Stocks of major U.S. lenders sank with a sector gauge hitting the lowest level since November 2020 on Wednesday, following European banks down after Credit Suisse Group AG plunged.
Morgan Stanley and Citigroup Inc. each tumbled more than 5% on Wednesday, while the KBW Bank Index dropped 3.6%. Among other large lenders, JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. all sank more than 3%.
First Republic Bank tumbled 21% after being downgraded to junk by S&P Global Ratings and Fitch Ratings, while other smaller regional lenders were mostly lower.
Switzerland’s central bank and financial regulator said the firm will get a liquidity backstop if needed. Credit Suisse’s American Depositary Receipts closed down by 14% with the bank at a record low, after paring their earlier plunge that had hit an intraday record of 30%.
“If necessary, the SNB will provide Credit Suisse with liquidity,” Finma and the Swiss National Bank said in a joint statement.
The stock’s slide, which sent investors into safe havens such as gold and government bonds, started with European banks after Saudi National Bank, Credit Suisse’s top shareholder, ruled out upping its stake.
“With the U.S. banking sector downgraded to negative by Moody’s, nervousness is super-high and that’s spilt over into a hot mess in Europe,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Chief Executive Officer Ulrich Koerner on Tuesday asked for patience and said the bank’s financial position is sound. Chairman Axel Lehmann said at a conference Wednesday that government assistance “isn’t a topic” and the firm’s efforts to return to profitability aren’t comparable to the severe liquidity issues hitting smaller lenders in the U.S.
The concern over Credit Suisse widened the banking selloff that had been spearheaded by smaller regional lenders after the demise of Silicon Valley Bank, Silvergate Capital Corp. and Signature Bank spurred fears over contagion in the industry as customers pulled funds and investors dumped shares.
The slide in larger banks comes after they have been raking in billions in deposits from new customers after confidence in regional lenders took a hit, with Bank of America adding more than $15 billion in new client funds.
Regulators have taken extraordinary steps to shore up confidence, introducing a backstop for banks to protect the whole nation’s deposits. Meanwhile, the Federal Reserve is considering tougher oversight rules for midsized banks following the turmoil.
First Republic is on credit watch negative, S&P said in a statement Wednesday. “We believe that First Republic’s deposit base is more concentrated than most large U.S. regional banks, which presents heightened funding risks in the current environment.”
—With assistance from Blaise Robinson, Maxwell Zeff, Ksenia Galouchko and Matt Turner.
(Updates shares to market close and adds Credit Suisse details.)
