Turmoil at Credit Suisse crept across the pond on Wednesday, driving Wall Street lower on renewed fears of a banking crisis following the collapse of Silicon Valley Bank.
At the closing bell, the S&P 500 Banks Industry Group Index dropped 3.62 percent, and the Dow Jones Industrial Average fell 279 points, or 0.87 percent.
The major US stock indexes regained some ground in late trade, after the Swiss National Bank said it could provide liquidity assistance to troubled Credit Suisse if needed.
In Europe, shares of Credit Suisse plunged as much as 30 percent, hitting a new record low for the second consecutive day, after the Swiss banking giant’s biggest investor — Saudi National Bank — refused to inject further cash assistance.
Treasury Department officials are actively reviewing the US financial sector’s exposure to Credit Suisse, working closely with the Federal Reserve and European regulators, sources told Bloomberg.
The Dow fell 279 points. The major indexes regained some ground in late trade, after the Swiss National Bank said it could provide liquidity assistance to troubled Credit Suisse if needed
Traders work on the floor of the New York Stock Exchange on Wednesday. Wall Street’s main stock indexes dropped on Wednesday, as worries related to Credit Suisse battered sentiment
S&P 500 Banks Industry Group Index dropped more than 4 percent in morning trading, and the Dow Jones Industrial Average fell more than 450 points
A First Republic branch in Manhattan is seen on Wednesday, after Standard & Poor’s downgraded the bank’s bond rating to junk
Shares of First Republic, one of the US regional banks swept up in contagion fears after the collapse of Silicon Valley Bank last week, dropped 21 percent after Standard & Poor’s downgraded the bank’s bond rating to Junk status.
The Big Four trillion-dollar US banks gave back their gains from yesterday’s rally, with shares of JPMorgan, Bank of America, Citigroup and Wells Fargo closing down between 0.94 percent and 5.44 percent.
The VIX, known as Wall Street’s fear index, surged 10 percent on the day, touching its highest level this year. Crude oil prices plunged as much as 8 percent to their lowest level since 2021, as fears about the banking sector began to spread.
Driving the turmoil on Wall Street were concerns about Credit Suisse, which has assets of $574 billion, after the Swiss bank’s largest investor ruled out further financial assistance to the lender.
As its share price plunged, Credit Suisse asked the Swiss National Bank and regulatory agency Finma to issue public statements expressing confidence in the bank’s financial health, according to a Financial Times report citing sources familiar with the matter.
A spokesperson for Credit Suisse declined to comment when reached by DailyMail.com on Wednesday afternoon. The Swiss central bank and Finma could not be immediately reached for comment.
Concerns about Credit Suisse’s stability rocked European markets, and the European Central Bank (ECB) contacted banks on its watch to quiz them about their exposures to the Swiss banking giant, two supervisory sources told Reuters.
Asked about the impact of Credit Suisse’s problems on the US banking system, Senator Bernie Sanders told Reuters: ‘Everybody is concerned.’
Meanwhile, BlackRock CEO Larry Fink in his annual letter to investors and CEOs warned the US regional banking sector remains at risk after the collapse of Silicon Valley Bank, predicting inflation will persist and rates would continue to rise.
Fink called the Fed’s rapid rate hikes over the past year the ‘first domino to drop’ after years of easy money, noting that ‘prior tightening cycles have often led to spectacular financial flameouts’ and citing the ‘slow rolling crisis’ of the Savings and Loan Crisis of the 1980s.
‘We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the US regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming,’ he wrote.
Billionaire financier Carl Ichan also voiced concerns in a CNBC interview on Tuesday, saying ‘our system is breaking down, and we absolutely have a major problem in our economy today.’
‘One of the major reasons is that you don’t have good corporate leadership,’ said Ichan.
He continued: ‘When the tide is high, and things are great, it doesn’t matter, and all these guys that are running these companies are partying and having a good time and giving themselves bonuses. But, you know, their incentive is different than the people who invest with them.’
Shares of regional US banks have been hardest hit in the crisis, dragging down markets
BlackRock CEO Larry Fink in his annual letter to investors and CEOs warned the US regional banking sector remains at risk after the collapse of Silicon Valley Bank
On Wednesday morning, investors were pricing a 55 percent probability that the Fed will make no increase to its benchmark interest rate at the March 21-22 meeting next week
What caused turmoil at Credit Suisse?
