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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (now) and Julia Kollewe

SNB to provide Credit Suisse with liquidity if needed; £75bn wiped off FTSE 100 – as it happened

Jeremy Hunt United States ​​Rishi Sunak EPG
A sign of Credit Suisse bank is seen on a branch building in Geneva.
A sign of Credit Suisse bank is seen on a branch building in Geneva. Photograph: Fabrice Coffrini/AFP/Getty Images

Closing post

Phew, what a day, with financial markets gripped by fears over the banking sector as Britain’s chancellor outlined his budget.

The big news tonight is that Swiss regulators said Credit Suisse can access liquidity from the central bank if needed, as they race to assuage fears around the lender after it led a rout in European bank shares on Wednesday.

In a joint statement, the Swiss financial regulator FINMA and the nation’s central bank said that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”

Governments and at least one bank were putting pressure on Switzerland to act, according to reports, as London’s stock market posted its biggest one-day loss in a year.

Here are today’s main stories, first on the Credit Suisse crisis:

And on the budget:

And in other news:

The 30% slump in Credit Suisse’s shares at one point today took them down to a level that is either “ridiculously cheap or a prelude to full-blown crisis”, our financial editor Nils Pratley writes.

The former pride of Swiss banking, an institution founded 1856, was valued at a mere 7bn Swiss francs at its lowest point. By way of irrelevant comparison, the national chocolate champion, Nestlé, is worth almost 300bn Swiss francs.

For “don’t panic” optimists, this is just a case of jittery investors unfairly playing games of whack-a-mole after the collapse of Silicon Valley Bank in the US last week. There are no direct links between the two institutions but the market is hard-wired to hunt for the next victim. It is easy to hit Credit Suisse, a bank that everybody already regarded as the weakling among big financial institutions in Europe.

Attempting to persuade investors to look at fundamentals, the bank’s chairman, Axel Lehmann, appealed for patience. “We have strong capital ratios, a strong balance sheet,” he said. “We already took the medicine.” That last comment was presumably a reference to a 4bn Swiss franc capital-raise last year.

The bearish case is that the outside financial weather can’t be so easily ignored. The SVB blow-up, like last autumn’s crisis with UK pension funds’ LDI (liability-driven investment) strategies, has its deep roots in the rise in interest rates, which in turn has created unrealised losses on bond portfolios. One of SVB’s problems (aside from basic risk-management cock-ups) was that it had to crystallise a chunk of those losses when depositors fled. It is not unreasonable for the market to wonder where else bond pressures may blow a few holes.

Here’s the full piece:

Key event

Traders on the floor of the New York Stock Exchange today.
Traders on the floor of the New York Stock Exchange today. Photograph: Andrew Kelly/Reuters

On Wall Street, the closing bell has rung, with stocks in the red as fears over the banking sector weighed on New York.

The Dow Jones industrial average, of 30 large US companies, ended the day down 280 points, or 0.87%, at 31,875 points.

The broader S&P 500 index lost 0.7%, while the tech-focused Nasdaq closed very slightly higher.

Wall Street recovered some of its earlier losses, after it was reported that Swiss officials were holding talks about the situation at Credit Suisse (see earlier post).

The statement tonight from the Swiss authorities adds that Credit Suisse shares, and bond prices, have been hit by ‘market reactions’ in recent days.

In a section titled “Credit Suisse meets regulatory capital and liquidity requirements,” FINMA and the Swiss National Bank say:

Credit Suisse’s stock exchange value and the value of its debt securities have been particularly affected by market reactions in recent days.

FINMA is in very close contact with the bank and has access to all information relevant to supervisory law. Against this background, FINMA confirms that Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks.

In addition, the SNB will provide liquidity to the globally active bank if necessary. FINMA and the SNB are following developments very closely and are in close contact with the Federal Department of Finance to ensure financial stability.

SNB to provide Credit Suisse with liquidity if needed

Newsflash: The Swiss National Bank has pledged to provide Credit Suisse with liquidity, if needed.

The Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank have asserted that “the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets”.

In a joint statement, after a day of chaos in the financial markets, FINMA and the SNB say:

The strict capital and liquidity requirements applicable to Swiss financial institutions ensure their stability.

Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.

FINMA and the SNB add that there are “no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market”.

And they state that “Credit Suisse meets regulatory capital and liquidity requirements”, saying:

Regulation in Switzerland requires all banks to maintain capital and liquidity buffers that meet or exceed the minimum requirements of the Basel standards.

Furthermore, systemically important banks have to meet higher capital and liquidity requirements. This allows negative effects of major crises and shocks to be absorbed.

Updated

Full story: Swiss government 'holds talks on options to stabilize Credit Suisse'

Swiss authorities and Credit Suisse Group AG are discussing ways to stabilize the bank, Bloomberg reported on Wednesday, citing people familiar with the matter.

Credit Suisse leaders and government officials have talked about options that range from a public statement of support to a potential liquidity backstop, the report said.

Other suggested potential moves for Credit Suisse could be a potential separation of their Swiss unit and a tie-up with their larger Swiss competitor, UBS Group AG, the report said, adding that it’s unclear which, if any of these steps will actually be executed.

Switzerland is under pressure from at least one major government to intervene quickly on Credit Suisse, a source familiar with the situation told Reuters, after the Swiss bank led a rout of European bank stocks on Wednesday.

Swiss authorities and Credit Suisse are discussing ways to stabilize the bank, according to people familiar with the matter, Bloomberg reports.

Switzerland’s financial regulator, Finma, could make a statement “soon”, they add.

