Closing summary
After a calm start to the day, with share gains in Asia and Europe, there was a renewed sell-off in banking shares in Europe and the US.
As fears of a wider banking crisis spread, European banking shares tumbled, with the Euro Stoxx banks index down 3.5%. ING and Commerzbank both lost 5%, BNP Paribas shed 4.2% and Deutsche Bank fell 3%. European stock markets slid between 1% and 1.7% as a result.
US banking shares also sold off, including Goldman Sachs, JPMorgan Chase and Morgan Stanley, with regional banks hardest hit.
The parent of Silicon Valley Bank, which was taken over by Californian regulators a week ago, today filed for a court-supervised reorganisation under Chapter 11 bankruptcy protection to seek buyers for its assets. SVB last Friday was the first domino to fall, followed by New York’s Signature Bank on Sunday.
Wall Street’s biggest lenders teamed up yesterday to rescue First Republic Bank after its shares crashed, pumping $30bn (£25bn) into it, but First Republic shares slumped 26% today.
In Europe, Credit Suisse has lurched from crisis to crisis, and the Swiss National Bank was forced to offer a £44.5bn lifeline to Switzerland’s second-biggest bank. Although there are specific problems at SVB and Credit Suisse, there is evidence of wider distress in the banking system. Credit Suisse shares have tumbled a further 10% today.
As clients withdraw their cash at a dizzying pace, net outflows from Credit Suisse’s US and European managed funds topped $450m between Monday and Wednesday, the data firm Morningstar Direct estimates.
Here’s an explainer on what’s going on in markets and whether there’s going to be another global crisis.
Our other main stories today:
Thank you for reading. Have a great weekend. Good-bye! – JK
Updated
Andrew Hunter, deputy chief economist at Capital Economics, has looked at the US industrial production data, out earlier today.
The February industrial production data were marginally stronger than we had expected, with manufacturing output rising by a further 0.1% following the earlier 1.3% month-on-month surge in January. But with the surveys going from bad to worse and given the risks from the turmoil in the banking sector, we suspect that further declines in manufacturing activity still lie in store…
Although the recent resurgence in manufacturing activity in China presents an upside risk to the near-term US manufacturing outlook, that boost could yet be offset by a loss of business confidence and tighter credit conditions. The latest domestic surveys, including the March Empire State and Philly Fed indices released this week, support the idea that renewed declines in manufacturing output are likely over the coming months.
Olivia Cross, assistant economist at Capital Economics, said
Some of the hit to confidence from turmoil in the banking sector will have been captured in the University of Michigan’s consumer sentiment provisional reading, which fell to 63.4 in March, from 67.0, but the majority of the impact won’t be felt until the final March reading or even the April survey.
Some of the impact from the turmoil in the banking sector will have been caught in the March preliminary survey, which ran until Wednesday 15th March. The press release noted that 85% of responses were already in, however, with the decline in sentiment clear even before the collapse of Silicon Valley Bank. The final survey release will probably be much weaker, and we may not see the full hit to confidence until the April survey. The decline in sentiment in March was probably instead driven by the renewed fall in the stock market earlier in the month.
While we don’t put too much weight on the relationship, the latest reading suggests that the strength of consumption earlier this year is likely to fade. Even if consumer sentiment doesn’t take a big hit, we are still concerned about a tightening in bank lending standards, which could weigh on the wider economy.
Consumer sentiment weakens before banking turmoil
The University of Michigan’s closely-watched consumer sentiment index has fallen to 63.4 in March from 67 last month. This is weaker than expected, and shows confidence was declining even before the banking turmoil.
The dollar measured against a basket of major currencies has dropped on the news, by 0.3%.
Updated
Wall Street falls, dragged down by banks
Wall Street stocks have fallen, dragged down by banks. The S&P 500 financial sector index has lost 2.2% while the KBW regional banking index has tumbled 3.8%.
The Dow Jones has shed 254 points to 31,992, a 0.8% drop while the S&P 500 is down nearly 20 points, or 0.5%, at 3,942, and the Nasdaq is flat at 11,709.
Among big US banks, Goldman Sachs is down 1.9%, Citigroup has lost 2.4% and Wells Fargo is 2.7% lower as fears of a full-blown banking crisis intensified, after SVB’s parent filed for bankruptcy.
