Credit Suisse faces a crucial weekend. Here’s what could be next for the Swiss bank – National
Credit Suisse executives will hold meetings over the weekend to chart a way forward for the struggling Swiss bank, people familiar with the matter said after a lifeline offered only temporary relief and its shares were hit again on Friday.
The 167-year-old Swiss bank is the biggest name mired in the market turmoil sparked by the collapse of US lenders Silicon Valley Bank and Signature Bank last week, forcing them to draw down $54 billion in central bank funds take.
In the latest sign of the mounting troubles, at least four major banks, including Societe Generale and Deutsche Bank, have restricted their dealings with the Swiss lender or its securities, according to five sources with direct knowledge of the matter.
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Credit Suisse declined to comment on the banks’ actions.
Chief Financial Officer Dixit Joshi’s teams will now, at weekend meetings, assess scenarios for the bank where analysts speculate Credit Suisse could sell or wind down some units, or even be bought outright by a competitor.
The desperate efforts to prop up Credit Suisse come amid assurances from policymakers – from the European Central Bank to US President Joe Biden – that the global banking system is safe and failing to allay fears of broader problems in the industry.
Earlier this week, major U.S. banks had to step in with a $30 billion lifeline for smaller lender First Republic, while U.S. banks combined a record $153 billion in liquidity at the Federal Reserve over the past few days requested.
First republic to receive $30 billion in cash from major US banks to show support
This surpassed a previous high during the most acute phase of the financial crisis around 15 years ago.
This reflected “bank funding and liquidity constraints due to weakening depositor confidence,” said rating agency Moody’s, which this week downgraded its outlook on the US banking system to negative.
Washington has focused on increased oversight to ensure banks – and their leaders – are held accountable.
Biden — who promised Americans earlier this week that their deposits were safe — urged Congress on Friday to give regulators more power over the banking sector, including leveraging higher fines, recovering funds and barring officials from failed banks, a White House statement said.
Market woes remain while First Republic shares the tank
Bank stocks have been battered around the world since the collapse of Silicon Valley Bank, raising questions about other weaknesses in the financial system at large.
Shares in Switzerland’s second-largest bank closed down eight percent on Friday, with Morningstar Direct saying that Credit Suisse will be trading on March 13.
With investor confidence far from restored, analysts, investors and bankers believe the Swiss central bank’s lending facility has only bought it time to consider what to do next. The move made them the first major global bank to pick up a lifeline since the 2008 financial crisis.
Swiss bank Credit Suisse shares fall to record lows
U.S. regional bank shares were also significantly lower as the KBW Regional Bank Index slumped 5.6 percent, with PacWest down about 15 percent and First Republic down more than 30 percent. The S&P 500 index of banks fell 4.5 percent, while JPMorgan and Bank of America each fell about 4 percent.
While support from some of the biggest names in US banking averted a collapse, investors were shocked by First Republic’s late disclosures about its cash position and how much emergency liquidity it needed.
“It appears that the reputation of the First Republic brand may have been damaged. (It) is a shame because it was a high quality, well run bank,” said John Petrides, portfolio manager at Tocqueville Asset Management.
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Earlier Friday, SVB Financial Group announced it had filed for a court-supervised reorganization days after its former banking unit, SVB, was acquired by US regulators.
Investors are also increasingly looking for insurance against a sudden stock market crash, amid fears of further turmoil in the markets. Gold prices rose more than 1 percent as the shocks in the banking sector drove investors to ‘safe havens’.
Authorities have repeatedly tried to stress that the current turmoil is different from the global financial crisis 15 years ago, with banks better capitalized and funds more readily available – but their assurances have often fallen on deaf ears.
In an unusual move, the ECB held an ad hoc supervisory board meeting, its second this week, to discuss tensions and volatility in the banking sector.
Regulators were told that deposits were stable across the euro zone and exposure to Credit Suisse was immaterial, a source familiar with the content of the meeting told Reuters.
An ECB spokesman declined to comment.
Attention has now shifted to the Fed’s monetary policy decision next week and whether it will stick with its aggressive rate hikes to keep inflation under control.
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A German government spokesman said the current situation of European banks is not comparable to the 2008 financial crisis, adding at a regular news conference that there was no reason to worry about the country’s banking sector.
Earlier, Japanese Prime Minister Fumio Kishida said after a tripartite meeting between the country’s government, banking regulators and central bank that the talks were held as part of efforts to monitor any impact on the stability of the financial system.
“Japan’s financial system remains stable overall,” Kishida said at a news conference.
Singapore, Australia and New Zealand also said they are monitoring financial markets but are confident their local banks are well capitalized and able to withstand major shocks.
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