Credit Suisse stocks hit as investor fears reignited

  • By Nick Edser
  • Business reporter

Credit Suisse’s share price is down more than 10% and stock markets are down, despite efforts to allay banking sector fears.

The troubled Swiss lender had secured a £45bn lifeline from the country’s central bank.

However, after a brief rise, stocks are now falling, while markets in the UK and Europe have turned negative.

In the US, a group of Wall Street giants injected $30 billion (£24.8 billion) into a smaller domestic bank.

There was concern that First Republic was in danger of bankruptcy following the collapse of two other medium-sized US banks in recent days.

The rescue by the group of 11 banks including JP Morgan and Citigroup seemed to calm the stock markets. In Asia, Japan’s Nikkei stock index closed 1.2% higher.

Stock markets in the UK, France and Germany all opened higher, but have since fallen.

Meanwhile, a sell-off of Credit Suisse stock has gained momentum.

Shares in Credit Suisse fell earlier this week on future concerns before the Swiss National Bank said it was intervening with emergency funds.

Credit Suisse has been in trouble for some time and remains loss-making.

Earlier this week, it shocked investors when it admitted it had found “material weakness” in its financial reporting.

Credit Suisse’s troubles coincided with the bankruptcy of two US lenders – Silicon Valley Bank (SVB) and Signature Bank – raising fears about the health of the banking system.

US regulators intervened over the weekend to ensure that customers at SVB and Signature Bank had full access to their money.

Days later, concerns arose that San Francisco-based First Republic would be the next bank to risk customers withdrawing their deposits.

The stock was down nearly 70% in the past week.

US financial officials said the move was “very welcome and demonstrates the resilience of the banking system”.

image source, Getty Images

Shares of First Republic, however, fell 20% in after-hours trading after the bank said it was suspending its dividend — payment to shareholders — “during this period of uncertainty.”

Swetha Ramachandran, investment director at GAM Investments, said recent events during the financial crisis were “very different from 2008”.

She said authorities were taking “proactive” action to solve problems at banks.

“What they’re trying to do is really shield the specific issues around individual isolated banks to prevent them from becoming systemic,” she told the BBC’s Today programme.

Central banks around the world have raised borrowing costs sharply over the past year to try to curb the pace of general price increases or inflation.

The moves have eroded the value of the large portfolios of bonds bought by banks when interest rates were lower, a change that contributed to the collapse of Silicon Valley Bank, and raised questions about whether other companies in a similar situation.

Jeffrey Cleveland, chief economist at US asset manager Payden and Regal, said other banks could be caught up in the problem.

“There could be other vulnerabilities…if central banks plan to keep raising interest rates,” he told the BBC’s Today programme.

“When that happens, historically we see vulnerability, we see problems in the financial system.”

Before the turbulence erupted in the banking sector, both the US Federal Reserve and the Bank of England were expected to raise interest rates further next week. However, recent events have led some to speculate that these rate hikes could be scaled back or even scrapped.

On Thursday, the ECB announced a further rate hike from 2.5% to 3%.






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