Shares in First Republic tumbled nearly 21% in early trading, despite yesterday’s $30bn lifeline from major banks including JPMorgan Chase, whose shares have fallen 2.8% so far today, and Morgan Stanley (shares down 1.7%).
Over here, the FTSE 100 in London is trading 56 points, or 0.8%, lower at 7,353 while Germany’s Dax has lost nearly 200 points, or 1.3%, and the French market is down more than 100 points, or 1.45%. The Italian borsa has slid 335 points, or 1.3%.
Credit Suisse shares are now trading 9% lower at 1.83 Swiss francs, after falling to 1.76 earlier. The Euro Stoxx Bank index has slid 2.2%.
Updated
Credit Suisse outflows top $450m
As clients withdraw their cash at a dizzying pace, net outflows from Credit Suisse’s US and European managed funds topped $450m between Monday and Wednesday, the data firm Morningstar Direct has calculated.
The Swiss bank manages more than 300 European funds.
Jes Staley, the former boss of Barclays, will face a two-day deposition next week over allegations he knew about Jeffrey Epstein’s sex trafficking operation.
JP Morgan, the US bank where Staley worked and had the convicted sex offender as a client, said it would depose him next Thursday and Friday as part of its lawsuit alleging he concealed crucial information about the late financier.
It has accused Staley of “intentional and outrageous conduct” in concealing key information and called for the former Barclays chief executive to be made liable for penalties the US bank may face as a result of two separate lawsuits accusing it of facilitating Epstein’s trafficking of women and girls by failing to spot red flags.
SFO confiscates $7.7m from ex-Petrobras employee
In other news, the Serious Fraud Office has confiscated more than $7m from an ex-Petrobras employee, illicit cash that is related to a massive Brazilian corruption scandal involving the state-run oil company Petrobras. The SFO said:
Today, the SFO recovered over $7,699,204 from convicted money launderer, Mario Ildeu de Miranda, after its investigation revealed he had channelled criminal proceeds through multiple international bank accounts using several different company names.
This is the largest ever amount seized by the SFO from a single bank account.
Mr Miranda, 71, was convicted of 37 counts of money laundering in Brazil in 2019 as part of ‘Operation Car Wash’, in which Brazilian authorities uncovered extensive and systemic bribery centred around state-owned oil company Petrobras. Mr Miranda, a former executive at Petrobras, was sentenced to over six years in prison and ordered to pay $24,750,000 in Brazil.
In August 2020, the SFO froze a UK bank account that contained over $7,699,204 following a report that these funds were linked to Mr Miranda.
The SFO’s investigation subsequently uncovered that these funds had been transferred out of Mr Miranda’s main Swiss bank account and channelled through other banks in Switzerland, Malta, Portugal, the UAE and the Bahamas before being deposited in London – where the SFO froze the account.
The investigation also exposed how Mr Miranda spent suspected proceeds of crime to fund his extravagant lifestyle. This included over $1m on hotels and casinos in Las Vegas, as well as $95,000 on a new luxury car.
You can read more on the SFO’s website.
SVB Financial Group files for bankruptcy
In the US, SVB Financial Group has filed for a court-supervised reorganisation under Chapter 11 bankruptcy protection to seek buyers for its assets, a week after its former division Silicon Valley Bank was taken over by US regulators.
The move comes after the company said on Monday that it planned to explore strategic alternatives for its businesses. SVB Securities and SVB Capital’s funds and general partner entities are not included in the Chapter 11 filing and the firm said it planned to push on with the process to evaluate alternatives for the businesses.
Banking shares fell more than 1.5% in pre-market trading. Regional banks were hardest hit, with PacWest Bancorp and First Republic plunging between 10% and 20%.
Credit Suisse shares are also sliding again and have fallen 12% to a daily low of 1.76 Swiss francs.
Updated
Shares in the UK subprime lender Non-Standard Finance crashed 22% to 0.35p after it set out plans to recapitalise itself by raising £95m through a share sale that would wipe out existing shareholders.
Its top shareholder is the British private equity firm Alchemy Special Opportunities with a 29.9% stake.
The stock has lost nearly all of its value since hitting an all-time high of 108p in 2015.
Chief executive Jono Gillespie defended the business rescue proposal.
