Fears of bank contagion remain, Wall Street ends lower on Friday

Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding banking crisis and the gathering storm clouds of possible recession.

“This ATM crisis has increased the chance of a recession and accelerated the timeline of the economic slowdown,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “It is natural that the Fed is reconsidering its course of action, but it is still very clear that while inflation is slowing, it is still very much a concern and needs to be brought under control.”

All three indexes ended the session deep in negative territory. The Dow Jones Industrial Average fell 1.19 percent to 31,861.98, the S&P 500 lost 1.1 percent to 3,916.64 and the Nasdaq Composite fell 0.74 percent to 11,630.51.

First Republic Bank fell 32.8 percent after the bank announced it was suspending its dividend, reversing Thursday’s rise that was sparked by an unprecedented $30 billion bailout by major financial institutions.

“The liquidity injections will not be enough when risks erupt in the banking and financial system,” said Dong Shaopeng, executive deputy editor-in-chief of Securities Daily in a note to CGTN. “When such a risk exists, more banks will need liquidity injections.”

Credit rating agency Moody’s downgraded First Republic Bank on Friday, citing deterioration in the bank’s financial profile and challenges the lender faces due to increased reliance on funding amid deposit outflows. The agency cut the bank’s long-term issuer rating and subordinate ratings in local currency to B2 from Baa1.

Among First Republic’s peers, PacWest Bancorp fell 19 percent, while Western Alliance fell 15.1 percent. US-traded shares in Credit Suisse also closed significantly lower on Friday, down 6.9 per cent.

“This goes much further than just a run on SVB (Silicon Valley Bank) or First Republic, it goes to the real effect these rate hikes are having on capital and balance sheets,” Pursche added. “And you’re seeing it affect big institutions like Credit Suisse, and it’s got people rattled.”

Over the past two weeks, the S&P Banking Index and the KBW Regional Banking Index have fallen 4.6 percent and 5.4 percent, respectively, their biggest two-week declines since March 2020.

(With input from Reuters)

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