Banking crisis: Is the worst over for these Fintech stocks?
Shares in retailers – some of the biggest stocks in financial technology, or fintech – rose on Tuesday after being hit by the banking crisis. The crisis involving Silicon Valley Bank and others struck Fiserv (FISV) shares as well as shares in Global payments (GPN) and Fidelity National Information Services (FIS).
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The FIS share rose 7.4% to 53.50 on the stock exchange today. The FISV share rose 5.7% to 110.21. The GPN share rose 4% to 99.86.
The fintech companies have exposure to Silicon Valley Bank, a subsidiary of SVB Finance (SIVB) as well Signature bank (SBNY).
Amid the banking crisis, federal regulators have taken steps to protect depositors at Silicon Valley Bank of Santa Clara, Calif., and Signature Bank, the latter of which was closed Sunday.
Big banks to get customers?
Signature Bank connected crypto firms to the traditional financial system. Silicon Valley Bank still operates under a slightly different name, Silicon Valley Bank NA
In the middle of the banking crisis, FIS shares had fallen 21%, while Fiserv shares fell 11%. GPN shares plunged almost 14%.
“The primary reason for the weakness in FIS shares and Fiserv shares is investors’ concern that the current crisis will lead to a prolonged – or even permanent – movement of deposits from small and medium-sized banks (FIS and Fiserv’s core customers) and into big banks,” SVB MoffettNathanson analyst Lisa Ellis said in a note to clients.
She added: “If customer deposits move en masse to larger banks (which has happened in the last couple of days), this shift will put pressure on both FIS’s and Fiserv’s core bank processing and issuer processing businesses.”
What sellers do
SVB MoffettNathanson’s parent company, SVB Securities Holdings, is a separate entity. It has not been directly affected by the events in Silicon Valley Bank.
Meanwhile, acquirers act as intermediaries between banks and retailers. They have contracts with merchants to handle the processing of credit cards and other transactions. Buyers face increasing competition from privately held Stripe, Adyen (ADYEY) and Checkout.com.
At Mizuho Securities, analyst Dan Dolev said in his note to clients: “While FISV shares have some exposure to SIVB and SBNY, it appears to be minimal and unlikely to affect 2023 growth.”
Fintech stocks have generally underperformed the S&P 500 in 2023 even before the banking crisis hit last week, Jefferies analyst Trevor Williams said in a note.
Williams said 2023 “was already expected to be a more challenging year for core processing, with extended sales cycles (particularly on deals with larger banks) acting as headwinds to growth.”
Bank Crisis: Fallout Coming?
Williams added: “While we by no means pretend to know what the ramifications to the wider banking industry are likely to be from recent events, we believe it is safe to assume that demand for solutions from core processors/banking technology providers is likely to come under incremental pressure as banks struggle with higher funding costs/compression of net interest margins.”
With Tuesday’s rise, the FISV share has risen 9% so far in 2023. The FIS share is down 20%. The GPN share has risen 1%.
Rising interest rates have pressured fintech stocks as well as fears of a US recession.
Fintech companies belong to a few IBD groups, including financial software and financial investment management. The largest IBD group of fintech stocks ranks just No. 85 out of 197 industry groups tracked.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on wireless 5G, artificial intelligence, cyber security and the cloud.
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