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European bank shares fell on Wednesday, with struggling Credit Suisse plunging as much as 30% to another record low, amid renewed investor concerns about stress in the sector caused by the sudden collapse of the Silicon Valley bank.
Regulators and financial managers around the world have tried to ease fears of contagion after tech-focused lender SVB and another US bank collapsed last week, but concerns remain.
A drop in Credit Suisse shares led to a 7% drop in the European banking index, while five-year CDS contracts for the Swiss bank’s flagship hit a new record, underscoring growing investor concerns.
The European banking index has seen more than 120 billion euros ($127 billion) evaporate in value since March 8.
Stocks fall in London as Credit Suisse crisis revives bank sell-off
“Markets are wild. We are moving from the problems of American banks to the problems of European banks, primarily Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
The Swiss National Bank declined to comment on Switzerland’s second-biggest bank after its biggest investor said it could not provide more financial support to Credit Suisse due to regulatory restrictions.
Germany’s financial regulator (BaFin) said it saw no immediate risk of contagion, and the German banking system appeared robust and able to absorb higher interest rates.
“Our main focus is currently on some smaller banks with little excess capital and increased interest rate risk – we are closely monitoring these institutions,” a BaFin spokesperson said in a statement.
In the US, regional banks also fell, with First Republic Bank down 16%, Western Alliance Bancorp down 8% and PacWest Bancorp down 24%,
Major US banks such as JPMorgan Chase & Co, Citigroup and Bank of America Corp fell between 3.5% and 5.5%.
BlackRock CEO Laurence Fink warned on Wednesday that the US regional banking sector remains at risk and predicted further high inflation and interest rate hikes.
Credit Suisse loses nearly 25%, key backer says no more money
Fink described the financial situation as “the price of easy money” and said in an annual letter that he expects more rate hikes by the US Federal Reserve.
He said that after the regional banking crisis, a “liquidity mismatch” could follow because low interest rates have pushed some asset owners to increase their exposure to higher-yielding investments that are not easily sold.
“It is too early to know the extent of the damage,” Fink wrote, adding, “The regulatory response so far has been swift and decisive action has helped prevent contagion.” But the markets are still on top.”
Rapidly rising interest rates have made it harder for some businesses to pay back or service loans, increasing the likelihood of losses for lenders who are also worried about a recession.
However, European Central Bank policymakers are still leaning toward a half-percentage-point hike on Thursday, a Reuters source said, as they expect inflation to remain high.
Investors had begun to question the ECB’s commitment to another big rate hike as the collapse of the SVB rattled markets.
But the source said the central bank was unlikely to back away from its plan to raise interest rates by 50 basis points on Thursday because doing so would damage its credibility.
The SVB supervisor encourages depositors to come back
Dissatisfaction with the demise of SVB has prompted savers to look for new homes for their cash.
Ralph Hamers, chief executive of UBS rival Credit Suisse, said it had benefited from market turmoil and seen cash inflows.
“In the last couple of days, as you would expect, we’ve seen an influx,” Hamers said. “Obviously it’s a flight to safety from that point of view, but I don’t think three days is a strategy.”
Deutsche Bank CEO Christian Sewing said the German lender has also seen deposits inflow.
In the United States, the focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier banks such as SVB and New York-based Signature Bank, whose collapse sparked market turmoil.
Moody’s Investors Service on Tuesday revised its outlook on the US banking sector to “negative” from “stable”, citing heightened risks to the sector.
The closure of SVB prompted President Joe Biden to ensure the US financial system was safe and emergency steps that gave banks access to more funding.
HSBC buys failed US bank SVB in the UK for £1
In Britain, HSBC’s top executives have called on staff at UK-rescued SVB to ensure customers “their deposits are safe and loans are supported” as the integration process after its takeover begins, a memo from the bank showed.
And in an effort to avert a similar crisis in the future, the Federal Reserve is considering tougher regulations and supervision of mid-sized banks the size of SVB.
Earlier, Tokyo’s stock index rose more than 4%, after three straight days of heavy selling.
Investors had been particularly concerned about the large bond holdings of Japanese lenders, but Japanese Finance Minister Shunichi Suzuki said differences in the structure of deposits meant local banks would not face similar incidents to SVB.