Is the Silicon Valley Bank collapse a red flag for Aussie banks: CBA, Westpac, ANZ and NAB

Tue 14 Mar 23, 2:26pm (AEST)
Down 7 Crisis Red Crash
Source: iStock

Key Points

  • The S&P/ASX 200 Financials Index is down 6.5% in the last three sessions
  • Ord Minnett does not believe the conditions that have allowed SVB to collapse exist for Aussie banks
  • The broker made no changes to its earnings forecasts following the failure of SVB

Wall Street often acts as a bellwether for the ASX, but what happens when major US banks start posting GFC-like declines following the Silicon Valley Bank collapse?

Regional US banks such as First Republic, Western Alliance and Bancorp all fell more than 40% on Tuesday amid fears that, like Silicon Valley Bank, will need to sell its investments at massive losses.

The bank plunge and contagion fears has taken a substantial toll on the S&P/ASX 200 Financials Index, which is down 6.5% in the last three sessions to a six month low.

S&P/ASX 200 Financials Index (Source: TradingView)

In this piece, we take a look at Ord Minnett's views about the SVB blowup and its implications for the local banking sector.

Ripple effects maybe

"The full extent of the ripple effects will not be known for some time, but it seems premature to consider this a systemic issue," said Ord Minnett analysts in a note on Tuesday.

"SVB scores materially worse than any bank we cover on a number of liquidity and unrealised loss metrics. This makes us think that SVB could be facing a unique liquidity crunch that does not have to feed through the entire system."

"However it does highlight that these risk are now more elevated, even if they do not ultimately occur for others."

A different breed of banks

SVB depositors grew from US$60 billion to US$189 billion between 2019 to 2022. During this time, the bank invested more than US$80 billion in mortgage-backed securities and bonds alike, which they yield approximately 1.5%.

As bond yields started to rise, the bank needed to protect against lost deposits by selling its bonds at a substantial loss.

Only 12% of SVB's deposits were FDIC (Federal Deposit Insurance Corporation) insured. This was extremely low (US commercial banks tend to have more than 50% of deposits insured) so when SVB failed to raise US$2.25 billion, investors and depositors rushed to withdraw some US$42 billion in deposits on March 9, causing a run on the bank.

Ord Minnett notes two distinct differences between SVB and Australian banks:

  • SVB customers are concentrated towards concentrated and lumpy deposits whereas household deposits make up 40% to 50% of deposits across major Australia banks

  • SVB had a large percentage of their assets held in investment securities, which were out of the money, whereas Australian banks primarily invest in mortgages and corporate debt

“We do not believe the conditions that allowed a run to happen on SVB exist for Australian banks,” the report said.

Big Four Bank ratings at a glance

There were no changes to Ord Minnett's earnings forecasts for Australian banks following the failure of SVB. Their latest target prices and commentary for the four include:

Commonwealth Bank (ASX: CBA)

  • Fair value $87.00

  • Positive drivers include dominant market positions, organic capital generation, sound loan book and high returns on equity

  • CBA trades at a premium to major bank peers due to "its track record of earnings and dividend growth, supported by strong organic capital generation."

National Australia Bank (ASX: NAB)

  • Fair value $30.00

  • NAB is Australia's largest business bank but that title remains under pressure as competition in the "highly profitable mortgage market intensifies."

  • The bank was noted as well capitalised and continues to "do a good job" on making investments which drive credit growth and medium-term earnings

Westpac (ASX: WBC)

  • Fair value $29.00

  • Westpac was flagged as being "starved of material revenue growth opportunities" and forced to focus on cost cutting initiatives. However, Ord Minnett remains sceptical on the bank's $8 billion savings target.

  • The bank's recent earnings have been riddled with various one-off costs including regulatory penalties, asset write-downs and large loan loss provisions


  • Fair value $31.00

  • The proposed acquisition of Suncorp is expected to bump ANZ Bank to number three in home lending

  • ANZ was flagged as delivering lower returns due to its earnings mix, which has a greater lean towards institutional banking and markets

  • "We expect the step-up in investment spend to help defend market share as opposed to materially growing earnings."

  • ANZ's commentary was the most positive and described as well capitalised and well placed to withstand any residual fallout from Covid and rising rates


Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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