Banking crisis triggers bailouts in US and Europe: Credit Suisse shares soar after £45bn lifeline as Wall St giants pump £25bn into First Republic
Last night Wall Street’s biggest banks agreed to inject emergency funds into the First Republic just hours after Credit Suisse took on a £45billion bailout.
A group of 11 companies, including JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, will deposit £25bn with the struggling San Francisco-based lender to shore up its finances.
The decision to save the First Republic was the latest example of efforts across America, Europe and the UK to limit the fallout from the turmoil rocking the global banking sector.
Headache: A trader on the NYSE floor. A group of 11 Wall Street banks are to deposit £25bn with San Francisco-based lender First Republic to shore up their finances
This followed pressure from the US government amid fears that the collapse of three US regional banks – Silicon Valley Bank, Silvergate and Signature Bank – could trigger a new financial crisis.
“The actions of America’s largest banks reflect their confidence in the nation’s banking system,” the banks said in a joint statement.
“Together, we are deploying our financial strength and liquidity into the broader system, where it is most needed.”
It was the final act of a global drama that swung back and forth across the Atlantic.
Credit Suisse, already badly damaged by recent scandals and a £99billion exodus of funds late last year, is the biggest lender to have been caught in the turmoil.
Its share price slumped on Wednesday after its largest shareholder said it would not invest any more money. This prompted an offer from the Swiss National Bank, which was accepted yesterday morning.
She dismissed the threat of immediate danger but doubts remain about her future. Credit Suisse’s share price jumped an initial 33% on the announcement, but by the end of the session was only up 19%.
Nine days of chaos
- 8 March Crypto Lender Silvergate Capital Is Shutting Down And Liquidating Its Assets; Silicon Valley Bank (SVB) surprises investors with a £1.8bn fundraise after bond losses
- March 9 SVB shares fall 60% as customers rush to withdraw funds, triggering a wider sell-off in bank shares
- March 10 US regulators shut down SVB; Bank of England announces insolvency proceedings for its UK branch
- March 11 Officials assess impact on tech sector as crisis deepens
- 12th of March Regulators close New York’s Signature Bank to prevent spread of financial contagion
- March 13 HSBC buys SVB UK for £1; Joe Biden insists US banking system is safe as financial stocks continue to slide
- March 14 Bank stocks recover part of their losses; US officials open investigations into SVB collapse
- March 15 Credit Suisse shares fall 24% to record high as panic sweeps across Europe; Jeremy Hunt’s Budget
- March 16 Credit Suisse gets £45bn lifeline; The ECB raises interest rates; US banks invest £25bn in First Republic
Its bonds were still trading at “distressed” levels, meaning investors have reduced the chances of the company meeting its repayment obligations.
JP Morgan analysts said the “status quo was no longer an option” for Credit Suisse and was likely to be taken over, likely by Swiss rival UBS. However, it was reported that the two would oppose a forced reconciliation.
The bailout was the first granted to a major bank since the financial crisis 15 years ago.
But fears of a broader 2008-style crash have been played down by figures from US Treasury Secretary Janet Yellen to European Central Bank chief Christine Lagarde, who said banks were in a “much position.” more solid”.
Credit Suisse’s woes come after Silicon Valley Bank (SVB) collapsed last week, while two smaller US lenders also hit the buffers.
The Swiss bank is a much larger and globally significant company – and its 24% share price crash on Wednesday raised alarm bells.
Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey have been in contact over the situation, which is being monitored by UK regulators.
Hunt and Bailey rushed over the weekend to save the UK arm of SVB, which was bought by HSBC before stock markets opened on Monday.
Credit Suisse said that by accepting the lifeline, it was “taking decisive steps to preemptively strengthen its liquidity.”
He also announced buyout offers for up to £2.7bn of debt. Chief Executive Ulrich Koerner said: “These steps demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation.”
Ian Stuart, chief executive of HSBC UK, when asked about the risk of contagion, told Sky News: ‘You can never say never’.
But what I would say is that after the financial crisis of 2008-09, banks in the UK are in a very different situation.