Whilst this is, in a sense, only the end of the beginning, and significant additional work lies ahead over the coming months, the launch of the scheme is the first key step.
The business, which provides loans to people who are turned down by mainstream banks, plans to compensate customers to the tune of £14m.
Updated
European stocks have turned negative while the FTSE 100 in London is flat at 7,415. The European banking index slipped 0.4%, giving up earlier gains of 2.2%.
Here in London, HSBC shares have fallen 1.2% while Lloyds Banking Group has lost nearly 1% and Barclays is down 0.7%.
US stock futures are also in the red, pointing to a lower open on Wall Street later.
Updated
ECB holds unscheduled supervisory board meeting
The European Central Bank held an unscheduled meeting of its supervisory board this morning to discuss stress and vulnerabilities in the eurozone banking sector after the recent selloff in bank shares, a spokesperson said.
The supervisory board, which directly oversees 111 lenders in the eurozone, normally meets every three weeks but held two impromptu meetings this week because of the market turmoil. The spokesperson told Reuters:
The supervisory board is meeting to exchange views and to provide members with an update on recent developments in the banking sector.
Reuters reported, citing a source, that the purpose of the meeting was to monitor liquidity in the eurozone banking sector and watch for any vulnerability to a run on any bank, but the source did not expect the ECB to take any immediate action.
Bank stocks tumbled over the past week, spooked first by the collapse of Silicon Valley Bank and two other US bank failures. Then came the 30% selloff in Credit Suisse on Wednesday, which ended yesterday after the Swiss National Bank provided a 50 billion Swiss franc lifeline. After a 19% recovery yesterday, Credit Suisse shares are sliding again this morning.
Shares in the embattled Swiss bank are now down nearly 9%, and fell as low as 1.83 Swiss francs.
Updated
UK ‘will be only G20 economy apart from Russia to shrink this year’
The UK will be the only economy in the G20 apart from Russia to shrink this year as high inflation, the energy crisis and low productivity hinder its recovery, according to a leading international institution.
The Organisation for Economic Co-operation and Development (OECD) said all major EU economies will expand in 2023 at a stronger pace than it had forecast last year, leaving Britain and Russia the only members of the G20 group of wealthy nations to suffer a decline.
In its half-yearly outlook, the Paris-based organisation said the UK economic outlook had improved slightly compared with its forecast in November of a 0.4% contraction, largely in response to falling gas prices, but would still shrink by 0.2% this year.
There is no cause for concern about the German banking sector, according to a spokesperson for the German government.
The current situation for European banks is not comparable to the 2008 financial crisis, they said.
Credit Suisse shares fall 5.6%
Credit Suisse shares have fallen 5.6% to 1.90 Swiss francs.
As panicked clients withdrew cash, the bank had $205m net outflows from its US and European-managed funds between Monday and Tuesday, according to the data provider Morningstar.
Updated
Eurozone inflation eases to 8.5% in February
Eurozone inflation eased slightly in February while underlying price growth picked up, according to the latest official figures.
The EU’s statistics agency Eurostat confirmed preliminary data released earlier this month, saying consumer price inflation in the 20 countries sharing the euro slipped to 8.5% last month from 8.6% in January, as a big drop in energy costs was mostly offset by a price surge in nearly all other areas.
Inflation excluding volatile food and fuel prices, which is closely watched by the European Central Bank, rose to 5.6% from 5.3%. The central bank raised borrowing costs by a further 50 basis points yesterday to try and bring inflation under control and its latest projections showed underlying price growth will stay above it 2% target for years to come, through 2025.
Euro area annual #inflation at 8.5% in February 2023, down from 8.6% in January https://t.co/d0wI44Cps2 pic.twitter.com/M0qPToGjtm
— EU_Eurostat (@EU_Eurostat) March 17, 2023
🆕 European Statistical #RecoveryDashboard: March edition
— EU_Eurostat (@EU_Eurostat) March 17, 2023
📊March highlights: EU #inflation rate continues to decrease but at a slower pace, while industrial production rebounds, after #GDP contracts slightly
👉 https://t.co/NT6YEyMyFh pic.twitter.com/iSmQl3S6wK
Updated
Credit Suisse shares fell as much as 4.7% to a low of 1.90 Swiss francs.
