A rally in European bank stocks faded as the Swiss central bank’s support for troubled lender Credit Suisse Group AG failed to ease investor nervousness about the stability of the financial sector.
(Bloomberg) — A rally in European bank stocks faded as the Swiss central bank’s support for troubled lender Credit Suisse Group AG failed to ease investor nervousness about the stability of the financial sector.
Credit Suisse shares jumped as much as 40% at the European open, before paring the advance to 22%, as traders voiced relief over a 50 billion franc ($54 billion) credit line from the Swiss National Bank. The Euro Stoxx Banks Index, though, gave up most of an early 4.2% surge. It was up 0.6% after plunging 8.4% Wednesday in the biggest selloff since March 2020.
While stock market losses have subsided, there were still big questions about the future of Credit Suisse and how the financial industry will fare as higher interest rates keep eroding the value of lenders’ fixed-income holdings. In a single week, Credit Suisse lost more than a third of its market value before Thursday’s bounce, and analysts at JPMorgan Chase & Co. said the crisis of confidence will likely result in the bank being bought by a rival.
“For us, and not withstanding what we will do in two weeks, at this stage it is important to let the dust settle,” said Gilles Guibout, head of European equity strategies at AXA Investment Managers, which oversees more than $800 billion. “At this stage we are just slightly overweight on banks but I don’t want to touch our position just now.”
Credit Suisse Taps $54 Billion From Central Bank; Shares Surge
In the bond market, credit-default swaps showed easing tension. Credit Suisse’s senior unsecured euro-denominated bonds due in March 2029 initially spiked to recover almost half of their Wednesday losses, but that jump faded later Thursday and prices turned lower.
Among bank stocks, Lloyds Banking Group Plc, Barclays Plc, Commerzbank AG and ABN Amro NV gained, while Spain’s Bankinter SA and Société Générale SA were among the biggest decliners.
“Measures taken should provide some comfort that a spillover to the sector could be contained, but the situation remains uncertain,” Anke Reingen, an analyst at RBC Capital Markets, wrote in a note to clients Thursday.
In an interview with CNBC, Credit Suisse’s biggest shareholder said the lender isn’t likely to seek more capital and the bank is generally “sound.” Credit Suisse also announced at least its second debt repurchase in just the past six months as it looks to restore investor confidence.
“The initial fallout has been contained by the SNB’s backstop overnight, but I think the cat’s out of the bag in terms of the lagged damage that aggressive policy tightening can do to both the real economy and financial markets,” said Viraj Patel, a global macro strategist at Vanda Research in London. “There will remain a bit of nervousness in markets as investors wait to see what happens next.”
Fears of a contagion are overblown, said Mathieu Racheter, head of equity strategy at Bank Julius Baer & Co., though the market will remain nervous as its searches for “other weak links” after the collapse of Silicon Valley Bank and Credit Suisse’s woes.
“SVB issues appear idiosyncratic and investors are just in panic mode and selling the weakest links — Credit Suisse,” he said. “The latest developments will likely keep nervousness high.”
–With assistance from Jan-Patrick Barnert, Bruce Douglas, Olga Voitova, Sagarika Jaisinghani and Priscila Azevedo Rocha.
(Updates with bank indexes erasing gains)
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