Credit Suisse is the biggest name caught up in the market turmoil caused by the recent collapses of U.S. lenders Silicon Valley Bank and Signature Bank
GENEVA – Credit Suisse Group AG (CSGN.S) is facing a make-or-break weekend as regulators encourage the bank to pursue a deal with Swiss rival UBS AG (UBSG.S). The 167-year-old bank is the biggest name caught up in the market turmoil caused by the recent collapses of U.S. lenders Silicon Valley Bank and Signature Bank. Swiss regulators are urging the two banks to merge, but neither is keen. The boards of both Credit Suisse and UBS are expected to meet separately over the weekend to assess strategic scenarios.
Efforts to shore up Credit Suisse come as policymakers, including the European Central Bank and U.S. President Joe Biden, try to reassure investors and depositors that the global banking system is safe. However, fears of broader troubles in the sector persist. Already this week, big U.S. banks provided an RM134.56 billion lifeline for smaller lender First Republic (FRC.N), while U.S. banks altogether sought a record RM686.28 billion in emergency liquidity from the Federal Reserve in recent days.
“The Swiss central bank stepping in was a necessary step to calm the flames, but it might not be sufficient to restore confidence in Credit Suisse, so there’s talk about more measures,” said Frederique Carrier, head of investment strategy at RBC Wealth Management.
Credit Suisse shares jumped 9% in after-market trading following the Financial Times report on the weekend meetings. Credit Suisse and UBS declined to comment.
In the latest sign of its mounting troubles, at least four major banks, including Societe Generale SA (SOGN.PA) and Deutsche Bank AG (DBKGn.DE), have put restrictions on their trades involving Credit Suisse or its securities. The move comes amid funding and liquidity strains on banks, driven by weakening depositor confidence. Rating agency Moody’s this week downgraded its outlook on the U.S. banking system to negative.
Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system. U.S. regional bank shares fell sharply on Friday, and the S&P Banks index (.SPXBK) tumbled 4.6%, bringing its decline over the past two weeks to 21.5%, its worst two-week calendar loss since the COVID-19 pandemic shook markets in March 2020.
First Republic Bank ended Friday down 32.8%, bringing its loss over the last 10 sessions to more than 80%. Moody’s downgraded the bank’s debt rating after the market close.
While support from some of the biggest names in U.S. banking prevented First Republic’s collapse this week, investors were startled by disclosures on its cash position and how much emergency liquidity it needed.
SVB Financial Group filed for bankruptcy court-supervised reorganisation, days after regulators took over its Silicon Valley Bank unit. Regulators had asked banks interested in buying SVB and Signature Bank to submit bids by Friday. They are considering retaining ownership of securities owned by Signature and SVB to allow smaller banks to participate in auctions for the collapsed lenders.
In Washington, the focus turned to greater oversight to ensure that banks, and their executives, are held accountable. Biden called on Congress to give regulators greater power over the banking sector, including imposing higher fines, clawing back funds, and barring officials from failed banks. Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs (GS.N) in SVB’s collapse, said the office of Representative Adam Schiff.
As the situation with Credit Suisse and the wider banking sector continues to unfold, regulators and investors will be watching closely for any signs of further trouble. – Reuters