You may have read or heard over the last couple of weeks, the unfolding situation regarding two US bank failures and the subsequent impact it is having on global share markets. These events have been unsettling, but we believe that measures taken by the banking regulators should provide comfort, and the overall impact on your portfolio is minimal.
Much of the volatility has been confined to the financial sector and specifically banks. Initially we saw Silicon Valley Bank (SVB) announce that it needed a bailout following a run on the bank as depositors rushed to withdraw their funds. US Federal authorities stepped in to safeguard depositors accounts at SVB and then Signature Bank when it signalled it also had issues. This intervention is intended to not only protect the interests of directly affected depositors but also restore confidence in the banking system more broadly.
Whilst unrelated to the collapse of Silicon Valley Bank and Signature Bank, Credit Suisse continues to find itself in difficulty, but it has also found support from central bank authorities with the Swiss National Bank providing funding and backing for a deal brokered with UBS, Switerzland’s largest bank. In isolation these individual banks will be able to continue operations but will be subject to gradual wind down unless they are significantly recapitalised.
Since the intervention by the respective central banks, we have seen markets stabilise and even rise in some instances. The banking sector has borne the brunt of the recent selloff, with some other sectors being a lot more resilient.
When constructing portfolios for clients, we follow a disciplined approach which includes a high emphasis on diversification. This results in our clients owning thousands of companies. By owning almost inconsequentially small amounts of thousands of different companies, you already know in advance, that some will fail. But . . . business itself will go on and the companies that remain will absorb the market shares of those that fail.