Credit Suisse shares hit as investor fears rekindle

  • By Nick Edser
  • business journalist

Credit Suisse’s share price fell more than 10% and equity markets fell slightly despite attempts to calm fears over the banking sector.

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

However, after a brief rise, its shares are now falling as markets in the UK and Europe have turned negative.

In the US, a group of Wall Street giants pumped $30bn (£24.8bn) into a small national bank.

There were fears that First Republic could go bankrupt following the collapse of two other mid-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, the Japanese Nikkei stock index closed up 1.2%.

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

Meanwhile, a sell-off in Credit Suisse shares accelerated.

Shares of Credit Suisse fell earlier in the week on worries about its future, before the Swiss National Bank stepped in with emergency funds.

Credit Suisse has been in trouble for a long time and continues to be loss-making.

Earlier this week he rocked investors when he admitted he had found a “material weakness” in his financial reports.

Credit Suisse’s problems coincided with the failure of two lenders in the United States – Silicon Valley Bank (SVB) and Signature Bank – raising fears about the health of the banking system.

US regulators stepped in over the weekend to ensure SVB and Signature Bank customers had full access to their money.

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

Its shares had fallen nearly 70% in the past week.

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

source of images, Getty Images

However, First Republic shares fell 20% in after-hours trading after the bank announced it was suspending its dividend – its payment to shareholders – “during this period of uncertainty”.

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

She said authorities were acting “proactively” to stem the banks’ problems.

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

Central banks around the world have sharply increased borrowing costs over the past year in an attempt to curb the pace of global price or inflation increases.

The moves hurt the value of the large portfolios of bonds bought by banks when rates were lower, a change that contributed to the collapse of Silicon Valley Bank and raised questions about whether other businesses face 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 intend to keep raising interest rates,” he told the BBC’s Today programme.

“Historically when that happens we see fragility, we see problems in the financial system.”

Before the banking sector turmoil erupted, the US Federal Reserve and the Bank of England were expected to raise interest rates yet again at meetings next week. However, due to recent events, some have speculated that these rate hikes may be reduced or even eliminated.

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

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