Switzerland is facing pressure from at least one major government to intervene on Credit Suisse in the coming hours given the systemic nature of the bank, a source familiar with the situation has told Reuters.

The U.S. Treasury said it is monitoring the situation surrounding Credit Suisse and is in touch with global counterparts about it, a Treasury spokesperson said on Wednesday as the bank came under renewed market pressures.

Heavy losses across Europe as banks tank

There were heavy losses across European stock markets today too, as bank shares were pummelled.

Germany’s DAX lost 3.27%, France’s CAC fell 3.6% and Italy’s FTSE MIB index tumbled by 4.6%.

While Credit Suisse was the worst-performing bank, down 24%, other financial institutions suffered heavy falls too. French bank Société Générale tumbled 12%, rival BNP Paribas lost 10%.

Deutsche Bank fell 9%, and Commerzbank fell 8.7%.

“Concerns over another 2008-style financial crises have intensified,” warned Fawad Razaqzada, Market Analyst at City Index, “fresh on the heels of a broader industry selloff following the collapse of Silicon Valley Bank.”

Razaqzada added:

The selling of financial stocks was triggered by Credit Suisse, which has seen its shares hit repeated all-time lows in recent weeks.

The lender’s biggest shareholder, Saudi National Bank, announced it could not raise its stake more than 10% in the beleaguered Swiss bank because of regulatory issues. Concerned by another bank failure, traders sold shares of European banks heavily.

It’s been another remarkable day in financial markets and it, unfortunately, doesn’t feel like the worst is behind us.

So says Craig Erlam, senior market analyst at OANDA, who adds:

Fear has once again gripped the markets, concerned about a repeat of past crises - one in particular, for obvious reasons - and the implications for the financial system and the global economy. Of course, this is natural when so little is known about the situation and what it ultimately means for the health of the rest of the system.

The lack of input from Switzerland’s central bank and regulator over the situation at Credit Suisse have only fuelled fears, Erlam adds:

We’re now left in a situation in which stock markets have tumbled, banks around the world have been pummeled and everyone is wondering just how bad the situation is going to get. The bill may be coming due for more than a decade of rock-bottom interest rates and a massive quantitative easing experiment.

£75bn wiped off UK blue-chip stocks

Today’s selloff has wiped £75bn off the value of the FTSE 100 index, we calculate.

US Treasury monitoring Credit Suisse situation

The US Treasury Department is monitoring the Credit Suisse situation, a spokesperson said Wednesday.

The Treasury is in touch with its global counterparts, the spokesperson said, speaking after Credit Suisse’s stock fell to record lows today after its biggest shareholder ruled out boosting its stake.

Shares in Credit Suisse have ended the day at a record closing low, down 24% at 1.69 Swiss francs.

FTSE 100 index tumbles 3.8%, worst since Ukraine invasion

The UK stock market has suffered its biggest fall in over a year, as the City is gripped by fears that the banking crisis will trigger a recession.

The blue-chip FTSE 100 index has closed down almost 293 points at 7,344 points, a drop of 3.83% today.

That’s its biggest one-day drop in percentage terms since February 24 2022, the day of the full-scale invasion of Ukraine.

Financial group Prudential was the top faller, tumbling 12%, followed by mining company Glencore (-10.7%) and Barclays bank (-9%).

Energy companies BP and Shell both slumped by over 8%, following the tumble in the crude oil price today.

“Investors remain nervous about what might be lurking in the shadows,” said Russ Mould, investment director at AJ Bell, earlier today.

He added:

“It’s no wonder that investor sentiment remains cautious towards the big banks given that credit agency Moody’s downgraded its outlook on the US banking system to ‘negative’.

Investors keep asking ‘who’s next?’ and until there is more clarity, the sector could remain off limits to many people.

Updated

Oil plunges to 15-month low amid recession fears

The oil price has plunged to its lowest level since December 2021, on fears that the banking crisis will trigger a recession.

Brent crude and US crude are both down over 6% today.

Brent, the international benchmark, has dropped by $5 to $72.40 per barrel, the lowest in around 15 months. After the Ukraine war began it surged to $139 per barrel.

“The oil market is exhibiting recession jitters,” says Stephen Innes, managing partner at SPI Asset Management.

“Energy traders are drawing straight-line parallels to prior bank sector-driven recessions, especially the 2008 financial crisis, which has similar overtones to the current financial tumult and when oil tanked,” Innes added.

Full story: SVB collapse may be start of ‘slow rolling crisis’, warns BlackRock boss

The collapse of Silicon Valley Bank could just be the start of “a “slow rolling crisis” in the US financial system with “more seizures and shutdowns coming”, the chief executive of the world’s largest asset manager has warned.

The CEO of BlackRock, Larry Fink, also predicted in a letter to investors and company bosses that inflation would persist and rates continue to rise, trends that both contributed to SVB’s collapse.

The failures over the past week of not only the California-based bank but also fellow US lenders Signature and Silvergate have prompted jitters across global markets. Such concerns were further fuelled on Wednesday when shares in Credit Suisse plunged to record lows after the troubled Swiss lender’s biggest investor ruled out providing it with more funding.

Fink described the situation as the “price of easy money” that was having to be paid after the Federal Reserve’s decision to start aggressively raising interest rates. “Something else had to give as the fastest pace of rate hikes since the 1980s exposed cracks in the financial system,” he said.

Fink added it was not yet clear where new victims of the “asset-liability mismatches” that claimed SVB would be found.

“It’s too early to know how widespread the damage is,” Fink wrote.

“The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”

However, other leading financial figures warned that the instability brewing in the European banking sector could pose an even bigger threat to global market stability.

