European bank shares fell sharply on Wednesday, with troubled Credit Suisse tumbling to a new low, amid renewed investor concerns about tensions within the sector triggered by Silicon Valley BankThe sudden collapse.
Regulators and financial executives around the world have tried to allay fears of contagion after the tech-focused lender svb and another US bank went bankrupt last week, but worries persist.
A more than 20% drop in Credit Suisse shares led to a more than 6% decline in the European banking index, while five-year credit default swaps (CDS) for the largest Swiss bank hit a new record, highlighting the growing concerns of investors.
The Swiss National Bank declined to comment on Switzerland’s second largest bank.
“The markets are wild. We go from the problems of American banks to those of European banks, Credit Suisse in the first place”, said Carlo Franchini, head of institutional clients of Banca Ifigest in Milan.
In the US, large and regional banks declined in the pre-market. First Republic Bank was unchanged, with peers Western Alliance Bancorp and PacWest Bancorp down 2% and 12% respectively.
Big banks including JP Morgan Chase, Citigroup and Bank of America were all affected, between 2% and 4%.
BlackRock Chief Executive Officer Laurence Fink warned Wednesday that the US regional banking sector remains at risk and predicted further high inflation and rate hikes.
Fink described the financial situation as the “price of easy money” and said in an annual letter that he expected further interest rate hikes from the US Federal Reserve.
He said that after the regional banking crisis, “liquidity mismatch” could follow because low rates prompted some asset owners to increase their exposure to high-yield investments that are not easy to sell.
Rapid interest rate hikes have made it harder for some businesses to repay or repay loans, increasing the chances of losses for lenders who are also worried about a recession.
However, a source told Reuters on Thursday that European Central Bank policymakers are still keen on a half-percentage point hike in rates as they expect inflation to remain elevated.
Investors had started to doubt the ECB’s commitment to another steep rate hike as the SVB collapse rocked the markets.
But the source said the central bank was unlikely to deviate from its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
In the US, attention is shifting to the possibility of tighter regulation of banks, especially mid-market ones like SVB and New York-based Signature Bank, whose crashes have triggered the market turmoil.
Moody’s Investors Service revised its outlook on the US banking system to “negative” from “stable” on Tuesday, citing rising risks to the sector.
The closure of SVB forced President Joe Biden to hastily ensure that the US financial system is safe and called for emergency measures that allow banks to access more funding.
And in an effort to avert a similar crisis down the line, the US Federal Reserve is considering tougher rules and controls for medium-sized banks similar to SVB.
Earlier, the Tokyo Stock Exchange’s banks index jumped more than 4%, following three consecutive days of strong selling.
Investors were particularly worried about huge bond holdings by Japanese lenders, but Japanese Finance Minister Shunichi Suzuki said differences in deposit structure meant local banks would not face SVB-like incidents.
After SVB
Wednesday’s sell-off comes after some respite on Tuesday, as troubled US banking stocks rallied, helped by news that private equity and buyout firms were trying to corner some of the SVB’s assets.
And in Britain, HSBC’s top bosses have called on employees of SVB’s rescued UK arm to assure customers that “their deposits are safe and loans are supported” as it begins the integration process following its takeover, it showed a memo from the bank.
Meanwhile, Charles Schwab Chief Executive Officer Walt Bettinger said on Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.
The firm saw a $4 billion inflow of assets to its parent company on Friday as customers moved assets to Schwab from other companies, Bettinger told Reuters.
Regulators and financial executives around the world have tried to allay fears of contagion after the tech-focused lender svb and another US bank went bankrupt last week, but worries persist.
A more than 20% drop in Credit Suisse shares led to a more than 6% decline in the European banking index, while five-year credit default swaps (CDS) for the largest Swiss bank hit a new record, highlighting the growing concerns of investors.
The Swiss National Bank declined to comment on Switzerland’s second largest bank.
“The markets are wild. We go from the problems of American banks to those of European banks, Credit Suisse in the first place”, said Carlo Franchini, head of institutional clients of Banca Ifigest in Milan.
In the US, large and regional banks declined in the pre-market. First Republic Bank was unchanged, with peers Western Alliance Bancorp and PacWest Bancorp down 2% and 12% respectively.
Big banks including JP Morgan Chase, Citigroup and Bank of America were all affected, between 2% and 4%.
BlackRock Chief Executive Officer Laurence Fink warned Wednesday that the US regional banking sector remains at risk and predicted further high inflation and rate hikes.
Fink described the financial situation as the “price of easy money” and said in an annual letter that he expected further interest rate hikes from the US Federal Reserve.
He said that after the regional banking crisis, “liquidity mismatch” could follow because low rates prompted some asset owners to increase their exposure to high-yield investments that are not easy to sell.
Rapid interest rate hikes have made it harder for some businesses to repay or repay loans, increasing the chances of losses for lenders who are also worried about a recession.
However, a source told Reuters on Thursday that European Central Bank policymakers are still keen on a half-percentage point hike in rates as they expect inflation to remain elevated.
Investors had started to doubt the ECB’s commitment to another steep rate hike as the SVB collapse rocked the markets.
But the source said the central bank was unlikely to deviate from its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
In the US, attention is shifting to the possibility of tighter regulation of banks, especially mid-market ones like SVB and New York-based Signature Bank, whose crashes have triggered the market turmoil.
Moody’s Investors Service revised its outlook on the US banking system to “negative” from “stable” on Tuesday, citing rising risks to the sector.
The closure of SVB forced President Joe Biden to hastily ensure that the US financial system is safe and called for emergency measures that allow banks to access more funding.
And in an effort to avert a similar crisis down the line, the US Federal Reserve is considering tougher rules and controls for medium-sized banks similar to SVB.
Earlier, the Tokyo Stock Exchange’s banks index jumped more than 4%, following three consecutive days of strong selling.
Investors were particularly worried about huge bond holdings by Japanese lenders, but Japanese Finance Minister Shunichi Suzuki said differences in deposit structure meant local banks would not face SVB-like incidents.
After SVB
Wednesday’s sell-off comes after some respite on Tuesday, as troubled US banking stocks rallied, helped by news that private equity and buyout firms were trying to corner some of the SVB’s assets.
And in Britain, HSBC’s top bosses have called on employees of SVB’s rescued UK arm to assure customers that “their deposits are safe and loans are supported” as it begins the integration process following its takeover, it showed a memo from the bank.
Meanwhile, Charles Schwab Chief Executive Officer Walt Bettinger said on Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.
The firm saw a $4 billion inflow of assets to its parent company on Friday as customers moved assets to Schwab from other companies, Bettinger told Reuters.
