Dow jumps 380 points and Wall Street rallies after emergency takeover of Credit Suisse

Wall Street rallied on Monday as investors breathed a tentative sigh of relief that the banking crisis could be contained by a historic emergency bailout of financial heavyweight Credit Suisse over the weekend.

The Dow Jones Industrial Average rose 383 points, or 1.2 percent, to 32,245 by the end of the day, after swinging sharply last week on concerns about the stability of the banking system.

On Sunday, the most dramatic state intervention since the 2008 global financial crisis helped allay those fears, when UBS bought Credit Suisse for $3.2 billion in a takeover backed by the world’s top central banks.

Investors welcomed the swift orchestration of the Credit Suisse takeover as an acceptable step to stem the contagion, but fears that other troubled banks could falter next kept markets on edge.

Indeed, shares of First Republic Bank, the US lender at the center of spreading crisis fears, fell another 47 percent on Monday amid reports it was exploring options to raise more capital from investors. .

“While the Credit Suisse bailout could put an end to that particular institution’s woes, it’s clear that confidence in the broader financial sector remains extremely fragile,” said Vicky Redwood, principal economic adviser at Capital Economics.

The banking crisis began after two US lenders, Silicon Valley Bank and Signature Bank, collapsed this month, marking the second and third largest bank failures in US history.

Meanwhile, First Republic Bank has so far failed to shore up investor confidence despite receiving an injection of $30 billion in emergency deposits from 11 other major US banks last week.

S&P Global further downgraded First Republic to junk status on Sunday, saying the recent cash injection from big US banks may not solve their liquidity problems.

“We do not see this injection of deposits, which have an initial maturity of 120 days, as a longer-term solution to the bank’s funding problems,” S&P wrote. “We believe that attracting significant deposits will be difficult, limiting the bank’s business position.”

JPMorgan Chase is advising First Republic on its options for raising capital from investors, a source familiar with the situation said. First Republic declined to comment on the potential share sale.

“Following Thursday’s $30 billion uninsured deposit from the nation’s 11 largest banks, along with cash on hand, First Republic Bank is well positioned to manage short-term deposit activity,” the company said. it’s a statement.

The support “reflects confidence in First Republic and its ability to continue to provide services to its clients and communities,” the lender said.

The big banks that provided deposits to First Republic could potentially withdraw some of the funds and take equity stakes instead, said a legal expert who declined to be named. But the person stressed that deposits cannot be converted into shares.

The Wall Street Journal reported Monday that JPMorgan CEO Jamie Dimon is leading talks with the heads of other big banks about further efforts to stabilize the San Francisco-based bank, citing people familiar with the matter.

JPMorgan and First Republic declined to comment on the report.

“The market wants a more conclusive resolution of what’s going to happen with First Republic and the only way out of that is some type of asset sale,” said Matt Orton, chief market strategist at Raymond James Investment Management.

First Republic’s stock value has plunged by more than 80 percent in the past 10 trading sessions on fears of a run on the banks and a large proportion of the lender’s deposits being uninsured.

Short sellers on First Republic have made a profit of about $560 million on paper since last Monday, analysis firm Ortex said.

Meanwhile, shares of European banks also rallied a bit on Monday, rising 1.3 percent after initially falling 6 percent, as investors digested support efforts for Credit Suisse and the pace at that they had arrived

Credit Suisse’s own shares tumbled 55.7 percent and those of its acquirer UBS rose 1.3 percent after falling nearly 13 percent earlier in the session.

The broader European STOXX 600 index also managed to break into positive territory to rise 0.98 percent.

“Credit Suisse is our Lehman moment in Europe, but we recognize that and we’re not going to make the same mistake,” Close Brothers Asset Management chief investment officer Robert Alster said of the swift action by authorities over the weekend.

He said the European Central Bank, the Bank of England and others would be very aware of “the next gazelles in the chain that the lions will hunt”, meaning other big banks with investment banking arms like Deutsche Bank, BNP in France. or Barclays. in the UK, and will step in with support if needed.

“The authorities have a lot of firepower to counter what is a loss of trust that is constantly eroding,” Alster said.

Oil prices regained some ground in volatile trade after falling to their lowest levels in 15 months as the market feared risks in the global banking sector could trigger a recession that would deplete demand for fuel.

West Texas Intermediate crude futures were up 1.09 percent at $67.47 a barrel, and Brent crude was up 1 percent at $73.7.

Gold prices pulled back in choppy trading after hitting a year-old high. Spot gold prices fell 0.45 percent to $1,978.57 an ounce, after hitting a high of $2,009.59 an ounce.