Credit Suisse shares are selling off again and are down 4.25% at 1.93 Swiss francs.
Frédérique Carrier, head of investment strategy in the British Isles at RBC Wealth Management, explains why Credit Suisse remains too big to fail, even though the value of the bank’s assets has fallen by half since the financial crisis of 2008.
Credit Suisse is deeply integrated into the global financial system. We think it remains too big to fail, even though the value of the bank’s assets has fallen by half since the financial crisis of 2008. Switzerland’s central bank stepped in with a CHF50bn loan facility to shore up the bank’s liquidity, and offered to buy back senior debt of up to CHF3bn. This clear statement of support restored investor confidence, and banking sector share prices stabilised after the announcement. Whether depositors are sufficiently reassured to stem outflows over the next few days is a key question, in our view.
Within the European banking sector, Credit Suisse stands out due to its recent controversies and complicated restructurings. We would point out that European banks are generally well capitalised and better regulated than they were in 2008. Investor concerns are primarily focused on liquidity, i.e., whether banks have enough cash to meet demands from customers and counterparties. At this time, there is no evidence that borrowers are struggling to repay their loans, which would indicate that banks’ solvency is at risk, as it was in 2008.
While markets are relieved that the Swiss central bank stepped in, sentiment is bound to remain very fragile, particularly as investors will likely worry about the eventual economic impact of aggressive monetary policy tightening by the European Central Bank (ECB).
Despite the markets’ turmoil, the ECB opted for a well-telegraphed 50 basis point increase in interest rates to fight the region’s stubborn inflation. Its statement suggested targeted liquidity would be available should banking sector volatility persist.
Market expectations for peak interest rates in Europe have fallen markedly since the SVB failure, and now anticipate rates topping out at 3.2% by October, down from close to 4%.
Updated
Banking analysts at Jefferies – Flora Bocahut, Joseph Dickerson, Marco Nicolai and Benjie Creelan-Sandford, believe that the European banking sector is in pretty good shape overall.
Post US events last week and the CS-induced panic in European banks in markets this week, investors are once again focused on the state of European banks. Many of the concerns are in the rear-view mirror, in our view, with European banks in the strongest position they’ve been in, post great financial crisis.
We continue to be defensive in our stock picking. Go for quality, diversified, capital-rich banks with idiosyncratic catalysts ahead – HSBC, BNP Paribas, ING, [Belgian insurer] KBC Group, Lloyds Banking Group and UniCredit.
Adam Slater, lead economist at Oxford Economics, has looked at what banking crises mean for economic growth.
The failure of Silicon Valley Bank and other stresses in the global banking system have triggered a sharp repricing in financial markets, with stocks and bond yields sliding. Our baseline assumes a banking crisis will be averted. But some shift in market pricing is not surprising considering that a banking crisis – even if a tail risk – would have very serious consequences for growth.
Historically, banking crises tend to hit output hard. Upfront effects can be substantial and lasting damage is also possible – some estimates of the cut to long-term GDP are in the range 5%-10%. Even crises focused on smaller banks can have a substantial negative impact.
The channels through which banking crises affect economies include: disruption to payments, negative wealth effects, damage to output in the financial sector, and sharply tighter credit conditions for the broader economy – bank share prices are a leading indicator of bank credit standards. Fiscal clean-up costs can also add to the burden via higher long-term interest rates. Our recent modelling captures these kinds of impacts.
A notable risk area is the effect on lending to commercial property. This can be an important channel even when a banking crisis is focused on smaller banks, such as in the US savings and loans crisis and the UK’s secondary banking crisis. CRE [commercial real estate] lending could be a problem area today, too, given the already-weak trends in the sector and its concentration in smaller US banks.
The impact of banking crises can be uneven across economies, depending partly on structural factors such as the prominence of sensitive sectors. But policy matters, too. Ideally, the authorities step in early enough with effective measures to stem contagion to the wider economy. But even if contagion is not avoided, how it is then dealt with matters, as the sharp contrast in the performance of economies like Sweden and Cyprus after their banking crises shows.
Analysts at Allianz Research, led by chief economist Ludovic Subran and head of capital markets research Eric Barthalon, have looked at the US bank failures and what’s next.
