Credit Suisse shares recovered 18.82% on Thursday, after confirming that it will exercise the option to take financing of up to 50,000 million Swiss francs (53,700 million dollars) from the Swiss central bank to guarantee its liquidity.
The support for Credit Suisse, coupled with a bailout for 30,000 million dollars that 11 large US banks will give to the regional institution First Republic Bank, prompted a recovery in the stock market of the entire banking sector.
In recent days, companies in the sector have been severely punished in the stock market, after the collapse of Silicon Valley Bank (SVB) and two other US banks that raised fears of a contagion effect on the rest of the financial system.
On Wednesday, Credit Suisse shares suffered their worst intraday loss, of more than 20%, and hit a record low, amid concerns over the Swiss bank’s liquidity and solvency.
This Thursday, the Swiss bank’s titles closed at 2.02 Swiss francs, compared to the record of 1.7 francs the previous day.
Credit Suisse is the first major world bank to be thrown an emergency lifeline since the 2008 financial crisis, and its problems have raised serious questions about whether central banks will be able to sustain aggressive interest rate hikes.
However, the European Central Bank (ECB) raised its interest rate by 50 basis points on Thursday, as expected, underscoring the resilience of the eurozone banking sector and ensuring that it had sufficient tools to offer liquidity support in necessary case.
The Credit Suisse bailout buoyed the rest of the banking sector in Europe. The Stoxx Banks index advanced 1.16%, after two days of losses.
So far this year, Credit Suisse shares are down 26.81%, while since the all-time high they reached in 2000 (81.4 Swiss francs), they have plummeted 97.52 percent.
US banks to the rescue
After reporting that 11 major US banks, including JPMorgan and Citigroup, will place $30 billion in deposits with First Republic, US shares of the sector received a boost.
First Republic, founded in 1985 in San Francisco, California, is the fourteenth largest US bank in asset volume with $212 billion at the end of 2022. It provides private banking services to individuals and businesses, as well as wealth management.
According to the S&P Global Ratings agency, 68% of deposits in First Republic are in accounts that exceed $250,000, a limit usually guaranteed by the federal agency FDCI. Hence the fears of the market in previous days.
Investors and analysts feared that, due to the high number of uninsured deposits, many clients would prefer to move their money to banks that a priori have no risk of bankruptcy because they are too large for regulators to allow their closure.
First Republic shares rose 9.98% on Thursday to $34.27 each, after losing 61.89% in the three previous sessions.
Wall Street “hopes the worst is behind us,” said Maris Ogg of Tower Bridge Advisors. “If you take the First Republic and Credit Suisse bankruptcies out of the assumptions, that calms people down,” she said.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the country’s four largest banks, will each contribute $5 billion to the First Republic bailout.
JP Morgan’s shares rose 1.94% on Thursday, while Citigroup’s gained 1.78%. While those of Bank of America and Wells Fargo advanced 1.68 and 1.16%, respectively.
Goldman Sachs and Morgan Stanley will contribute $2.5 billion each. The titles of Morgan Stanley gained 1.90% and those of , while those of Goldman Sachs pointed to an increase of 0.93 percent.
For their part, five smaller banks (BNY Mellon, PNC Bank, State Street, Truist and US Bank) will contribute $1 billion a head to the support.
The shares of the latter gained in the session on Thursday between 4 and 0.1 percent.
Markets in Europe recover in line with banks; US and Mexico rise
The financial markets in Europe recovered this Thursday, thanks to the boost received by the actions of the banking sector due to the bailout announced to Credit Suisse.
France’s CAC 40 led the gains, rising 2.03% to 7,025.72 units. It was followed by the FTSE of Switzerland, which rose 1.94%, to close at 575.06 points.
In Germany, the Dax gained 1.57% in the session while Spain’s IBEX 35 recovered 1.50 percent.
On Wednesday, these European stock indices lost between 4.37 and 1.78%, weighed down by the actions of banks that lost on uncertainty about the solvency of the Swiss Credit Suisse.
The gains in the stock markets of the Old Continent occurred despite the fact that the European Central Bank (ECB) decided to increase the region’s interest rate by 50 basis points.
The pan-European STOXX 600 index closed the day up 1.3%, after losing 0.6% and hitting a new 10-week low after the rate hike decision.
In the United States, the New York Stock Exchange ended up, in better spirits after the intervention of a group of banks in that country to rescue the First Republic, in a new movement that seeks to stabilize the financial sector.
The Dow Jones gained 1.17%, the tech-heavy Nasdaq 2.48% and the broad S&P 500 index advanced 1.76%. The day opened in red, in a volatile environment.
The indices reversed the trend after it became known that a group of banks would rescue the First Republic from eventual bankruptcy.
The optimism moved to Mexico, where the S&P/BMV IPC of the Mexican Stock Exchange rose 0.81% to 52,505.7 units, while the FTSE BIVA of the Institutional Stock Exchange gained 0.81% to 1,091.87 points.
(With information from Agencies)
