The second- and third-largest bank failures in history have pushed the default risk for the U.S. financials sector only slightly higher in recent days, with broader impacts limited to just a few industries, according to S&P Global Market Intelligence's Market Signal Probability of Default model.
The uptick in the probability of default for 1,008 public companies in the financials sector has been modest, increasing to 0.8% as of March 13 from 0.6% 10 days earlier. Scores produced by the model represent the odds of default within a year and are based primarily on the volatility of share prices for public companies in the sector, accounting for country- and industry-related risks.
The rapid collapses of Silicon Valley Bank, the second-largest bank failure in history; Signature Bank; as well as Silvergate Capital Corp.'s announcement that it would liquidate its subsidiary Silvergate Bank, contributed to a fire sale of midsized bank shares, with even the giants of Wall Street taking a hit before stocks recovered March 14.
Mortgage REITs see largest score increase
Within the financials sector, mortgage real estate investment trusts experienced the largest increase in probability of default scores, up 1.8 percentage points on a median basis since March 3. During the same timeframe, the S&P US BMI Mortgage REITs index fell 10.3%.
Scores for consumer finance companies also grew by a median of 77 basis points, while default risk scores for investment banking and brokerage companies rose 70 basis points.
Regional banks, the focus of much investor fear in the wake of the SVB and Signature Bank failures — most notably First Republic Bank — followed next, up 63 basis points since March 3.
Financials sector still scored low overall
The low score for the financials sector is based largely on asset management and custody banks, which constitute the largest number of companies within the publicly traded financials sector, with 422 scored as of March 13. The median probability for those banks is just 0.005%.
Outside financials, default scores for the real estate and communication services sectors each rose 22 basis points on a median basis.