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Sunday, March 26, 2023

Banks fall again as bailouts fail to restore calm

Bank shares tumble on both sides of Atlantic as efforts to shore up financial system fail to calm investor nerves

  • Troubled lenders in the US and Europe were on the slide once again
  • Latest sell-off came just a day after First Republic was handed a £25bn lifeline
  • That rescue package itself came just hours after £45bn bailout of Credit Suisse

Bank shares tumbled on both sides of the Atlantic as efforts to shore up the financial system failed to calm investor nerves.

After a brutal week on markets around the world, troubled lenders in the US and Europe were on the slide once again – despite the bailouts of Zurich-based Credit Suisse and San Francisco-based First Republic.

The latest sell-off came just a day after First Republic was handed a £25billion lifeline in a desperate bid to boost confidence.

That rescue package itself came just hours after the £45billion bailout of Credit Suisse.

But it did little to calm the markets left reeling by the collapse of three US regional banks in quick succession – Silvergate on March 8, Silicon Valley Bank (SVB) on March 10 and Signature Bank two days after that.

In the red: Troubled lenders in the US and Europe were on the slide once again

With investors fearing worse is still to come, First Republic crashed another 32.8 per cent in early trading. Other regional lenders to feel the heat included Pacific West which fell 7.2 per cent, Western Alliance which lost 15.1 per cent, Zions Bancorporation which dropped 3.9 per cent and Comerica which dipped 5.2 per cent. In Europe, Credit Suisse plunged 10.9 per cent.

The fallout was felt on stock markets around the world with the FTSE 100 giving up early gains to close down 1 per cent, or 74.63 points, to 7335.4.

Neil Wilson, a strategist at Markets.com, warned of ‘fear and loathing in banking and markets’, adding: ‘We are not out of the woods.’

It sets the scene for a rocky weekend for industry chiefs, regulators, central bankers and government ministers and officials before the markets reopen on Monday morning.

The sell-off came despite the fact that, late on Thursday night, a group of the largest banks in America came together to pump £25billion into First Republic.

There are now serious questions over what can be done to stem the crisis engulfing the banking sector as confidence continues to be eroded.

Investors heavily criticised the decision to pump aid into First Republic, saying it was a mistake to expose the country’s biggest lenders to such a high risk asset. Bill Ackman, of hedge fund management company Pershing Square, said in a tweet that it had created ‘a false sense of confidence’ in the lender and spread financial contagion.

‘It raises more questions than it answers – it’s bad policy,’ the investor continued. ‘I have said before that hours matter. We have allowed days to go by. Half-measures don’t work when there is a crisis of confidence.’

The European Central Bank yesterday called an unscheduled meeting to discuss how to stop contagion and the state of banking in the eurozone.

The Bank of England said it was monitoring the situation and remains ‘engaged’ with the banks and regulators at all times.

But there was little respite for Credit Suisse as the bank, founded in 1856, was hit with legal action from a group of investors who claim it overstated its prospects before this week’s crash.

The Swiss authorities are exploring a possible tie-up with UBS to shore up Credit Suisse – but it is understood that there is push-back on the idea. UBS wants to focus on its own wealth management strategy and is reluctant to take on risks related to Credit Suisse, sources say.

Analysts believe a break-up of Credit Suisse is still the most likely solution.

Last week, Credit Suisse admitted it had ‘material weaknesses’ in its reporting and controls procedures when it published its delayed 2022 annual report.

Stuart Cole, head macro economist at liquidity provider Equiti Capital, said: ‘We’re not out of the woods yet by any means.’ Craig Erlam, analyst at Oanda, said: ‘We need to get through the weekend without more drama.’

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