Credit Suisse shares hit as investor fears resurface

  • By Nick Edser
  • Business reporter

Credit Suisse’s share price has fallen more than 10% and stock markets have fallen despite attempts to calm fears about the banking sector.

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

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

In the US, a group of Wall Street giants injected $30bn (£24.8bn) into a smaller domestic bank.

There had been concern that First Republic was at risk of failure following the collapse of two other mid-sized US banks in recent days.

The bailout by the group of 11 banks, including JP Morgan and Citigroup, appeared to calm equity markets. In Asia, Japan’s Nikkei stock index closed 1.2% higher.

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

Meanwhile, a sell-off in Credit Suisse shares has gathered pace.

Shares in Credit Suisse fell earlier this week on concerns over its future before the Swiss National Bank said it was stepping in with emergency funds.

Credit Suisse has been troubled for a long time and remains loss-making.

Earlier this week it rattled investors when it admitted it had found “material weakness” in its financial reporting.

The problems at Credit Suisse coincided with the failure of two lenders in the US – 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 that customers of SVB and Signature Bank had full access to their money.

Days later, concerns surfaced that San Francisco-based First Republic would be the next bank at risk of customers withdrawing their deposits.

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

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

image source, Getty Images

However, shares in First Republic fell 20% in after-hours trading after the bank said 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 to 2008” during the financial crisis.

She said authorities were moving “proactively” to stem problems at the banks.

“What they are trying to do is really to delineate the specific problems around individual isolated banks to prevent them becoming systemic,” she told the BBC’s Today programme.

Central banks around the world have sharply raised borrowing costs over the past year to try to slow the pace of overall price increases, or inflation.

The moves have hurt the values ​​of the large portfolios of bonds bought by banks when interest rates were lower, a change that contributed to the collapse of Silicon Valley Bank, and have raised questions about whether other firms 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 may be other vulnerabilities… if central banks intend to continue 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 turbulence in the banking sector broke out, both the US central bank and the Bank of England were expected to raise interest rates further at meetings next week. However, due to recent events, some have speculated that these rate hikes may be reduced or even scrapped.

On Thursday, the ECB announced a further increase in interest rates from 2.5% to 3%.

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