The SVB failure was caused by poor risk management choices but also highlights banks’ general macro-financial challenges from restrictive monetary policy, which essentially removes diversification. Negative returns from bonds and equity put pressure on assets while quantitative tightening has led to a contraction of money supply, resulting in greater competition for deposits (as banks lend less).
Essentially, SVB was the epitome of wrong-way risk – it accepted very lumpy deposits from start-ups (which parked their venture capital funding), used related-party equity in these start-ups to collateralise loans and invested excess funds in mostly long-dated mortgage-backed securities at a time when the yield curve was inverting even more, squeezing their net interest margin. As much as central banks’ fast rate hikes to tackle inflation hit the bank’s asset side (resulting in unrealised losses that exceeded their capital base) they also caused an economic pinch for their start-up depositors, who started withdrawing their funds long before the deposit run that brought SVB to its knees.
In the wake of SVB’s failure, banks will become even more conservative in their lending. The planned resolution of the SVB imposes direct cost of other US banks, which will foot the bill for making all depositors whole (though higher FDIC fees) but, more critically; there is also an indirect effect of rising moral hazard in the banking sector as the Federal Reserve seems to be willing to still backstop failing banks. Over the near term, financing conditions are bound to tighten further in the US economy (and other countries) as banks raise lending standards and carefully safeguard their liquidity positions, further retrenching credit.
What to watch
Implications for the European banking sector – little spillover risk so far and shock absorbers are in place
Monetary policy response – rates close to peak as retrenching credit and slowing growth will do the heavy lifting to bring down inflation
Implications for markets – headed for hard landing in the blink of an eye!
Updated
Credit Suisse shares fall 4%
Credit Suisse shares shed earlier gains and fell 4% as worries about Switzerland’s second-biggest bank remain.
The shares had opened 1.8% higher in volatile trade, and are now down 3.6% at 1.95 Swiss francs. On Wednesday, they plunged to a record low of 1.55 francs and closed 25% lower.
Yesterday, the shares recovered 19% of their value after Credit Suisse secured an emergency liquidity line from the Swiss central bank. The head of Credit Suisse’s Swiss banking division, André Helfenstein, said the cash would allow the bank to carry on with its overhaul but admitted it would take time to win back client confidence.
This will not be an easy task, as Robin Wigglesworth, FT Alphaville editor, tweeted.
Credit Suisse’s problem isn’t its liquidity, it’s the fundamental businesses, as Bryce vividly lays out. https://t.co/D3pFweokO8 pic.twitter.com/19Qdleq5NQ
— Robin Wigglesworth (@RobinWigg) March 17, 2023
Updated
BP is the top riser on the FTSE 100, up nearly 4%, as oil prices have strengthened, with Brent crude, the global benchmark, rising to $75 a barrel. Shell is 3.2% ahead while mining companies Glencore and Antofagasta are also among the biggest risers.
Victoria Scholar, head of investment at the trading platform interactive investor said:
European markets have opened higher with oil giants like Shell and BP at the top of the FTSE 100 thanks to strengthening oil prices. Focus turns to the latest euro area inflation data at 10am which is expected to remain at around 8.5%, a day after the ECB raised rates by 50 basis points despite the market turmoil.
Her colleague Richard Hunter, head of markets, said:
Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion…
The general waves of relief also washed over to UK shores, with the main indices again reflecting a more positive frame of mind for now. Banks recovered some of the losses of the last week, although there remains some way to go before the potential of contagion can be definitively dismissed and those share prices be able to return to their previous levels. Meanwhile, resource stocks also saw from benefit from some renewed strength in the oil price, although that price is still down by 13% this year. Broker upgrades to the likes of the London Stock Exchange and GlaxoSmithKline also underpinned something of a return to a risk-on approach by investors.
The brisk opening returned the FTSE-100 to marginally positive territory for the year, where it has now added 0.5% although remaining some way off its recent record high. The FTSE-250 is not far behind and broadly unchanged in the year to date, with investors generally not ready to commit to a full market recovery until the financial picture becomes clearer.
Updated
Here’s our full story on US investors in Credit Suisse launching legal action against the Swiss bank. They claim that it overstated its prospects before this week’s shares crash.
Concerns remain around Credit Suisse, as its credit default swaps remain flat.