The high-profile economist Nouriel Roubini told Bloomberg news that if Credit Suisse were to collapse it could result in a “Lehman moment” – a reference to the collapse of the US investment bank Lehman Brothers in August 2007 at the start of the global financial crisis.

Updated

Credit Suisse’s share price has recovered some of its earlier losses, but is still sharply down today.

They’re off 16% at 1.87 Swiss francs, on track to end the day at a record closing low.

FT: Credit Suisse appeals to Swiss central bank for show of support

Credit Suisse has appealed to the Swiss National Bank for a public show of support after its shares cratered as much as 30% this morning, the Financial Times reports.

The FT says:

The request for a reassuring statement about Credit Suisse’s financial health came after its shares sank as low as SFr1.56, having earlier been halted amid a heavy sell-off, according to three people with knowledge of the talks.

Credit Suisse also asked for a similar response from Finma, the Swiss regulator, two of the people said, but neither institution has yet decided to intervene publicly.

More here: Credit Suisse appeals to Swiss central bank for show of support

The turmoil in the banking system, and the financial markets, is creating uncertainty in the US housing sector.

Alicia Huey, chairman of the National Association of Home Builders, says builders are ‘highly uncertain’ about the economic outlook in the short and medium term.

“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory.

“But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.

The NAHB’s latest housing market index increased 2 points to 44 in March, but remained below the 50-point mark which shows stabls sentiment.

Sky: Silicon Valley Bank UK chief abandons exit plan after £1 HSBC rescue deal

The chief executive of Silicon Valley Bank’s UK arm has abandoned plans to leave the role following its £1 rescue takeover by HSBC, Sky News report.

Erin Platts is to stay in her job following talks in the last 48 hours with Ian Stuart, the CEO of HSBC UK Bank.

Sources said that SVB UK’s independent directors, who include chairman Darren Pope, are also expected to stay on under HSBC’s ownership.

That indicates HSBC’s plan to enable the technology-focused lender to operate with some degree of autonomy on an ongoing basis. More here.

EU financial services chief: SVB collapse has limited impact on EU

Mairead McGuiness, the EU’s financial services chief, said that the SVB collapse has a limited impact on the EU, where it has only a limited presence but added that lightly-regulated foreign lenders need to meet stricter rules inside the EU. She told the European parliament:

Silicon Valley Bank has a very limited presence in the European Union and we are in touch with the relevant supervisory authorities.

So the direct impact of these bank failures on the EU seems to be limited.

Updated

John Leiper, chief investment officer at Titan Asset Management, fears that the problems in the banking sector will “ripple” across the economy.

Leiper says:

Credit Suisse stock is plunging today as the fallout from the Silicon Valley Bank collapse continues.

We remain concerned that these ripple effects will continue to spread across the economy and retain a defensive exposure at this time.

Leiper adds that the fall in US producer price inflation today points to a slowdown in the economy, as recent interest rate rises start to bite.

Here are the main business measures outlined by Jeremy Hunt today in the spring budget:

  • Changes to capital allowances worth £27bn to businesses over three years

  • A £500m per year package of support for 20,000 research and development (R&D) intensive businesses through changes to R&D tax credits

  • Reforms to tax reliefs for the creative sectors will ensure theatres, orchestras, museums and galleries are protected against ongoing economic pressures

  • The Medicines and Healthcare products Regulatory Agency (MHRA) will receive £10m extra funding over two years to maximise its use of Brexit freedoms and accelerate patient access to treatments. This will allow, from 2024, the MHRA to introduce new, swift approvals systems, speeding up access to treatments already approved by trusted international partners and ground-breaking technologies such as cancer vaccines and AI therapeutics for mental health.

  • £900m of funding for an AI research resource and an exascale computer – making the UK one of a handful of countries to have one – and a commitment to £2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy.

Wall Street stocks fall

Shares on Wall Street have fallen, but not as much as UK and European stock markets. The Dow Jones and the S&P 500 have both lost 1.7% while the Nasdaq is down 0.8%.

Over here, the FTSE 100 index has tumbled 240 points to 7,396, a drop of 3.1%. The French stock market is also down more than 3% while the German Dax has dropped 2.5% and the Swiss Market Index has fallen 1.6%.

The Euro Stoxx Banks Index has tumbled nearly 8% as fears over the future of Credit Suisse intensified, after a major shareholder, Saudi National Bank, which has a 9.9% stake, ruled out investing more because of regulatory restrictions. Credit Suisse shares plunged 30% to a new record low of 1.55 Swiss francs earlier and are now trading 25% lower at 1.67 Swiss francs.

The pound is trading 0.9% lower against the dollar at $1.20.

Budget 2023: key points

After a vigorous campaign from the consumer rights champion Martin Lewis and many charities, Jeremy Hunt confirmed today that the energy price guarantee will remain at £2,500 until July – it had been set to rise to £3,000.

He said the measure would save the average family £160. Hunt also announced extra help for those with prepayment meters, saying he will “bring their charges in line with comparable direct debit charges”.

In addition, he announced a £63m fund to help leisure centres and pools afford their energy bills, and £100m extra for charities facing soaring costs.

The chancellor also outlined major changes to childcare. As revealed in the Guardian, he said parents of children aged nine months to three years will be offered 30 hours a week of free childcare in term time – as long as both parents are working at least 16 hours a week.

The economic outlook has improved. Hunt said the Office for Budget Responsibility (OBR) expects inflation to slow sharply, from 10.7% in the fourth quarter of last year, to 2.9% by the end of 2023 – meeting Rishi Sunak’s target of halving it.

