US insists banking system ‘sound’ as banks pledge billions to First Republic

The Dow Jones Industrial Average closed 280 points (0.87%) lower on Wednesday, dogged by concerns over the future of Credit Suisse, which has a large US and international presence beyond its home base in Switzerland.

The S&P ended the day down 0.7% at 3,891.97, and the Nasdaq Composite managed to creep up 0.05% at 11,434 by the close of trading.

At one point the Dow was down 725 points and the S&P briefly saw all of this year’s gains erased.

There was something of a rebound in the afternoon when Swiss regulators announced that the country’s central bank would give Credit Suisse liquidity if needed, helping mitigate earlier concerns when it was reported by Reuters that Saudi National Bank, the institution’s largest investor, said it couldn’t provide further funding.

Credit Suisse had earlier said it had found “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022.

Fears over the future of the bank stem from the crisis that emerged in US regional banks following the collapse of Silicon Valley Bank and Signature Bank over the weekend.

Fears that the economy might be on the edge of another “2008-style crisis” caused shares in top European banks to plunge and dragged London’s FTSE 100 down to its lowest level this year.

Troubled bank Credit Suisse saw its share price drop by as much as a quarter to a new record low, causing its shares to be temporarily suspended on the Swiss market.

Investors were shaken by the collapse of Silicon Valley Bank (SVB) in the US over the weekend, sparking concerns about the viability of the “too big to fail” Credit Suisse.

On Monday, the UK government said that HSBC would take over the UK wing of the bank.

But what was SVB, why did it collapse, and are other banks at risk? We examine these questions here.

A bank run conjures images of “It’s a Wonderful Life,” with anxious customers crammed shoulder to shoulder, desperately pleading with a harried George Bailey to hand over their money.

The failure of Silicon Valley Bank last week had the panic but few other similarities, instead taking place on Twitter, message boards, cell phones and bank websites.

What made the failure of Silicon Valley Bank unique compared to past failures of large banks was how quickly it collapsed. Last Wednesday afternoon, the $200 billion bank announced a plan to raise fresh capital; by Friday morning it was insolvent and under government control.

Credit Suisse is planning to borrow up to £44.5bn from Switzerland’s central bank in a bid to boost its liquidity and calm investors.

Credit Suisse plunged and dragged down other major European lenders in the wake of bank failures in the US.

The lender’s stock dropped about 30 per cent, to about £1.42, before clawing back to a 24 per cent loss at £1.51 at the close of trading on the SIX stock exchange.

At its lowest, the price was down more than 85 per cent from February 2021.“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.

Credit Suisse said the borrowing will be made under the covered loan facility and a short-term liquidity facility, and it will be collateralised by high quality assets.

James Moore wrote this week:

Just what we needed right now: another banking crisis. But after the bloodbath at the beginning of the week, a rally quickly got underway. Regional banks in the United States – in real danger of experiencing a run on their deposits while larger rivals benefit from inflows – found some support.

Perhaps Wall Street’s nail-biters had worked out that the doomed Silicon Valley Bank (SVB) had a rather unique financial and client structure. Ditto New York-based lender Signature, which shut down over the weekend. Interventions by the US Federal Reserve do seem to have helped calm nerves.

Gold prices climbed over 1 per cent to their highest since early February as a fresh crisis in the banking sector turned investors away from seemingly riskier assets.

Spot gold jumped 1.2 per cent to $1,924.63 per ounce. The US gold futures gained 1.1 per cent to settle at $1,931.30.

Gold prices in sterling hit a record high while bullion in euros also spiked towards all-time peaks hit last year.

“People are going to the US Treasuries, gold, silver, and the dollar. They’re exiting riskier assets like US equities and economically-sensitive metals like copper, platinum and palladium,” Phillip Streible, chief market strategist at Blue Line Futures in Chicago, told Reuters.

There was a frenetic weekend of nonstop briefings with regulators, lawmakers, administration officials and President Joe Biden himself about how to handle the demise of the nation’s 16th-biggest bank and a go-to financial institution for tech entrepreneurs. At the core of the problem was tens of billions of dollars — including money companies needed to meet payrolls — sitting in Silicon Valley Bank accounts that were not protected by federal deposit insurance that only goes up to $250,000.

Something needed to be done, federal officials agreed, before Asian stock markets opened Sunday evening and other banks faced the potential for waves of panicked withdrawals Monday morning.

Here’s how it unfolded:

Fears the global economy might be hit by a fresh banking crisis wiped billions of pounds off the value of top firms yesterday during growing uncertainty over the future of troubled Credit Suisse.

Jitters spread through global markets as shares in the struggling Swiss lender crashed to a record low, dragging London’s FTSE 100 down 3.8 per cent.

It closed at 7,344 points, more than wiping out the gains that the index has made since the beginning of the year. It was a bigger one-day decline than last year’s mini-Budget and the day that Russia launched the full-scale invasion of Ukraine.

Alastair Jamieson reports.

Credit Suisse shares shot up by more than 30 per cent as trading opened in Zurich on Thursday after turning to the central bank in a bid to temper fears over its finances.

It was announced last night that the lender would borrow up to 50bn Swiss francs (£44bn) from the Swiss National Bank to strengthen its liquidity.

The troubled banking giant said it was taking decisive action to shore up its finances after its shares nosedived 30 per cent on Wednesday.