The five-year CDS are unchanged from yesterday’s close at 1035 basis points, according to S&P Global Market Intelligence.
Analysts at Deutsche Bank led by Jim Reid said:
Some optimism has returned to markets over the last 24 hours, with bank stocks stabilising on both sides of the Atlantic and two-year yields surging back. Even the European Central Bank’s decision to pursue a 50bp hike went without incident, and investors grew in confidence that the Fed would follow up with their own 25bps hike next week, so we’re starting to see a modest change in the mood music. It’s also telling this morning that in Asia, US yields and equity futures are fairly stable.
The concerns haven’t gone away though, as while Credit Suisse saw its equity price increase, its bonds/CDS were generally flat to weaker…
Their bonds stayed fairly stressed yesterday even with the market bounceback. The five-year credit default swaps stayed around the +1000 level, whilst there were further declines in the value of their debt – notably their ’29 EUR bonds are trading under €70.
That was in spite of the announcement we highlighted yesterday that they’d be using a SNB liquidity facility, which initially saw the share price surge +40% at the open, before paring back around half those gains to “only” close up +19.15%.
Updated
Despite the gains in stock markets, investors remain cautious.
Stephen Innes, managing partner at SPI Asset Management, said:
It turned into a relatively normal day here in Asia stocks… The market remains cautious; traders do not want to get overexcited, especially with investors still focusing on what can go wrong instead of what could go right.
Granted, there is still a considerable element of headline risk, especially over the weekend when traders can’t react, which could again upset the proverbial apple cart on Monday morning open. Not to mention, the uncertainty around the Fed policy reaction function is keeping rates volatility elevated.
The UK chancellor Jeremy Hunt, who presented his spring budget on Wednesday, has ditched plans to make sovereign wealth funds (SWFs) pay corporation tax on property and commercial enterprises after cabinet warnings that the move would hit investment and economic growth, the Financial Times has reported.
Kemi Badenoch, business and trade secretary, led pressure on the Treasury to drop the proposals after warnings that SWFs, which include some of the largest global investors, might pull out of UK projects.
The decision to drop the proposals came as a surprise to tax experts. Ahead of the budget, Tim Sarson, UK head of tax policy at KPMG, told the FT he thought it was a “racing certainty” the changes would be made.
European shares open higher, oil prices rise
European markets have opened higher and US stock futures are also up. The FTSE 100 index in London has risen 75 points to 7,487, a gain of over 1%, as banking crisis fears eased. The UK blue-chip index suffered its biggest one-day drop since Russia invaded Ukraine on Wednesday, when £75bn was wiped off the index.
Despite yesterday’s rate hike from the European Central Bank, Germany’s Dax opened 0.7% higher while France’s CAC added 0.8%, Spain’s Ibex climbed 0.6% and Italy’s FTSE MiB is 1.2% ahead.
The European banking index is up 1.2%, but is still on course for a weekly drop of 8%. Credit Suisse shares edged 0.2% lower in early trading.
Crude oil prices are also heading higher. Brent and US light crude are both up more than 1%, with Brent at $75.49 a barrel.
Updated
US investors in Credit Suisse file legal action
US investors in Credit Suisse have hit the beleaguered Swiss bank with legal action, claiming that it overstated its prospects before this week’s shares crash.
The lender suffered a rapid sell-off with shares plunging as much as 30% on Wednesday after comments from Credit Suisse’s largest shareholder, Saudi National Bank (SNB), which said it was unable to pump in more cash because of regulatory restrictions limiting its holding to below 10%.
The Swiss central bank later stepped in to offer Credit Suisse a £44.5bn lifeline and the shares rallied, recovering some of their losses yesterday.
But Rosen Law Firm, a class action lawsuit specialist, has lodged a complaint in a court in Camden, New Jersey which claims the bank made “materially false and misleading statements” in its 2021 annual report.
The lawsuit would represent the first mounted against Credit Suisse since the crisis rapidly devalued shareholders’ investments.
Last week Credit Suisse admitted it had “material weaknesses” in its reporting and controls procedures when it published its delayed 2022 annual report. It said this could have resulted in “misstatements” of financial results.