Since the autumn statement, the OBR, along with many other forecasters, has become slightly less gloomy about the prospects for 2023. It is now expecting GDP to contract by 0.2%, instead of the 1.4% it predicted in November. Hunt said that will be followed by growth of 1.8% next year, 2.5% in 2025 and 2.1% in 2026.

Here are the key points of the budget at a glance, with some instant analysis – by Heather Stewart and Aubrey Allegretti:

You can find the budget documents here.

Credit Suisse shares plunge 30% to new all-time low

Credit Suisse shares have plunged 30% to another fresh all-time low, of 1.56 Swiss francs.

Andrew Kenningham, chief Europe economist at Capital Economics, has outlined the issues:

First, Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week. Admittedly, its problems were well known so do not come as a complete shock to either investors or policymakers. However, Credit Suisse has a much larger balance sheet than SVB (CHF530bn at end-2022) and is much more globally inter-connected, with multiple subsidiaries outside Switzerland including in the US. It is also a US primary broker. Credit Suisse is not just a Swiss problem but a global one.

Second, if Credit Suisse were to fail much would depend on how orderly the resolution is. As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or “living wills”) have not been put to the test since they were introduced during the Global Financial Crisis. Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected. While regulators will be aware of this, the risk of a botched resolution will be worrying the markets until a solution becomes apparent.

Third, the sell-off may have implications for the ECB’s policy decision due tomorrow. Clearly there is a strong case for the ECB to wait and see how things develop. But our best guess at this stage is that the Bank will press on with its pre-announced plan to raise the deposit rate from 2.5% to 3.0%, while stressing that policy is not on a predetermined path.

Finally, and most importantly, the problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another “idiosyncratic” case. Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years. Moreover, this is the third “one-off” problem in a few months, following the UK’s gilt market crisis in September and the US regional bank failures last week, so it would be foolish to assume there will be no other problems coming down the road.

Updated

Over in the UK parliament, Jeremy Hunt has just sat down after speaking for around an hour. He said that the UK economy would avoid a technical recession this year – defined as two or more consecutive quarters of economic contraction – although it is forecast to shrink by 0.2% this year by the Office for Budget Responsibility.

Updated

Fast-moving financial markets have today seen attention switch from the (ongoing) banking crisis in the US towards Europe. Credit Suisse shares have fallen as much as 26% and the Eurostoxx Banks Index is down more than 8%.

Stress in money markets is moving back to Monday’s levels and the euro is softening, said Chris Turner, global head of markets and regional head of research for the UK & Central & Eastern Europe at ING.

Earlier today we had described a ‘nervous calm’ returning to financial markets. That has not lasted long at all as attention has switched to Europe and the pressure on Credit Suisse’s (CS) share price after The Saudi National Bank, one of CS’s top investors, said it was not open to a further capital injection into CS. Heavy losses in CS have un-nerved European bank stocks in general at a time when the failure of SVB, formerly the United States’ 16th largest bank, is still being assessed.

Heavy losses in European banks have raised stress levels in money markets. The 3-month USD FRA-OIS spread has widened back out to +57bp (near Monday’s peak) and the 3m EUR cross-currency basis swap has widened to 38bp from 15bp at the start of European trading. Remember that the cross-currency swap represents the extra cost the interbank market is prepared to pay to secure dollar funding using the euro swaps market. It was a key measure of stress both during the 2008 financial crisis and again during the start of the pandemic in March 2020.

The pressure on European banks has also sparked a repricing of tomorrow’s European Central Bank meeting. What was seen as a solid 50bp hike from the ECB has today been cut to a 35bp hike.

Clearly, it looks like it will take some time for financial conditions to settle. The Fed announcing greater oversight for mid-sized US banks may not be enough and investors may want to hear of more support from monetary and regulatory authorities. Investors will also be looking out for the take-up of the Fed’s new liquidity scheme, data on which should be available tomorrow evening.

Updated

US producer prices fall unexpectedly

In the US, producer prices fell unexpectedly, by 0.1% in February from January, suggesting that cost pressures are easing. Economists had expected them to rise by 0.3%.

The annual rate slowed to 4.6%, according to data from the Bureau of Labor Statistics.

Charlie Bilello, chief market strategist at Creative Planning, tweeted:

Updated

BlackRock chief: SVB collapse could lead to 'slow rolling crisis'

BlackRock chief executive and chairman Larry Fink said the collapse of SVB, the biggest banking collapse in more than 15 years, could be followed by a “slow rolling crisis” in the US financial system.

In his annual letter to investors, he likened it to the savings and loan crisis from 1986 to 1995. He said the current banking crisis was a consequence of “years of easy money” and the recent rate hikes from the US Federal Reserve.

We’ve seen inflation move sharply higher to levels not seen since the 1980s. To fight this inflation, the Federal Reserve in the past year has raised rates nearly 500 basis points. This is one price we’re already paying for years of easy money – and was the first domino to drop.

Prior tightening cycles have often led to spectacular financial flameouts – whether it was the Savings and Loan Crisis that unfolded throughout the eighties and early nineties or the bankruptcy of Orange County, California, in 1994. In the case of the S&L Crisis, it was a “slow rolling crisis” – one that just kept going. It ultimately lasted about a decade and more than a thousand thrifts went under.

We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the US regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming.

It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks.

He added:

Over the longer term, today’s banking crisis will place greater importance on the role of capital markets. As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing.

Updated

On the markets, the FTSE 100 index has fallen further since Jeremy Hunt started speaking, and is now down 229 points at 7,407, a 3% drop.

The pound has held its losses against the dollar and is trading at $1.2089, down 0.6%.

