Hunt insists UK can weather storm as turmoil grips markets, Credit Suisse pleads for help and Footsie suffers worst day in a year
Jeremy Hunt insisted the UK banking system was stable as panic rocked global financial markets.
In his budget, the Chancellor said Britain’s banks were ‘safe, sound and well capitalised’ even as shares of some of the UK’s major financial institutions fell and the FTSE 100 suffered its worst day of decline since the invasion of Ukraine in February last year.
“UK banks are well placed to weather this volatility,” he said, adding that the Bank of England’s regular stress tests “ensure their ability to withstand economic shocks.”
Confident: Chancellor Jeremy Hunt said UK banks were ‘safe, sound and well capitalised’ even as shares of some of the UK’s major financial institutions fell
The sharp sell-off in financial markets came as the value of Zurich-based Credit Suisse plunged 24% to a record low as it pleaded with the Swiss National Bank and regulators to reassure markets of its financial health .
Things got worse when Credit Suisse’s largest shareholder, Saudi National Bank, ruled out providing more liquidity, due to regulatory concerns.
Reports have swirled that French financier BNP Paribas has decided to stop lending to Credit Suisse, a major red flag that has sparked fresh fears about its future.
The selloff hit bank stocks around the world amid fears a Credit Suisse collapse could become a ‘Lehman moment’, a reference to the US investment bank whose bankruptcy in 2008 exacerbated the financial crisis world.
The plunge also fueled fears of contagion following the collapse last week of three US lenders – Silicon Valley Bank (SVB), Signature Bank and Silvergate.
“Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks that were in the firing line last week,” said Andrew Kenningham, chief economist for Europe at Capital Economics.
He warned that the bank has “a much larger balance sheet than SVB and is much more globally interconnected”, adding: “Credit Suisse is not just a Swiss problem, but a global problem.”
London-listed financial stocks took a hit as investors worried about their exposure to the Swiss lender.
Barclays ended the day down 9.1% while Standard Chartered lost 7.7%, NatWest lost 5.7%, HSBC fell 5% and Lloyds fell 4.6%.
Losses: London-listed financial stocks suffered a beating as investors worried about their exposure to Credit Suisse
In Europe, BNP closed down 10% while French rival Societe Generale fell 12%.
In Germany, Deutsche Bank fell 9.3% and Commerzbank 8.7%. The panic continued after the opening bell on Wall Street, with US banks also suffering losses.
JP Morgan sank 5% while Morgan Stanley lost 4%, Goldman Sachs fell 3.1%, Citigroup lost 5.4% and Bank of America fell 0.9%.
The decline of UK banks weighed heavily on the FTSE 100, which closed down 3.8% or 293 points at 7344, erasing all its gains since the start of the year.
Oil prices were also hit, with international benchmark Brent falling 8.7% to $72.35 a barrel, amid fears that the banking sector turmoil could spread to the broader economy. and do not affect demand.
The fall had a ripple effect on energy stocks, with Shell losing 8.5% and BP losing 8.3%.
Growing panic over the stability of the financial system sparked a flight to safety, with US and European government debt yields falling sharply as investors piled in.
The price of gold, a traditional safe haven, rose around $1,915 an ounce, its highest level since early February.
“It’s hard to look past Credit Suisse and the obvious crisis of confidence,” said Craig Erlam, senior market analyst at Oanda.
“We are no longer talking about a few American regional banks. We are talking about a large European bank and the shock waves are reverberating through all the financial markets.
Unease dampens rate hikes
The Bank of England is now expected to keep interest rates unchanged next week amid further turmoil in the banking sector.
Traders had penciled in at least a quarter-point increase in the cost of borrowing, by 4 percent, when the Monetary Policy Committee meets.
But the collapse of Silicon Valley Bank in the United States raised concerns about the stability of the financial system, sending bank stocks plummeting.
Credit Suisse led the selloff, losing 24% of its value and hitting an all-time low after its largest shareholder said it would invest no more money.
Banks around the world also fell as investors focused on lenders’ ability to absorb further interest rate hikes.
“When confidence is shaken, the contagion can be rapid,” said analysts at ratings agency Moody’s.
“An inflationary shock and a rapid reversal of monetary policy in the United States and Europe will likely have further consequences for the financial sector.” Just a few days ago, a quarter-point rate hike was considered “nailed”.
Traders are betting that there is now only a 45% chance of such a move. Experts say the prospect of easing inflationary pressures will encourage the Bank of England to hold off on rate hikes.