LONDON/NEW YORK (Reuters) - Global banking shares took a fresh beating on Wednesday as Credit Suisse (SIX:CSGN) shares slid to a new record low as its largest investor said it could not provide the Swiss bank with more financial assistance.
Efforts by regulators and financial executives to ease contagion fears sparked by last week's collapse of Silicon Valley Bank (SVB) had bought some brief stability to markets, but turmoil once more appeared to be taking over.
Saudi National Bank cannot give more money to Credit Suisse as it cannot go above 10% ownership due to a regulatory issue, SNB's chairman Ammar Al Khudairy told Reuters.
MARKET REACTION:
STOCKS: Credit Suisse shares ended down about 24%, ING Group, ABN AMRO (AS:ABNd) were down over 9%. The euro zone volatility index shot up to its highest level since October. The S&P 500 Banks Index was down 3.7% and the S&P 500 was off 0.8%BONDS: The yield on 10-year Treasury notes was down 14.7 basis points to 3.489%. The two-year U.S. Treasury yield fell 28.8 basis points to 3.937%. German 2-year bond yields were down 52 basis points at 2.383%
FOREX: The euro fell about 1.5% to $1.0584, the dollar index was up 0.4%.
COMMENTS:
MARK STOECKLE, CEO AND SENIOR PORTFOLIO MANAGER, ADAMS FUNDS, BALTIMORE
“The bounce back yesterday in financial stocks, the banks, made sense, but sort of an overriding factor here is a loss of confidence and it’s really fear of the unknown. We’ve all spent a lot of time looking at SVB and what the issues are and a reasonable person could come to the conclusion that was idiosyncratic, it was a one-off. The fact that the New York State regulators went in and closed Signature, it’s like, OK well that is a different issue so now we have seen two issues and there is a lack of confidence."
“Yesterday was, for lack of a more elegant way of saying it, kind of a dead cat bounce with some of these stocks. They were oversold. But that doesn’t take away the fact that could we see more. We could. Do I think it’s a high probability? No, but it is certainly not zero, when you take that with this Credit Suisse thing. I probably say this more to my analysts than I ever have: every time you think it is in the market, it's not. This thing has been slowly imploding for years. But on top of what we heard yesterday, all of a sudden, when their biggest defender effectively says, ‘you know what? We’re good. We’ve got as much as we need,’ all of a sudden there is no backstop there. So you’ve taken the backstop away and that has just has a lot of generalist money managers, generalist portfolio managers saying, ‘you know what, I’m just going to go, I’m going to go for a while.’"
TORSTEN SLOK, CHIEF ECONOMIST, APOLLO GLOBAL MANAGEMENT (emailed note)
"When the facts change, my view changes. A financial accident has happened, and we are going from no landing to a hard landing driven by tighter credit conditions … Small banks account for 30% of all loans in the US economy, and regional and community banks are likely to now spend several quarters repairing their balance sheets. This likely means much tighter lending standards for firms and households even if the Fed would start cutting rates later this year. With the regional banks playing a key role in US credit extension, the Fed will not raise interest rates next week, and we have likely seen the peak in both short and long rates during this cycle."
PAUL NOLTE, SENIOR WEALTH ADVISOR AND MARKET STRATEGIST, MURPHY & SYLVEST
"Over the short term, certainly there is contagion fear. You are seeing it play out in the markets from the time that Credit Suisse announced they were having some issues raising funds. But that said, I don't think the contagion will spread to the United States. That was done when two banks (SVB and Signature Bank) went down."
"They (Credit Suisse) have struggled with their loan book for the better part of the last 2-3 years, and is likely to wind up getting acquired by someone without additional capital infusion."
STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS
“Silicon Valley Bank and the other U.S. banks that failed over the last week were fairly sudden, but Credit Suisse has been in the news for months now with worries about their situation. The fact that their stock price was already so depressed tells us that the market was already somewhat fearful of events at that bank, but that said, a lot of times people don't really take risks to heart until it's staring them in the face.”