Interest rate futures are now pricing in a 60% chance that the Bank of England will not raise Bank rate at its next meeting on 23 March.

Updated

Roubini: Credit Suisse crisis could turn into 'Lehman moment'

The high-profile economist Nouriel Roubini, known as Dr Doom, said that the Credit Suisse crisis could turn into “Lehman moment,” referring to the collapse of the US investment bank Lehman Brothers in August 2007 at the start of the global financial crisis. He tweeted:

Updated

Government asks for coal plants to run next winter

Ministers have asked National Grid to “explore” whether winter contracts to keep coal-fired power plants on standby could be repeated next year.

Last year, the Grid agreed contracts with Drax, EDF and Uniper to keep five coal units ready to step in if other sources of power generation ran short, with the possibility of Russia cutting gas supplies into Europe looming large.

The coal plants were asked to warm up several times over the winter, but only put into action to produce power once, during the cold snap last week.

But Drax, which has faced heavy criticism over its biomass business model, said its coal units would close as planned at the end of this month.

A spokesperson for the company said: “With two major maintenance outages planned on our biomass units this summer, and a number of certifications expiring on the coal-fired units, the units would not be able to operate compliantly for winter 2023.”

Britain has set a goal to stop generating electricity using coal by October 2024 in an effort to cut carbon emissions. In 2021, the target was pulled forward by a year.

National Grid’s electricity system operator said ahead of this winter that the coal contracts would cost between £220m to £420m upfront.

Jeremy Hunt: UK to avoid recession this year

Jeremy Hunt, started his budget speech by saying that the British economy “is proving the doubters wrong”.

He said the Office for Budget Responsibility now forecasts that the UK will not enter a technical recession this year.

You can read more here on our budget live blog with Andrew Sparrow and Graeme Wearden:

Updated

Over in parliament, chancellor Jeremy Hunt is starting to deliver the budget.

We’re live-blogging it all here:

Credit Suisse shares down 26%; chair says state aid 'not a topic' for the bank

Credit Suisse shares have tumbled further, by 26% to a new record low of 1.68 Swiss francs, as the selloff gathered pace.

The bank’s chairman, Axel Lehmann, said this morning that government assistance “isn’t a topic” for the lender as the scandal-hit Swiss bank seeks to shore up confidence among clients, shareholders and regulators, Bloomberg News reported.

Speaking at the Financial Sector Conference in Saudi Arabia, Lehmann said it wouldn’t be accurate to compare Credit Suisse’s current problems with the recent collapse of Silicon Valley Bank (SVB), particularly because the banks are regulated differently.

We have strong capital ratios, a strong balance sheet.

We already took the medicine,

he said, referring to the extensive restructuring programme announced in October, to turn it into “the new Credit Suisse”.

Axel Lehmann, chairman of Swiss bank Credit Suisse.
Axel Lehmann, chairman of Swiss bank Credit Suisse. Photograph: Anshuman Daga/Reuters

Updated

The volatility in the banking sector may deter central banks from raising interest rates higher.

The markets have cut the chances of a quarter-point rise in US interest rates next week, to around 50%, according to CME’s FedWatch Tool.

Another rise in UK interest rates next week, from 4% to 4.25%, is seen as a 53% chance, with a 47% chance that the Bank of England leaves rates on hold.

The banking rout has taken on “another ominous twist” today, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:

The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits. Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable.

A game of whack a mole seems to be emerging, and problems are popping up elsewhere in the world. Investors seem to be waiting on words and action from the ECB, as so far policymakers have been quiet about what support there may be if the situation deteriorates further.’’

The ongoing troubles of Swiss banking giant Credit Suisse are dragging European markets lower on Wednesday, with US futures following suit, says Raffi Boyadjian, lead investment analyst at XM.

Boyadjian adds:

The plunge in Credit Suisse shares today is in response to the bank’s annual report yesterday where it admitted that there were “material weaknesses” in internal controls in financial reporting.

The news couldn’t have come at a worse time when the banking sector is already under pressure.

France’s finance ministry says it has no comment to make regarding sharp drops in the share prices of the country’s top banks, as a slump in the share price of Credit Suisse causes losses across Europe’s banking sector.

Trading in BNP Paribas was briefly halted this morning; its shares are down around 10% this morning, as are fellow French bank Société Générale.

Crédit Agricole are down 5.4%.

“Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse,” says Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.

Franchini adds (via Reuters):

“This is dragging lower the whole banking sector in Europe.

The shares accelerated losses after the Saudis (commented) ...I believe Credit Suisse’s crisis can be solved and the bank will not be let to go belly up.”.

Trading in Credit Suisse’s shares has been halted a number of times by the stock exchange operator today, as volumes soared and the stock plummeted 20%.

Credit Suisse Group’s Saudi backer did also say he was happy with the bank’s transformation plan and doesn’t think the Swiss lender will need extra money.

Reuters has the details:

Saudi National Bank’s (SNB) chairman Ammar Al Khudairy described Credit Suisse as an opportunistic investment and said the value realisation of that investment will unfold as the Swiss bank proves they are doing the turnaround.

“We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank,” Al Khudairy said on in an interview with Reuters.

“I don’t think they will need extra money; if you look at their ratios, they’re fine. And they operate under a strong regulatory regime in Switzerland and in other countries,” Al Khudairy said on the sidelines of a conference in Riyadh.

SNB’s investment objective is not dependent on time, and the Saudi bank will exit when proper value to the shares is acquired, he added.

FTSE 100 hits three-month low

The UK’s FTSE 100 stock index has hit its lowest level since last December, as the slump in Credit Suisse’s shares hammers confidence in the City.

