HomeBusinessInvestors cautiously approach the end of a tumultuous week

Investors cautiously approach the end of a tumultuous week

A tentative sense of relief prevailed among investors Friday morning following two very different bailouts the previous day: one from a global banking giant in Switzerland and another from a midsize regional lender in San Francisco. Moves to prop up ailing lenders with injections worth tens of billions of dollars had brought a lull in the chaos that had gripped banks and markets.

As Asia and Europe opened for business on the last day of a tumultuous week, the markets conveyed some calm, at least for the moment. Stock indices in Asia and Europe posted gains and banks recouped some of their losses.

“We are beginning to see a modest change in background music,” Deutsche Bank’s Jim Reid wrote in a note on Friday assessing early moves in markets, citing stabilization in bank stocks and signs of less stress in the market. bond market, after the European Central Bank on Thursday stuck to his plan raise interest rates despite market turmoil.

Still, there is little confidence that this crisis has fully run its course. Banks in the United States borrowed record amounts from the Federal Reserve for short-term needs this week, and shares of the recently bailed-out banks remain shaky.

Some sense of comfort took shape shortly after midnight Thursday in Zurich, when Credit Suisse, facing questions about its financial health, announced that it had taken a $54 billion lifeline of the Swiss central bank. Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives for three years. But on Thursday, shares of the 166-year-old Swiss bank, which had fallen to a record low the day before, turned around and rose nearly 20 percent.

The Credit Suisse bailout, which the bank and Swiss regulators had insisted needed no bailout, followed a classic playbook: a powerful central bank threw its full support, and much of its financial power, behind an institution that the investors had decided that he needed urgent help. . Investors responded in kind.

Later that day, First Republic Bank, a San Francisco-based midsize lender whose share price has fallen more than 70 percent this month, wiping out roughly $16 billion in value, announced a $30 billion bailout package that was as unconventional as Credit Suisse’s support was traditional.

Four storied names in US finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — have each agreed to place $5 billion in uninsured deposits with First Republic. Wall Street mainstays Goldman Sachs and Morgan Stanley each contributed $2.5 billion, and five smaller regional banks added $1 billion each.

The industry-led action spoke loudly: these 11 institutions were confident that the First Republic deserved to be saved. Banks, normally fierce rivals, issued a joint bond statement explaining their move: “America’s largest banks stand together with all banks to support our economy and everyone around us.”

Government supervisors of the banking industry, some of whom helped hammer out the deal, stood by, issuing a mild statement saying the banks’ show of support for First Republic was “very welcome”.

Stocks in the United States went from early losses to close 1.8 percent higher on Thursday. The S&P 500 Index remains high for the year and is on track to close its second-best week of 2023, barring another reversal on Friday. US stock futures, which indicate the direction markets will take when they open in New York, opened flat on Friday, holding on to Thursday’s gain.

The signs of anxiety persist. New Federal Reserve data released Thursday also showed that banks record amounts lent of emergency funds from the central bank, taking advantage of both existing facilities and a new program to shore up the liquidity that was announced after the government procurement from a lender previously unknown to the tech world, Silicon Valley Bank, and the tiny Signature Bank in New York. That said, borrowing was even lower, as a percentage of the banking system’s current deposit base, than it was during the last wave of emergency borrowing, during the 2008 financial crisis.

And Credit Suisse shares are falling again, eroding some of Thursday’s gains. The same is true of First Republic, with pre-market losses on Friday erasing some of the previous day’s gain, suggesting bank stock trading will remain volatile on Friday.

UBS analysts wrote that bank shares would “really settle down only after the market feels there is a longer-term solution” to First Republic’s woes. An index that tracks the largest US banks has fallen nearly 20 percent this year, and much of the loss was concentrated in the past week, falling short of the gain in the broader market over that period. .

Before the widespread bank panic first erupted last week, the biggest challenge facing policymakers was rapid inflation. Central bankers were caught between trying to control price rises without stagnating growth. Those efforts appeared suddenly. much more complex with the sudden prospect of successive bank runs.

With a few exceptions, bank stocks, the focus of this week’s turmoil, appeared to rebound at the end of a rocky trading week. But “we shouldn’t get ahead of ourselves,” said Deutsche Bank’s Reid. “It’s worth remembering that we already had a temporary period of stability on Tuesday which was then affected by the Credit Suisse concerns on Wednesday.”

joe renison, rober copeland and lauren hirsch contributed reporting.

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