pressure on the banking industry
Credit Suisse is still in the storm – crisis meeting of the ECB
03/17/2023, 05:01 p.m
Supervisors and major banks are trying to stabilize the industry in Europe and the USA with several rescue operations. But investor confidence is not yet returning, at least not among the problem children. Meanwhile, politicians and central banks are trying to nip comparisons to the financial crisis in the bud.
The major Swiss bank Credit Suisse is under pressure again despite a support package worth billions. Despite the turbulence in the industry, Chancellor Olaf Scholz sees no danger of a new major crisis in Germany and Europe. The monetary system is no longer so fragile, he told the “Handelsblatt” and added that the deposits of German savers are safe. ECB Banking Supervision held a special meeting to deal with the issues. Meanwhile, the situation in the USA remains tense after a concerted aid campaign by large financial institutions for a stumbling regional bank.
In the US, the regional bank First Republic received a total of $30 billion in cash injections from the largest US financial institutions, including JP Morgan Chase, Citigroup, Bank of America and Wells Fargo, in the face of liquidity concerns and severe price losses. The move is “highly welcomed” and demonstrates the resilience of the banking system, according to a statement from the Treasury Department and the Federal Reserve. The regional bank, founded in 1985, got into trouble when the Silicon Valley Bank (SVB) collapsed. The bank is ranked number 14 in the country by deposits and handles retail banking and wealth management. It has a more affluent clientele who experts say may prefer to invest their money in large and safe banks rated “too big to fail”. Premarket, First Republic Bank was down another 20 percent.
Expert: The size of the outflow is a key question
Above all, nervousness remains high on the stock exchange: Credit Suisse shares plummeted again and at times slipped back in double digits to CHF 1.767. The Swiss National Bank had provided the troubled financial group with an aid package in the form of loans of up to CHF 50 billion (almost CHF 51 billion). But the measure only temporarily reassured Credit Suisse shareholders, even if the price was still a little way off the record low of CHF 1.55 on Wednesday.
“The basic problem of Credit Suisse remains the lack of customer trust,” explained analyst Daniel Bosshard from the Luzerner Kantonalbank. On Tuesday and Wednesday alone, clients withdrew more than $465 million from the bank’s funds, according to Morningstar Direct data. “Whether depositors are sufficiently reassured to stem outflows over the next few days is a key question, in our view,” said Frédérique Carrier, head of investment strategy at RBC Wealth Management. If the situation does not stabilize, experts consider state aid or a takeover to be possible next steps.
The day before, Bloomberg had reported that Credit Suisse and the major Swiss bank UBS rejected a forced merger. UBS prefers to focus on its existing strategy and is reluctant to take risks related to troubled Credit Suisse, insiders said. Credit Suisse wants to take its time to turn the tide on its own.
Meanwhile, the news that DBRS Morningstar was the first global rating agency to downgrade the bank’s rating to “BBB” caused renewed uncertainty among Credit Suisse investors. DBRS pointed to a weakening of the institution due to persistent missteps and compliance violations. There are concerns about whether Credit Suisse will be able to “restore the trust of stakeholders”. Meanwhile, in the US, the bank is facing a lawsuit from shareholders who accuse it of hiding financial problems.
The ECB apparently sees no systemic risk
Meanwhile, the turbulence is also causing the ECB bank supervisors to take action. According to an insider, however, they do not see the stability of the industry in the euro zone being affected. The deposits at the institutes have remained stable, the insider said after a special meeting of the committee. The inspectors did not see any contagion of money houses in the currency area from the recent stock market turbulence. In addition, the supervisors were informed that the risk positions of the banks to Credit Suisse are insignificant, the insider said. The Credit Suisse shares then accelerated their descent and were listed eleven percent in the red. Since autumn 2014, the ECB has been responsible for controlling the large financial institutions in the euro area.
How tense the situation in the US banking sector was recently was shown by data from the central bank the day before: In the seven days up to March 15, the Fed spent a record amount of almost $153 billion on financial institutions through its emergency liquidity program, known as the discount window . This surpassed the previous high of $111 billion from the 2008 financial crisis. For comparison: In the previous week, the banks had claimed just under $ 4.6 billion from the discount window. An additional $11.9 billion flowed from the Bank Term Funding Program, set up by the Fed on Sunday, through which banks anonymously receive loans on particularly favorable terms.
The US government has been trying for days to ease the situation – so far there has been limited success. After the collapse of the SVP, the US government tried to calm the nerves of bank customers in the country with a far-reaching deposit guarantee over the weekend. At a congressional hearing in Washington yesterday, Treasury Secretary Janet Yellen reiterated that the banking system remains stable and secure and there is no need to worry about deposits.