The FTSE 100 has dropped by 193 points, or 2.5%, to 7443 points, meaning it has lost all its gains for 2023 (it hit record highs over 8,000 points last month).

“Sentiment just seems to have evaporated,” says Neil Wilson of Markets.com.

Wilson says there are “big moves in fixed income markets [bonds] and banking shares again, probably on a further slide in Credit Suisse shares and rise in its CDS [credit default swaps, used to insure against a bond defaulting].

Credit Suisse’s shares are continuing to fall to new record lows, now down 20% at 1.79 Swiss francs.

Updated

The cost of insuring Credit Suisse’s bonds against default has risen to record highs today too.

Bloomberg reports that:

The cost of insuring the bonds of Credit Suisse against default in the near-term is approaching a level that typically signals serious investor concerns.

One-year credit default swaps for the embattled Swiss lender were indicated at 835.9 basis points on Tuesday’s close of business, based on pricing source CMAQ. Other pricing sources point to a further rise on Wednesday, while a level of 1,000 would indicate serious concern.

Bank shares slide

European banking shares are under fresh pressure today.

Swiss bank UBS are down 6.2%, Germany’s Deutsche Bank has lost 6.4%, and France’s Société Générale has fallen by 9.5%.

In London, Barclays has dropped by 6.5% while Standard Chartered has shed 5.5% and NatWest has lost 4.4%.

Reuters reports that trading in Credit Suisse shares has been halted several times, as they fall heavily this morning.

Credit Suisse shares fall 15% to record low as top shareholder rules out investing more

Shares in Switzerland’s Credit Suisse have hit a record low this morning, after its biggest shareholder said it cannot put up more money to support the bank.

Credit Suisse’s shares fell below 2 Swiss francs for the first time ever this morning, as anxiety over the banking sector drove European stock markets deeper into the red.

Saudi National Bank’s chairman, Ammar Al Khudairy, said this morning that his bank would not be able to inject further funds into Credit Suisse if there was another call for additional liquidity.

Al Khudairy told Reuters that Saudi National Bank cannot provide the Swiss bank with more financial assistance, saying:

“We cannot because we would go above 10%. It’s a regulatory issue.”

Credit Suisse’s shares are down 15% this morning at 1.9 Swiss francs, a record low.

Saudi National Bank is currently Credit Suisse’s largest investor, with 9.9% of its shares, having taken part in its capital raising last year.

Yesterday, Credit Suisse published its annual report for 2022 which showed it had identified “material weaknesses” in its internal controls over financial reporting.

Last month, Credit Suisse reported its biggest annual loss since the 2008 global financial crisis after clients pulled billions from the bank.

It has been caught up in a series of scandals, including the collapse of U.S. investment firm Archegos in 2021, and the freezing of billions of supply chain finance funds linked to insolvent British financier Greensill.

A year ago, a massive leak exposed the hidden wealth of Credit Suisse clients involved in serious crimes incuding torture, drug trafficking, money laundering, and corruption.

Updated

HSBC urges SVB staff to tell clients their loans and deposits are safe

HSBC’s top bosses have called on employees at the rescued British arm of failed U.S. lender Silicon Valley Bank to assure clients “their deposits are safe and loans are supported”.

The call came as HSBC began the process of integrating SVB UK into its operations, after it rescued the bank in a £1 deal on Monday morning.

A memo sent to SVB staff on Tuesday and posted by HSBC UK chief executive Ian Stuart on the professional networking site LinkedIn said":

“Please continue to operate as usual ... it is vital that you continue to serve your clients as you have done up to now,”

The memo, also signed by CEO Noel Quinn, added that:

“We’ve put close to 2 billion pounds of liquidity into SVB UK and we’re ready to deploy more cash and more liquidity, as needed.”

Hunt 'should have made bill announcement much sooner'

Jeremy Hunt has been criticised for not announcing the freeze of the energy price guarantee sooner, rather than waiting to drop the news early on Budget day.

Good Energy chief executive Nigel Pocklington says this has caused “unnecessary stress and anxiety” to hard-pressed households caught up in the cost of living crisis.

Pocklington says:

“The extension of the Energy Price Guarantee is certainly welcome news, but it should have been announced much sooner. The delay has caused unnecessary stress and anxiety for hard-pressed households who are trying to plan ahead during these difficult times.

Responses to the energy crisis have been dominated by short-term solutions for far too long, when we actually need a longer-term view if we want to achieve real and lasting change for consumers. This should include a proper debate on the introduction of a social tariff which would provide targeted support for those who need it most and would help to prevent desperate households falling into fuel poverty.”

Earlier this month, it emerged that energy suppliers had been told by officials to prepare two sets of bills for next month, as they awaited Hunt’s decision:

Lewis: Failure to listen over EPG would have caused disproportionate harm

Martin Lewis, founder of MoneySavingExpert, has thanked Jeremy Hunt for listening to the calls not to hike energy bills by 20% in April.

Lewis led the campaign to keep the Energy Price Guarantee at £2,500 for another three months. He says that raising it to £3,000, as had been planned until this morning’s u-turn, would have caused “disproportionate harm” to many households.

Lewis says:

“A month ago, I wrote to the Chancellor asking him to postpone the 20% rise in the Energy Price Guarantee. That letter was supported by 131 major charities including Which?, National Energy Action, Citizens Advice, Alzheimer’s Society and more – plus Energy UK, the energy industry trade body.

I’d like to thank the Chancellor for listening. The rise – which would likely only have lasted three months – would have caused disproportionate harm financially and, with more ‘price rise’ letters, to people’s mental health.

