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Credit Suisse shares shed earlier gains and fell 4% as worries about Switzerland’s second-biggest bank remain.
The shares had opened 1.8% higher in volatile trade, and are now down 3.6% at 1.95 Swiss francs. On Wednesday, they plunged to a record low of 1.55 francs and closed 25% lower.
Yesterday, the shares recovered 19% of their value after Credit Suisse secured an emergency liquidity line from the Swiss central bank. The head of Credit Suisse’s Swiss banking division, André Helfenstein, said the cash would allow the bank to carry on with its overhaul but admitted it would take time to win back client confidence.
This will not be an easy task, as Robin Wigglesworth, FT Alphaville editor, tweeted.
BP is the top riser on the FTSE 100, up nearly 4%, as oil prices have strengthened, with Brent crude, the global benchmark, rising to $75 a barrel. Shell is 3.2% ahead while mining companies Glencore and Antofagasta are also among the biggest risers.
Victoria Scholar, head of investment at the trading platform interactive investor said:
European markets have opened higher with oil giants like Shell and BP at the top of the FTSE 100 thanks to strengthening oil prices. Focus turns to the latest euro area inflation data at 10am which is expected to remain at around 8.5%, a day after the ECB raised rates by 50 basis points despite the market turmoil.
Her colleague Richard Hunter, head of markets, said:
Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion…
The general waves of relief also washed over to UK shores, with the main indices again reflecting a more positive frame of mind for now. Banks recovered some of the losses of the last week, although there remains some way to go before the potential of contagion can be definitively dismissed and those share prices be able to return to their previous levels. Meanwhile, resource stocks also saw from benefit from some renewed strength in the oil price, although that price is still down by 13% this year. Broker upgrades to the likes of the London Stock Exchange and GlaxoSmithKline also underpinned something of a return to a risk-on approach by investors.
The brisk opening returned the FTSE-100 to marginally positive territory for the year, where it has now added 0.5% although remaining some way off its recent record high. The FTSE-250 is not far behind and broadly unchanged in the year to date, with investors generally not ready to commit to a full market recovery until the financial picture becomes clearer.
Here’s our full story on US investors in Credit Suisse launching legal action against the Swiss bank. They claim that it overstated its prospects before this week’s shares crash.
Concerns remain around Credit Suisse, as its credit default swaps remain flat.
The five-year CDS are unchanged from yesterday’s close at 1035 basis points, according to S&P Global Market Intelligence.
Analysts at Deutsche Bank led by Jim Reid said:
Some optimism has returned to markets over the last 24 hours, with bank stocks stabilising on both sides of the Atlantic and two-year yields surging back. Even the European Central Bank’s decision to pursue a 50bp hike went without incident, and investors grew in confidence that the Fed would follow up with their own 25bps hike next week, so we’re starting to see a modest change in the mood music. It’s also telling this morning that in Asia, US yields and equity futures are fairly stable.
The concerns haven’t gone away though, as while Credit Suisse saw its equity price increase, its bonds/CDS were generally flat to weaker…
Their bonds stayed fairly stressed yesterday even with the market bounceback. The five-year credit default swaps stayed around the +1000 level, whilst there were further declines in the value of their debt – notably their ’29 EUR bonds are trading under €70.
That was in spite of the announcement we highlighted yesterday that they’d be using a SNB liquidity facility, which initially saw the share price surge +40% at the open, before paring back around half those gains to “only” close up +19.15%.
Despite the gains in stock markets, investors remain cautious.
Stephen Innes, managing partner at SPI Asset Management, said:
It turned into a relatively normal day here in Asia stocks… The market remains cautious; traders do not want to get overexcited, especially with investors still focusing on what can go wrong instead of what could go right.
Granted, there is still a considerable element of headline risk, especially over the weekend when traders can’t react, which could again upset the proverbial apple cart on Monday morning open. Not to mention, the uncertainty around the Fed policy reaction function is keeping rates volatility elevated.
The UK chancellor Jeremy Hunt, who presented his spring budget on Wednesday, has ditched plans to make sovereign wealth funds (SWFs) pay corporation tax on property and commercial enterprises after cabinet warnings that the move would hit investment and economic growth, the Financial Times has reported.
Kemi Badenoch, business and trade secretary, led pressure on the Treasury to drop the proposals after warnings that SWFs, which include some of the largest global investors, might pull out of UK projects.
The decision to drop the proposals came as a surprise to tax experts. Ahead of the budget, Tim Sarson, UK head of tax policy at KPMG, told the FT he thought it was a “racing certainty” the changes would be made.
European markets have opened higher and US stock futures are also up. The FTSE 100 index in London has risen 75 points to 7,487, a gain of over 1%, as banking crisis fears eased. The UK blue-chip index suffered its biggest one-day drop since Russia invaded Ukraine on Wednesday, when £75bn was wiped off the index.
Despite yesterday’s rate hike from the European Central Bank, Germany’s Dax opened 0.7% higher while France’s CAC added 0.8%, Spain’s Ibex climbed 0.6% and Italy’s FTSE MiB is 1.2% ahead.
The European banking index is up 1.2%, but is still on course for a weekly drop of 8%. Credit Suisse shares edged 0.2% lower in early trading.
Crude oil prices are also heading higher. Brent and US light crude are both up more than 1%, with Brent at $75.49 a barrel.
