7th December 2023
Credit SuisseReuters

Credit Suisse’s share price has fallen by more than 10% and stocks markets have edged lower despite attempts to calm fears about a crisis in the banking sector.

The troubled Swiss lender had secured a £45bn lifeline from the country’s central bank.

However, after a brief rise, its shares are now tumbling while markets across the UK and Europe have turned negative.

Major US indexes fell, amid fears of more trouble.

On Thursday, a group of Wall Street giants injected $30bn (£24.8bn) into First Republic, a smaller domestic bank seen as at risk of failure following the collapse of two other mid-sized US banks in recent days.

The rescue by the group of 11 banks including JP Morgan and Citigroup had appeared to calm stock markets. In Asia, Japan’s Nikkei share index closed 1.2% higher.

But shares in First Republic fell more than 15% on Friday after the bank said its was suspending its dividend – its payment to shareholders – “during this period of uncertainty”.

Stock markets in the UK, France and Germany all opened higher but have since fallen.

In New York, the Dow Jones Industrial Average index fell by nearly 1%. The Nasdaq and the S&P 500 indexes were also trading lower.

Meanwhile, a sell-off in Credit Suisse shares has gathered pace.

Shares in Credit Suisse sank earlier in the week on concerns over its future, before the Swiss National Bank said stepped in with emergency funds.

Credit Suisse has been troubled for a long time and continues to be loss-making.

Earlier this week, it rattled investors when it admitted that it had found “material weakness” in its financial reporting.

The issues at Credit Suisse coincided with the failure of two lenders in the US – Silicon Valley Bank (SVB) and Signature Bank – raising fears over the health of the banking system.

US regulators stepped in at the weekend to ensure that customers at SVB and Signature Bank had full access to their money.

Days later, concerns emerged that San Francisco-based First Republic would be the next bank at risk of a rush of customers withdrawing their deposits.

It shares had sunk by nearly 70% over the last week.

The 11 US banks who announced the support said the action reflected their “confidence in the country’s banking system”.

US financial officials said the move was “most welcome, and demonstrates the resilience of the banking system”.

People using First Republic Bank ATMs

Getty Images

Swetha Ramachandran, investment director at GAM Investments, said that recent events were “very different to 2008” during the financial crisis.

She said authorities were moving “proactively” to stem problems at banks.

“What they’re trying to do is really ringfence the specific issues around individual isolated banks to stop them from becoming systemic,” she told the BBC’s Today programme.

Central banks around the world have sharply raised borrowing costs over the past year to try to curb the pace of overall price rises, or inflation.

The moves have hurt the values of the large portfolios of bonds bought by banks when rates were lower, a change that contributed to the collapse of Silicon Valley Bank, and has raised questions about whether other firms are facing similar situation.

Jeffrey Cleveland, chief economist at US asset manager Payden and Regal, said other banks could be caught up in the problem.

“There could be other vulnerabilities… if central banks are intent on continuing to raise interest rates,” he told the BBC’s Today programme.

“Historically when that happens we do see fragility, we do see problems in the financial system.”

Before the turbulence in the banking sector erupted, both the US Federal Reserve and the Bank of England had been expected to raise interest rates further at meetings next week. However, due to recent events, some have speculated these rate rises might be scaled back or even scrapped.

On Thursday, the ECB announced a further increase to interest rates from 2.5% to 3%.

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