“Of course, this doesn’t mean bills will get cheaper. In April we see the end of the winter energy support – the £66/£67 a month everyone has received to lower their bills. So in practical terms people are still going to pay more than they have been, but at least some of the planned rise has been forestalled.

Now we have to hope that the current predictions come true, that from July, the current wholesale prices will mean the price cap drops, and therefore bills fall by 19% – a welcome relief to millions.”

Updated

China reopening and air travel rebound to supercharge oil demand

In other energy news, China relaxation of Covid-19 restrictions and the rebound of air travel will boost oil demand this year, a new report shows.

The International Energy Agency’s monthly analysis shows that global oil demand has edged up slowly so far this year, but will accelerate through 2023.

The Paris-based agency said in its monthly oil report that:

“Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang.”

Oil demand fell by 80,000 barrels per day in the final quarter of 2022, but is “set to accelerate sharply over the course of 2023”, the IEA says. Growth is set to rise from 710,000 barrels/day in the first quarter of this year, to 2.6 million barrels/day in October-December.

Global oil demand is expected to reach a record 102 million barrels per day this year, the IEA adds, as “rebounding air traffic and the release of pent-up Chinese demand dominate the recovery.”

Crude prices, though, are near their lowest since December, with Brent crude around $78 per barrel thoday.

The IEA says:

“Prices fell a further $3/bbl in March as macroeconomic worries escalated following the collapse of Silicon Valley Bank.”

The report also shows the impact of sanctions on Russia’s energy sales – with exports down over 40% in February.

Russian oil exports fell by 500 kb/d to 7.5 mb/d in February as the EU embargo on refined oil products came into force. Shipments to the EU fell by 800 kb/d to 600 kb/d, compared with more than 4 mb/d at the start of 2022.

Sailings to China and India also fell, while cargoes without a destination surged by 600 kb/d to 800 kb/d. Export revenues plunged another $2.7 bn to $11.6 bn, down 42% on a year-ago.

FTSE 100 down 1% ahead of budget

The crisis in the US banking sector casts a shadow over the budget today.

With three US banks having failed this month – Silvergate, Signature and Silicon Valley Bank – investors have been fretting that there could be further casualties.

The failure of SVB is not great optics for Jeremy Hunt’s push to make the UK the “next Silicon Valley”.

According to Bloomberg, it has even “ignited a debate” within the UK government over whether to include the words “Silicon Valley” in Hunt’s budget statement today.

The mood in the City is sombre this morning, with the FTSE 100 index of blue-chip shares down 1% or 76 points at 7560.

Victoria Scholar, head of investment at interactive investor, says,

“The Chancellor Jeremy Hunt wants today’s Budget to be boring, in stark contrast to the fiscal fiasco around the mini-budget last September. The UK is undeniably facing a tough economic backdrop with sky-high inflation, sluggish growth, the cost-of-living crisis and the war in Ukraine.

However, the economic outlook has improved in recent months with the UK managing to narrowly stave off a recession, the public purse logging an unexpected surplus in January and other indicators such as consumer confidence, PMIs and retail sales improving.

The government is unlikely to carry out drastic spending increases or tax cuts because of the backdrop of inflation as well as the hangover from heavy spending during the pandemic on expensive programmes like the vaccine rollout, the furlough scheme and track and trace. Instead, Hunt will try to focus on fiscal prudence while still providing enough support measures to prop up the Conservatives’ popularity at a time when Labour is steaming ahead in the polls.

All eyes were supposed to be on the Budget this week but the collapse of Silicon Valley Bank with concerns about financial contagion has superseded the famous red box. It has been a volatile week for financial markets as investors weigh up the negative economic impact from the bank’s failure versus the prospect of more accommodative monetary policy from the Bank of England and the Federal Reserve.

Dame Clare Moriarty, chief executive of Citizens Advice, says keeping the Energy Price Guarantee at £2,500 is “a welcome step”, but adds that “unfortunately it’s not all good news” for households struggling to pay their bills.

The withdrawal of the Energy Bill Support Scheme will still mean the average monthly bill rises by £67 from April.

“With millions already unable to afford their bills and energy prices set to remain high in the years ahead, the government must now look at long-term solutions to this problem.

Many people, especially those on low incomes, will need ongoing support not only to pay their bills but to make their homes safer and warmer through improved energy efficiency.”

What to expect from Hunt’s spring budget

The UK’s Office for Budget Responsibility is expected to hand Jeremy Hunt more attractive economic forecasts than at the autumn statement last November.

The OBR is expected to cut its inflation forecast for this year from 7% to nearer 4% and to provide a sunnier picture of economic growth, revising the projected fall from 1.4% to nearer 0.5%, my colleague Phillip Inman explains.

It is also expected to say that the spending deficit improved after a rise in tax receipts, mainly due to higher than expected inflation over the last year. Hunt could have as much as £30bn spare and still bring down borrowing over the life of the forecast, though he is likely to bank most of it, keeping aside a war chest to spend before next year’s general election.

Measures expected to be announced today, on top of the energy support, include:

  • An increase in the tax-free lifetime allowance (LTA) on pension savings, which could rise from £1.07m to as much as £1.8m, to try to discourage the over-50s from retiring early.

  • 30 hours of free childcare for one- and two-year-olds and a boost to funding for existing provision for three-year-olds.

  • Paying childcare support to parents on Universal Credit upfront, rather than in arrears, and increasing the amount they can claim.

  • A ramping-up of sanctions for claimants who do not look for or take up employment.

