Banking crisis sparks bailouts in US and Europe: Credit Suisse shares soar on £45bn bailout as Wall St giants plow £25bn into First Republic
Wall Street’s biggest banks agreed last night to pump emergency funds into First Republic just hours after Credit Suisse passed a £45bn bailout.
A group of 11 firms, including JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, will deposit £25 billion with the stricken San Francisco lender to bolster its finances.
The move to bail out First Republic was the latest example of efforts in America, Europe and the UK to mitigate the effects of the turbulence shaking the global banking industry.
Headache: A trader on the floor of the NYSE. A group of 11 Wall Street banks is set to deposit £25 billion with San Francisco-based lender First Republic to bolster its finances
It followed pressure from the US government over fears that the collapse of three regional US banks – Silicon Valley Bank, Silvergate and Signature Bank – could trigger another financial crisis.
“The actions of America’s largest banks reflect their confidence in the nation’s banking system,” the banks said in a joint statement.
‘Together we put our financial strength and liquidity in the larger system, where it is most needed.’
It was the final act in a global drama that has swung from one side of the Atlantic to the other and back again.
Credit Suisse, already badly damaged by recent scandals and a £99 billion exodus of funds late last year, is the biggest lender caught up in the turmoil.
The share price plunged to a new low on Wednesday after the largest shareholder said he would not put any more money in. That led to an offer from the Swiss National Bank, which was accepted yesterday morning.
It fended off the threat of imminent danger, but doubts remain about its future. Credit Suisse’s share price initially rose 33 percent after the announcement, but it was only up 19 percent at the end of the session.
The bonds continued to trade at distressed levels, meaning investors have discounted the chances that the company will meet its repayment obligations.
Analysts at JP Morgan said the “status quo was no longer an option” for Credit Suisse and it was likely to be acquired, likely by Swiss rival UBS. However, it was reported that both would oppose a forced bond.
The bailout was the first to be extended to a major bank since the financial crisis 15 years ago.
But fears of a wider crash like the one in 2008 were downplayed by senior figures, from US Treasury Secretary Janet Yellen to European Central Bank chief Christine Lagarde, who said the banks were in a “much stronger position”.
Credit Suisse’s woes come after the collapse of Silicon Valley Bank (SVB) last week, while two smaller US lenders also fell into trouble.
The Swiss bank is a much larger and globally important company – and Wednesday’s 24 percent share price collapse set alarm bells ringing.
Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey have been in touch about the situation, which is being monitored by UK regulators.
Hunt and Bailey scrambled over the weekend to bail out SVB’s UK arm, which was bought by HSBC before stock markets opened on Monday.
Credit Suisse said that by accepting the lifeline it was taking “decisive steps to pre-emptively bolster its liquidity.”
It also announced offers to buy back up to £2.7bn of debt. Chief executive Ulrich Koerner said, “These actions demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation.”
Ian Stuart, CEO of HSBC UK, asked about the risk of contagion and told Sky News: ‘You can never say never.
But what I would say is that after the 2008-2009 financial crisis, UK banks are in a very different place.”