The end of last week wasn’t a great one for the FTSE 100. From trading close to 7,950 points on Wednesday, it lost ground on Thursday and Friday to finish the week at 7,748 points. It was largely dragged lower by banking stocks. But with financial services being one of my favourite sectors over recent months, I’m going to use this dip to my advantage.
Ripples from across the pond
One of the main reasons for the fall in the FTSE 100 and banking stocks was due to the situation with a US-bank. SVB Financial Group was the 16th largest bank in America until last week. It specialised in helping venture capital and tech start-up companies.
Unfortunately, due to how it managed liquidity of client deposits, it suffered a bank run late last week. This ultimately meant that it didn’t have enough cash to meet all of the demands for clients to take their money out. It swiftly therefore became insolvent.
It remains to be seen whether another peer will buy SVB or if the US Government will bail it out. Whatever the outcome, it’s the largest bank bust since 2008.
Stocks like HSBC, Lloyds Banking Group and Standard Chartered were sold heavily on Friday as investors quickly reacted to what was happening with SVB. The risk is that other banks could follow suit and become insolvent, with depositors unable to take money out.
Why I’m not concerned
Don’t get me wrong, the situation with SVB is concerning. Yet the global banks mentioned earlier aren’t in a similar position at all.
It’s true that all banks follow the same basic model. But SVB was different in many aspects, that won’t impact FTSE 100 firms in the same way.
For example, SVB serviced mostly high-risk young tech companies. By contrast, a company like Standard Chartered services a much more diversified range of businesses, lowering the overall risk.
Another case in point is that SVB predominantly focused on serving Silicon Valley businesses. However, HSBC doesn’t just have a corporate banking division, but also caters to retail clients, high-net-worth individuals, investment banking and more.
Here’s my game plan
Most of the major UK banks saw a share price fall of between 3% and 4.5% on Friday alone. I still feel the markets are quite shaken up by the news. I’m going to sit tight for the coming few days as we get more information.
If we get another slump in this area this week, I’m going to buy a selection of banking stocks. There’s always the risk that another fimr could go bust. That’s why I’m going to invest in three or four stocks, just in case.
My aim is to benefit from the stock appreciation in months to come as investors act more rationally.