  • The creation of 12 investment zones – eight in England, four in Scotland, Wales and Northern Ireland, benefiting from tax breaks, each backed by £80 million over five years.

  • Some £63m of money to help leisure centres with swimming pools meet energy costs and become more efficient.

Updated

Keeping the Energy Price Guarantee at £2,500, instead of lifting it to £3,000 in April, will be a huge relief for millions of people, says Susannah Streeter, head of money and markets, Hargreaves Lansdown.

Many households are already struggling to pay their bills and were facing the threat of more price rises, she explains:

The freezing of the guarantee was always going to be more likely when the falling wholesale cost of energy meant it was set to cost £5bn less than forecast.

But the loss of the monthly discount from April will still be felt and already almost half of people are finding it difficult to pay their energy bills.

However, if energy cost continue to fall as they have been, people should start feeling the benefit by around July.

Richard Neudegg, director of regulation at Uswitch.com, reckons the EPG may only be relevant for another three months.

“While energy costs are still historically high, wholesale prices are thankfully now turning a corner and we’re getting close to the point when consumers can not just benefit from the status quo, but actually see lower costs on their bill.

“The Energy Price Guarantee may only be relevant for another three months. If wholesale prices continue to drop, the next price cap in July could be cheaper, meaning we’ll go back to Ofgem dictating default tariff prices every quarter.

Households are still expected to feel an increased impact from energy costs from April, though.

A separate voucher scheme, which sends £66 per month to every household, is still due to come to an end of this month. This Energy Bills Support Scheme (EBSS) saved households £400 on their energy bills last winter.

Chancellor to end the prepayment meter premium

Jeremy Hunt is also expected to end the UK’s “prepayment meter premium” today.

Currently, customers on pay-as-you-go meters currently pay more on average than direct debit customers, which is an added burden for many low-income households.

Today’s budget will end this energy premium, the Treasury says, “saving four million families £45 a year from July”.

Energy firms charge those pay-as-you-go meter customers more because it typically costs more to serve them, which is reflected in the regulated price cap, explains Emma Pinchbeck, the chief executive of industry body Energy UK.

She has welcomed today’s announcement:

Keeping the energy price guarantee at its current level of £2,5000 from April to June will protect households from Ofgem’s price cap.

The Ofgem price cap, which limits how much energy firms can charge, will drop to £3,280 in April, from £4,279 for the January-to-March quarter. But the EPG effectively overrides this for households.

Ofgem’s price cap is forecast to fall again in July – with consultancy Cornwall Insight’s data indicating it could drop to £2,100/year for an average household in the summer.

The Treasury explains how falling wholesale energy prices have helped cushion the cost of the support:

At Autumn Statement the Chancellor announced that the EPG was due to rise to £3,000 on April 1, with the Government then expecting to borrow £12 billion to fund this support.

Since then, energy prices have fallen by 50%, cutting the borrowing needed to fund energy support by two- thirds to £4 billion.

Sunak: maintaining energy price guarantee will give peace of mind

The three-month extension of the energy price guarantee (EPG) at its current £2,500 level will save a typical household around £160, the Government says.

Prime Minister Rishi Sunak said:

“We know people are worried about their bills rising in April, so to give people some peace of mind, we’re keeping the energy price guarantee at its current level until the summer when gas prices are expected to fall.

“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year.”

[It’s important to remember that the EPG caps the unit cost of energy, not the total bill]

Introduction: Energy support capping bills at £2,500 to be extended by three months

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK government has extended its support for households on their energy bills, following pressure not to push up bills and plunge many thousands of families into poverty.

Hours before Jeremy Hunt is due to announce the budget today, the Treasury has performed a U-turn and confirmed that the energy price guarantee will continue at its current rate until the end of June.

The EPG, which limits a typical annual household bill to £2,500, had been due to rise to £3,000 per year at the end of April.

Announcing the move this morning, the Treasury points out that energy bills are set to fall from July, due to the drop in wholesale price.

Chancellor Jeremy Hunt says:

“High energy bills are one of the biggest worries for families, which is why we’re maintaining the energy price guarantee at its current level.

“With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.

The about turn had been widely expected, and will relieve some pressure on households already struggling the cost of living.

Hunt had faced pressure from campaigners, charities and the consumer champion Martin Lewis to extend the EPG support. Citizens Advice had warned that without further support, milllions of households would have faced ‘catastrophe’ from April.

Hunt will deliver the budget at 12.30pm, outlining the government’s tax and spending plans.

It will be billed as a “Budget for growth”, and include measure designed to help more people into work.

It’s expected to include a £4bn expansion of free childcare for one- and two-year-olds in England. This which will provide an extra 30 hours a week to parents of one- and two-year olds, and increase funding by £288m by 2024-25 for the existing programme of free childcare for three year-olds.

New measure to encourage business investment, and offset some tax changes taking effect in April that will hit firms, are also expected.

Hunt has been examining whether to replace the super-deduction with a new “full expensing” system, which would let 100% of qualifying capital expenditure in the UK to be written off against taxable profits in the year it is incurred.

But the chancellor could also face a Tory back-bench revolt over the Budget as he pushes ahead with a rise in corporation tax from 19% to 25%.

The Daily Telegraph reports there is a growing backlash, with Conservative MPs fearing a “chilling effect on the whole economy” if the rise is not abandoned.

The agenda

  • 9am GMT: IEA’s monthly report on the oil market

  • 12.30pm GMT: Jeremy Hunt to deliver the Budget

  • 12.30pm GMT: US PPI producer price inflation report

  • 1.30pm GMT: Office for Budget Responsibility publishes its UK Economic and Fiscal Outlook

Updated

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