European bank stocks slumped on Wednesday, with embattled Credit Suisse tumbling as much as 30% to another record low, on renewed investor concerns about stresses within the sector triggered by Silicon Valley Bank’s sudden collapse.
Regulators and financial executives around the world have sought to assuage contagion fears after tech-focused lender SVB and another U.S. bank failed last week, but worries persist.
The drop in Credit Suisse shares led a 7% fall in the European banking index, while five-year credit default swaps (CDS) for the flagship Swiss bank hit a new record high, highlighting increasing investor concerns.
Europe’s bank index has seen more than 120 billion euros evaporate ($127 billion) in value since March 8.
London stocks drop as Credit Suisse crisis reignites bank selloff
“Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
The Swiss National Bank declined to comment on Switzerland’s second-largest bank, after its largest investor said it could not provide Credit Suisse with more financial assistance because of regulatory constrains.
Germany’s financial supervisory authority (BaFin) said it saw no direct risk of contagion and the German banking system appeared robust and capable of digesting higher interest rates.
“Our main focus is currently on some smaller banks with little surplus capital and increased interest rate risks – we are closely monitoring these institutions,” a BaFin spokesperson said in a statement.
In the United States, regional banks also fell, with First Republic Bank down 16%, Western Alliance Bancorp down 8% and PacWest Bancorp off around 24%,
Big U.S. banks such as JPMorgan Chase & Co, Citigroup and Bank of America Corp slid by between 3.5% and 5.5%.
BlackRock Chief Executive Laurence Fink warned on Wednesday that the U.S. regional banking sector remained at risk, and predicted further high inflation and rate increases.
Credit Suisse sheds nearly 25%, key backer says no more money
Fink described the financial situation as the “price of easy money” and said in an annual letter that he expected more U.S. Federal Reserve interest rate increases.
He said that after the regional banking crisis “liquidity mismatches” could follow because low rates have driven some asset owners to raise their exposure to higher-yielding investments that are not easy to sell.
“It’s too early to know how widespread the damage is,” Fink wrote, adding: “The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”
Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.
However, European Central Bank policymakers are still leaning towards a half-percentage-point rate hike on Thursday, a source told Reuters, as they expect inflation will remain high.
Investors had begun to doubt the ECB’s commitment to another big rate hike as SVB’s collapse rattled markets.
But the source said the central bank was unlikely to diverge from its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
SVB caretaker urges depositors to come back
Unease sparked by SVB’s demise has prompted depositors to seek out new homes for their cash.
Ralph Hamers, CEO of Credit Suisse rival UBS said it has benefited from market turmoil and seen money inflows.
“In the last couple of days as you might expect we’ve seen inflows,” Hamers said. “It is clearly a flight to safety from that perspective, but I think three days don’t make a trend.”
Deutsche Bank CEO Christian Sewing said that the German lender has also seen incoming deposits.
SVB aftermath
In the United States, the focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier ones like SVB and New York-based Signature Bank, whose collapses triggered the market tumult.
Moody’s Investors Service on Tuesday revised its outlook on the U.S. banking system to “negative” from “stable”, citing heightened risks for the sector.
SVB’s shutdown prompted President Joe Biden’s assurances that the U.S. financial system is safe and emergency steps giving banks access to more funding.
HSBC buys failed US bank SVB’s UK arm for £1
In Britain, HSBC’s top bosses have called on employees at SVB’s rescued UK arm to assure clients “their deposits are safe and loans are supported” as the process of integration following its takeover begins, a memo from the bank showed.
And in an attempt to avert a similar crisis down the line, the U.S. Federal Reserve is considering tougher rules and oversight for midsize banks similar in size to SVB.
Earlier, the Tokyo Stock Exchange banks index jumped more than 4%, after three straight days of heavy selling.
Investors had been particularly concerned about the huge bond holdings of Japan’s lenders, but Japanese finance minister Shunichi Suzuki said differences in the structure of deposits, meant local banks would not face incidents similar to SVB.