European bank stocks fell sharply on Wednesday, with the embattled Credit Suisse falling to new lows on renewed investor concerns about stress within the sector sparked by Silicon Valley Bankthe sudden collapse.
Regulators and financial managers around the world have tried to allay fears of contagion from tech-focused lenders SVB and another US bank failed last week, but concerns remain.
A more than 20% fall in Credit Suisse shares saw the European banking index fall by more than 6%, while five-year credit default swaps (CDS) for the Swiss flagship bank hit a new record high, highlighting growing investor concerns .
The Swiss National Bank declined to comment on Switzerland’s second largest bank.
“Markets are wild. We are moving from the problems of American banks to those of European banks, most notably Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
In the United States, regional and large banks fell in the premarket. First Republic Bank was flat, while peers Western Alliance Bancorp and PacWest Bancorp fell 2% and 12%, respectively.
Big banks like JP Morgan Chase, Citigroup and Bank of America were all hit between 2% and 4%.
BlackRock Chief Executive Laurence Fink on Wednesday warned that the US regional banking sector remained at risk and forecast further high inflation and rate hikes.
Fink called the financial condition “the price of easy money” and said in an annual letter he expected the Federal Reserve to raise interest rates again.
He said “liquidity mismatches” may follow in the wake of the regional banking crisis, as low interest rates have prompted some asset owners to increase their exposure to higher-yielding assets that are not easy to sell.
Rapid rises in interest rates have made it harder for some companies to repay or service loans, increasing the likelihood of losses for lenders who are also concerned about a recession.
However, European Central Bank policymakers are still leaning towards a half a percentage point rate hike on Thursday, a source told Reuters, as they expect inflation to remain high.
Investors began to doubt the ECB’s commitment to another big rate hike as the collapse of the SVB rocked markets.
However, the source said the central bank is unlikely to stray from its plan to hike rates by 50 basis points on Thursday as it would damage its credibility.
In the United States, focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier banks like SVB and New York-based Signature Bank, whose collapses sparked the market turmoil.
Moody’s Investors Service on Tuesday revised its outlook for the US banking system to negative from “stable” citing heightened risks to the sector.
The SVB’s shutdown forced President Joe Biden into a rush to reassure the US financial system is safe and prompted contingency measures that gave banks access to more funding.
And in an attempt to avert a similar crisis in the future, the US Federal Reserve is considering tougher rules and tighter supervision for mid-sized banks similar in size to the SVB.
Earlier, the Tokyo Stock Exchange’s banking index was up more than 4% after three straight days of strong selling.
Investors were particularly worried about Japan’s lenders’ huge bond holdings, but Japan Finance Minister Shunichi Suzuki said differences in the structure of deposits meant local banks would not face incidents similar to SVB.
SVB aftermath
Wednesday’s sell-off comes after a pause on Tuesday, when ailing US bank stocks gained some ground, helped by news that private equity and buyout firms were trying to buy some SVB assets.
And in the UK, HSBC’s top bosses have urged staff at SVB’s bailed-out UK arm to reassure customers that “their deposits are safe and their loans are supported” as the post-takeover integration process begins, according to a memo by the bank shows.
Meanwhile, Charles Schwab chief executive Walt Bettinger said Tuesday the bank had ample liquidity and was not currently looking for capital or business.
The company saw a $4 billion inflow of assets to its parent company on Friday as customers transferred assets from other companies to Schwab, Bettinger told Reuters.
Regulators and financial managers around the world have tried to allay fears of contagion from tech-focused lenders SVB and another US bank failed last week, but concerns remain.
A more than 20% fall in Credit Suisse shares saw the European banking index fall by more than 6%, while five-year credit default swaps (CDS) for the Swiss flagship bank hit a new record high, highlighting growing investor concerns .
The Swiss National Bank declined to comment on Switzerland’s second largest bank.
“Markets are wild. We are moving from the problems of American banks to those of European banks, most notably Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
In the United States, regional and large banks fell in the premarket. First Republic Bank was flat, while peers Western Alliance Bancorp and PacWest Bancorp fell 2% and 12%, respectively.
Big banks like JP Morgan Chase, Citigroup and Bank of America were all hit between 2% and 4%.
BlackRock Chief Executive Laurence Fink on Wednesday warned that the US regional banking sector remained at risk and forecast further high inflation and rate hikes.
Fink called the financial condition “the price of easy money” and said in an annual letter he expected the Federal Reserve to raise interest rates again.
He said “liquidity mismatches” may follow in the wake of the regional banking crisis, as low interest rates have prompted some asset owners to increase their exposure to higher-yielding assets that are not easy to sell.
Rapid rises in interest rates have made it harder for some companies to repay or service loans, increasing the likelihood of losses for lenders who are also concerned about a recession.
However, European Central Bank policymakers are still leaning towards a half a percentage point rate hike on Thursday, a source told Reuters, as they expect inflation to remain high.
Investors began to doubt the ECB’s commitment to another big rate hike as the collapse of the SVB rocked markets.
However, the source said the central bank is unlikely to stray from its plan to hike rates by 50 basis points on Thursday as it would damage its credibility.
In the United States, focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier banks like SVB and New York-based Signature Bank, whose collapses sparked the market turmoil.
Moody’s Investors Service on Tuesday revised its outlook for the US banking system to negative from “stable” citing heightened risks to the sector.
The SVB’s shutdown forced President Joe Biden into a rush to reassure the US financial system is safe and prompted contingency measures that gave banks access to more funding.
And in an attempt to avert a similar crisis in the future, the US Federal Reserve is considering tougher rules and tighter supervision for mid-sized banks similar in size to the SVB.
Earlier, the Tokyo Stock Exchange’s banking index was up more than 4% after three straight days of strong selling.
Investors were particularly worried about Japan’s lenders’ huge bond holdings, but Japan Finance Minister Shunichi Suzuki said differences in the structure of deposits meant local banks would not face incidents similar to SVB.
SVB aftermath
Wednesday’s sell-off comes after a pause on Tuesday, when ailing US bank stocks gained some ground, helped by news that private equity and buyout firms were trying to buy some SVB assets.
And in the UK, HSBC’s top bosses have urged staff at SVB’s bailed-out UK arm to reassure customers that “their deposits are safe and their loans are supported” as the post-takeover integration process begins, according to a memo by the bank shows.
Meanwhile, Charles Schwab chief executive Walt Bettinger said Tuesday the bank had ample liquidity and was not currently looking for capital or business.
The company saw a $4 billion inflow of assets to its parent company on Friday as customers transferred assets from other companies to Schwab, Bettinger told Reuters.
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