“The fact that a lot of today's rout was triggered largely by one story about one large investor tells me that people are not in the mood right now to hear anything negative.”
“When you get in a situation when people worry about a bank, particularly one that is globally important, they get concerned about contagion and worries about risks getting magnified.”
ANDREW KENNINGHAM, CHIEF EUROPE ECONOMIST, CAPITAL ECONOMICS (emailed note)
"Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week. Admittedly, its problems were well known so do not come as a complete shock to either investors or policymakers. However, Credit Suisse has a much larger balance sheet than SVB (CHF530bn at end-2022) and is much more globally inter-connected, with multiple subsidiaries outside Switzerland including in the US. It is also a US primary broker. Credit Suisse is not just a Swiss problem but a global one."
"If Credit Suisse were to fail much would depend on how orderly the resolution is. As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or “living wills”) have not been put to the test since they were introduced during the Global Financial Crisis. Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected."
ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON:
"The Credit Suisse share price is falling and government bonds are rallying on the back of that. Still very much driven by the perceived health of the banking sector, but this time in Europe."
CARLO FRANCHINI, HEAD OF INSTITUTIONAL CLIENTS, BANCA IFIGEST, MILAN
"Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse."
"This is dragging lower the whole banking sector in Europe. The shares accelerated losses after the Saudis said they're not willing to support the bank any further.
"I believe Credit Suisse's crisis can be solved and the bank will not ... go belly up. Once some calm returns to the markets, the problem will be who can take it over."
KASPAR HENSE, SENIOR PORTFOLIO MANAGER, BLUEBAY ASSET MANAGEMENT, LONDON
"So the market is quite confused here on the stability of the bank (Credit Suisse) in general, and certainly doesn't help if today the Saudis are coming out and saying that they will not increase the buffer, and so we think it will be dependent on the Swiss regulator to step in.
"But in general, the balance sheet is in a much better position, with the European banks all highly regulated. That means they have substantial buffer beyond the equity portion on the senior and subordinated debt.
That should, to some extent prevent an attack, but it didn't. So, it is important that the European regulator makes clear that the underlying systemic risk, not only for deposits, but in the overall European banking market, is rather low."
RICHARD MCGUIRE, HEAD OF RATES STRATEGY, RABOBANK, LONDON
"We're back off to the races, the markets are spooked by the Credit Suisse headline that the Saudi National Bank would not increase its stake.
"That's caused the Credit Suisse share price to fall, and the German curve has bull steepened - short end rates have fallen faster than long end - as the market reassesses yet again the outlook for ECB policy.
"Credit Suisse is not new news, maybe it has come as a surprise to some, but the Saudi National Bank, was at the 10% limit before, they are at the 10% limit now, what has changed is the context. We think neither the Fed or ECB will be blown off track, inflation targeting is first and foremost. For today Credit Suisse is the dish of the day but we don’t think this will be a longer lasting trend (for bond markets)."
SALMAN AHMED, GLOBAL HEAD OF MARCO AND STRATEGIC ASSET ALLOCATION, FIDELITY INTERNATIONAL, LONDON
"Key central banks have all the tools now necessary to stem contagion. There was a lot of progress made after the 2008-2009 crisis. So there's a variety of tools -- we've seen that in the eurozone, we've seen that with the Fed, the Bank of Japan, obviously, can deploy a lot more liquidity there.
"So we are less concerned about widespread 2008-2009 systemic at risk. Overall, the banking sector is in much better shape. You may have these idiosyncratic issues which create wobbles. But I think the larger question remains, are we in that territory where financial instability is as important as inflation and growth? That's the bigger question so we're not out of the woods from that perspective."
"I am less concerned about sustained contagion. For a few days, things can happen, but sustained contagion? We have the tools now.
"More pressure would likely bring more tool deployment."