Credit Suisse has a lifeline. Whats Next?
A Credit Suisse bank sign is seen on a branch building in Geneva, on March 15. (Fabrice Coffrini/AFP/Getty Images)
Three days after US regulators stepped in to bail out the banking sector and two failed banks, the Swiss central bank offered Credit Suisse a huge lifeline to restore confidence in the banking system.
Credit Suisse agreed, borrowing up to $54 billion from the Swiss National Bank. Although that calmed some nerves, the markets remain extraordinarily volatile. US markets were set to open lower. Asian markets tumbled. Markets in Europe rose only tepidly after Wednesday’s loss.
The focus has shifted back to: Who’s next? What is the next domino to fall?
First Republic Bank is the consensus option. Fitch Ratings and S&P on Wednesday downgraded the bank’s credit rating on concern that depositors could withdraw their cash despite federal intervention. The bank is reportedly exploring strategic options, including a sale, according to Bloomberg. (That’s the Wall Street term for: Help!) First Republic shares fell 28% in premarket trading.
On Thursday, Fitch Ratings notified Western Alliance bank, saying its credit rating could drop if customers continue to withdraw money from the bank. Shares of Western Alliance, a regional bank like SVB, fell 10% in premarket trading. PacWest Bank fell 16% and shares of other regional banks also fell again.
Clients continue to avoid regional banks despite government intervention. Although nothing like the collapse of SVB has happened this week, many customers have withdrawn money from smaller banks and put it into larger banks. Bank of America, Wells Fargo and Citigroup have received significant increases in deposits since Silicon Valley Bank ran into trouble last week, people familiar with the matter told CNN.
Regulators continued to try to calm nerves. US Treasury Secretary Janet Yellen, who will testify before Congress Thursday at 10 am ET, said the banking system remains safe. The Office of the Comptroller of the Currency, a key US banking regulator, said Thursday it was stepping up supervision of the banking industry.
But Wall Street is still on the edge. JPMorgan said in a note to clients that the Swiss central bank’s intervention was insufficient and that Credit Suisse would most likely have to be taken over.
Meanwhile, concerns continue to spill over from Credit Suisse to other parts of the banking industry.
“The problems at Credit Suisse are very different from those that brought down SVB a few days ago,” said Neil Shearing, chief group economist at Capital Economics. “But they serve as a reminder that as interest rates rise, vulnerabilities lurk in the financial system.”
Key areas to watch, Shearing says: Smaller European banks, shadow banks and open-end funds that could struggle under pressure from customers withdrawing money, and a large number of government bonds in their portfolios whose value it has collapsed as rates have risen. .