lessons from the global financial crisis in 2008.
MARKETS
* The S&P 500 regional banks index (.SPLRCBNKS) returned 1.4%, leaving it with a 26% loss over the past five sessions. First Republic Bank ( FRC.N ) rose 27%, while KeyCorp ( KEY.N ) jumped 7%.
Among major U.S. banks – where sources said customers moved deposits last week – Citigroup ( CN ) recovered nearly 6% and Wells Fargo ( WFC.N ) added 4.6%.
* World shares edged higher, ending a five-session losing streak, as US inflation data bolstered bets on a small interest rate hike by the Federal Reserve next week.
* US Treasury yields rose on Tuesday, a day after big declines, as investors consolidated positions and weighed the impact of monetary policy on the turmoil in the banking system against stubbornly high inflation.
* Europe’s banking index (.SX7P) ended up 2.7% after posting its biggest percentage loss in more than a year on Monday.
* Euro zone government bond yields rose as investors reckoned the European Central Bank’s tightening path in recent days may have gone too far.
* Traders now see a 77% chance of a 25 basis point increase at the meeting, while expectations of no rate increase fell to 23%. Early last week, a 25 basis point increase in the absolute price, with a 70% chance of seeing 50 basis points.
* The ECB’s deposit rate is seen peaking at around 3.65%.
QUOTES
* “This is part of the knob process aimed at tightening financial conditions to ensure that we are normalizing to a higher global interest rate,” said Morgan Stanley co-president Edward Pick on Tuesday. “But there might be surprises, there might be reactions.”
* “The market has had an opportunity to digest some news in the last two days,” said Matthew Keator, managing partner, the Keator Group. “(Investors) see a coordinated effort among different government agencies, and in hindsight, they feel as if things have a little edge.”
Compiled by Catherine Evans, Nick Zieminski and Anna Driver Editing by Matthew Lewis
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