US investors in Credit Suisse have hit the beleaguered Swiss bank with legal action, claiming that it overstated its prospects before this week’s shares crash.
The lender suffered a rapid sell-off with shares plunging as much as 30% on Wednesday after comments from Credit Suisse’s largest shareholder, Saudi National Bank (SNB), which said it was unable to pump in more cash because of regulatory restrictions limiting its holding to below 10%.
The Swiss central bank later stepped in to offer Credit Suisse a £44.5bn lifeline and the shares rallied, recovering some of their losses yesterday.
But Rosen Law Firm, a class action lawsuit specialist, has lodged a complaint in a court in Camden, New Jersey which claims the bank made “materially false and misleading statements” in its 2021 annual report.
The lawsuit would represent the first mounted against Credit Suisse since the crisis rapidly devalued shareholders’ investments.
Last week Credit Suisse admitted it had “material weaknesses” in its reporting and controls procedures when it published its delayed 2022 annual report. It said this could have resulted in “misstatements” of financial results.
Here’s a handy explainer for those scratching their heads over what this all means: How to understand Credit Suisse, Silicon Valley Bank and fears of a new crisis. By the Guardian’s banking correspondent, Kalyeena Makortoff, and financial editor, Nils Pratley.
People worry that that this is the start of what some fear could be a global, slow-rolling banking crisis.
First, the collapse of Silicon Valley Bank in the US caused jitters in markets that spread across the world. SVB was supposed to be a regional player whose failure would be unlikely to have profound ramifications – but then a longstanding set of problems at Credit Suisse, a far more consequential institution, turned into an emergency. Its shares dropped 24.5% in a day, and £75bn was wiped off the FTSE 100. Premature though it might have been, people started saying “2008”, which is basically Voldemort for financial markets.
Yesterday, Credit Suisse secured a loan facility with the Swiss Central Bank, intended as a guarantee of its future stability, and the panic somewhat abated – and it’s important to say that we are a long way from a full-blown crisis. But there was more evidence of trouble in the US, where Wall Street giants agreed an unprecedented plan to deposit $30bn to prop up First Republic, another bank on the brink.
Credit Suisse’s problems have not vanished, and suddenly investors are looking hard at whether other European and US institutions might be in the same boat. Impenetrable though much of this is to a layperson, it’s unfortunately not going away.
Facing heat for his investment fund’s role in triggering the run on Silicon Valley Bank last week, billionaire Peter Thiel told the Financial Times that he had $50m of his own money “stuck” in the bank when it collapsed.
Even as Thiel’s Founders Fund was advising companies to move their money from the bank, a decision that has been widely blamed for precipitating its failure, Thiel said that he kept a portion of his own $4bn personal fortune in the bank.
“I had $50m of my own money stuck in SVB,” Thiel told the Financial Times in a story published yesterday, saying that he believed the bank would not fail.
Some calm has returned to financial markets at the end of a turbulent week, but investors remain wary. Asian shares have risen as help for struggling banks, such as the $30bn lifeline for First Republic Bank in the US, has eased banking crisis fears.
Large US banks – Bank of America, Goldman Sachs, JP Morgan and others – have joined forces to inject $30bn into First Republic, which has seen customers yank their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.
Despite the rescue, First Republic shares tumbled 17% in extended trading yesterday, after it said it was suspending its dividend.
Cash-strapped banks have borrowed about $300bn from the Federal Reserve in the past week. Nearly half the money – $143bn – went to holding companies for two major banks that failed in recent days, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets. The Fed did not identify the banks that received the other half of the funding or say how many of them did so.
US Treasury Secretary Janet Yellen said last night that “our [the US] banking system is sound and that Americans can feel confident that their deposits will be there when they need them”.
This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.
But she denied that emergency action after the two large bank failures meant that there was a blanket government guarantee for all deposits. In the case of SVB and Signature, she told the US Senate Finance Committee that
the chances of contagion that other banks might be regarded as unsound and suffer runs, seemed extremely high, and the consequences would be very serious.
Credit Suisse shares jumped yesterday after the Swiss National Bank stepped in with a 50bn Swiss franc (£44bn) loan to prop up the beleaguered lender. Shares plummeted as much as 30% to record lows on Wednesday after the bank’s largest shareholder, Saudi National Bank, said it was unable to invest more money because of regulatory restrictions limiting its holding to below 10%. Credit Suisse is one of 30 banks globally deemed too big to fail.
A Credit Suisse executive said the central bank cash would buy it time to complete an overhaul of the lender. André Helfenstein, chief executive of the Credit Suisse’s Swiss bank, told the Swiss broadcaster SRF:
We see it as precautionary liquidity so that we can carry out the transformation of Credit Suisse and continue to work well in this turbulent situation.
In Asian markets, Japan’s Nikkei rose 1.2% while Hong Kong’s Hang Seng gained 1.6%. The Shanghai Composite advanced 0.7% and China’s CSI 300 blue-chip index was up 0.6%.
The Agenda
10am GMT: Eurozone inflation for February (forecast: 8.5%, previous: 8.6%)
1.15pm GMT: US Industrial production for February (forecast: 0.2%, previous: zero)
2pm GMT: US Michigan Consumer sentiment for March (forecast: 67, previous: 67)
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2023-03-17 07:35:00Z
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