Switzerland’s second-biggest bank is seeking to recover from a string of scandals that have undermined the confidence of investors and clients.
Customer outflows in the fourth quarter rose to more than $120 billion USD.
On Tuesday, Credit Suisse published its annual report for 2022 indicating that managers had identified ‘material weaknesses’ in the bank’s internal control over financial reporting.
Then on Thursday, the bank’s largest investor, Saudi National Bank, said it would not inject further capital.
SNB chairman Ammar Al Khudairy said his bank, which owns 9.88% of Credit Suisse, would not increase its stake, citing regulatory issues tied to owning more than 10%.
The news shook investor confidence, and Credit Suisse shares plunged as much as 30% to new all-time lows.
After the collapse of SVB Financial and Signature Bank, emergency measures by US authorities had soothed some worries about the health of the other banks, helping regional lenders stage a rebound in Tuesday’s session.
However, some regional banks were giving back their gains in mixed trading midday Wednesday, with shares of First Republic and PacWest down more than 17 percent, but Western Alliance shares rising more than 5 percent.
San Francisco-based First Republic, which has a similar customer base to failed SVB, saw a sharp sell-off after ratings agency S&P downgraded its credit to junk status.
‘Junk’ bonds, also known as high-yield bonds, trade at a steep discount to face value due to the perceived increased risk of the issuer defaulting.
First Republic’s long-term issuer credit rating was cut to BB+ from A- and placed on CreditWatch negative by the agency, which cited elevated risks of depositors fleeing the bank, the phenomenon that led to SVB’s collapse.
Earlier, ratings agency Moody’s placed First Republic and five other smaller regional banks on watch for a potential bond ratings downgrade.
Moody’s also downgraded its outlook for the entire US banking sector to negative from stable, citing ‘rapid deterioration in the operating environment’.
On Wednesday, positive new economic data did little to boost markets, including a report showing US wholesale inflation dropped unexpectedly in February.
The Labor Department’s report showed the producer price index for final demand dropped 0.1 percent last month, meaning wholesale prices actually declined from January to February.
A separate report showed retail sales fell 0.4 percent last month from a growth of 3.2 percent in January, a move that increased chances that the Federal Reserve will slow its interest rate hikes at its meeting next week.
On Wednesday morning, investors were pricing a 55 percent probability that the Fed will make no increase to its benchmark rate at the March 21-22 meeting, according to the CME Group’s FedWatch tool.
Driving investor sentiment was turmoil at Credit Suisse, after its biggest shareholder – the Saudi National Bank – said that it would not inject more money into the ailing Swiss bank.
Saudi National Bank chairman Ammar Al Khudairy told Reuters: ‘We cannot [buy more shares] because we would go above 10 percent. It’s a regulatory issue.’
The Saudi bank holds a 9.88 percent stake in Credit Suisse, according to Refinitiv data.
European trading in the Swiss bank’s shares was halted late morning as they fell by a fifth to fresh record lows, having been pummeled earlier in the week in market fallout from the collapse of Silicon Valley Bank.
Switzerland’s second-biggest bank is seeking to recover from a string of scandals that have undermined the confidence of investors and clients. Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs ($120 billion).
Last year, Saudi National Bank put in some 1.5 billion Swiss francs ($1.5 billion) to acquire a holding just under 10 percent as Credit Suisse looked to raise funding from investors and roll out a new strategy to overcome an array of troubles.
Those include bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving Zurich rival UBS.
On Tuesday, Credit Suisse published its annual report for 2022 indicating that managers had identified ‘material weaknesses’ in the bank’s internal control over financial reporting as of the end of last year.
That fanned new doubts about the bank’s ability to weather the recent storm.
Shares of Credit Suisse dropped to a new all-time low on Wednesday after Saudi National Bank said that it would not inject more money into the ailing Swiss bank
Shares of Credit Suisse plunged up to 30 percent, hitting a a new record low for the second day in a row, after the Swiss bank’s largest investor said it could not inject more cash
Al Khudairy said SNB was happy with Credit Suisse’s turnaround plan and did not think it would need more money, but also described his bank’s investment as an opportunistic one that was not time-dependent.
The Saudi bank would exit when proper value to the shares had been acquired, he added.
‘We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank,’ Al Khudairy said on the sidelines of a conference in Riyadh.
‘I don’t think they will need extra money; if you look at their ratios, they’re fine. And they operate under a strong regulatory regime in Switzerland and in other countries.’