Updated
Here’s a handy explainer for those scratching their heads over what this all means: How to understand Credit Suisse, Silicon Valley Bank and fears of a new crisis. By the Guardian’s banking correspondent, Kalyeena Makortoff, and financial editor, Nils Pratley.
People worry that that this is the start of what some fear could be a global, slow-rolling banking crisis.
First, the collapse of Silicon Valley Bank in the US caused jitters in markets that spread across the world. SVB was supposed to be a regional player whose failure would be unlikely to have profound ramifications – but then a longstanding set of problems at Credit Suisse, a far more consequential institution, turned into an emergency. Its shares dropped 24.5% in a day, and £75bn was wiped off the FTSE 100. Premature though it might have been, people started saying “2008”, which is basically Voldemort for financial markets.
Yesterday, Credit Suisse secured a loan facility with the Swiss Central Bank, intended as a guarantee of its future stability, and the panic somewhat abated – and it’s important to say that we are a long way from a full-blown crisis. But there was more evidence of trouble in the US, where Wall Street giants agreed an unprecedented plan to deposit $30bn to prop up First Republic, another bank on the brink.
Credit Suisse’s problems have not vanished, and suddenly investors are looking hard at whether other European and US institutions might be in the same boat. Impenetrable though much of this is to a layperson, it’s unfortunately not going away.
Updated
Facing heat for his investment fund’s role in triggering the run on Silicon Valley Bank last week, billionaire Peter Thiel told the Financial Times that he had $50m of his own money “stuck” in the bank when it collapsed.
Even as Thiel’s Founders Fund was advising companies to move their money from the bank, a decision that has been widely blamed for precipitating its failure, Thiel said that he kept a portion of his own $4bn personal fortune in the bank.
“I had $50m of my own money stuck in SVB,” Thiel told the Financial Times in a story published yesterday, saying that he believed the bank would not fail.
Updated
Introduction: Markets on alert after US banks join forces to rescue First Republic
Some calm has returned to financial markets at the end of a turbulent week, but investors remain wary. Asian shares have risen as help for struggling banks, such as the $30bn lifeline for First Republic Bank in the US, has eased banking crisis fears.
Large US banks – Bank of America, Goldman Sachs, JP Morgan and others – have joined forces to inject $30bn into First Republic, which has seen customers yank their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.
Despite the rescue, First Republic shares tumbled 17% in extended trading yesterday, after it said it was suspending its dividend.
Cash-strapped banks have borrowed about $300bn from the Federal Reserve in the past week. Nearly half the money – $143bn – went to holding companies for two major banks that failed in recent days, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets. The Fed did not identify the banks that received the other half of the funding or say how many of them did so.
US Treasury Secretary Janet Yellen said last night that “our [the US] banking system is sound and that Americans can feel confident that their deposits will be there when they need them”.
This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.
But she denied that emergency action after the two large bank failures meant that there was a blanket government guarantee for all deposits. In the case of SVB and Signature, she told the US Senate Finance Committee that
the chances of contagion that other banks might be regarded as unsound and suffer runs, seemed extremely high, and the consequences would be very serious.
Credit Suisse shares jumped yesterday after the Swiss National Bank stepped in with a 50bn Swiss franc (£44bn) loan to prop up the beleaguered lender. Shares plummeted as much as 30% to record lows on Wednesday after the bank’s largest shareholder, Saudi National Bank, said it was unable to invest more money because of regulatory restrictions limiting its holding to below 10%. Credit Suisse is one of 30 banks globally deemed too big to fail.
A Credit Suisse executive said the central bank cash would buy it time to complete an overhaul of the lender. André Helfenstein, chief executive of the Credit Suisse’s Swiss bank, told the Swiss broadcaster SRF:
We see it as precautionary liquidity so that we can carry out the transformation of Credit Suisse and continue to work well in this turbulent situation.
In Asian markets, Japan’s Nikkei rose 1.2% while Hong Kong’s Hang Seng gained 1.6%. The Shanghai Composite advanced 0.7% and China’s CSI 300 blue-chip index was up 0.6%.
The Agenda
10am GMT: Eurozone inflation for February (forecast: 8.5%, previous: 8.6%)
1.15pm GMT: US Industrial production for February (forecast: 0.2%, previous: zero)
2pm GMT: US Michigan Consumer sentiment for March (forecast: 67, previous: 67)
Updated
