Stocks of major US lenders sank, following European banks lower as Credit Suisse Group AG plunged by a record.
(Bloomberg) — Stocks of major US lenders sank, following European banks lower as Credit Suisse Group AG plunged by a record.
Morgan Stanley and Citigroup Inc. were each down more than 5% just after noon in New York. The KBW Bank Index dropped as much as 5.1% amid slides in Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. First Republic Bank tumbled 19% after being downgraded to junk by S&P Global Ratings and Fitch Ratings, while other smaller regional lenders were mostly lower.
The slide, which sent investors into safe havens such as gold and government bonds, started with European banks after Saudi National Bank, Credit Suisse’s top shareholder, ruled out providing more financial assistance to the struggling Swiss bank. The Stoxx 600 Banks Index was down 7% as of 4:21 p.m. London time, while Credit Suisse was down 24% in Zurich, after sinking as much as 31%.
“With the US banking sector downgraded to negative by Moody’s nervousness is super-high and that’s spilt over into a hot mess in Europe,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Chief Executive Officer Ulrich Koerner on Tuesday preached patience and said the bank’s financial position is sound. Chairman Axel Lehmann said at a conference Wednesday government assistance “isn’t a topic” and the firm’s efforts to return to profitability aren’t comparable to the severe liquidity issues hitting smaller lenders in the US.
The concern over Credit Suisse widened the banking selloff that had been spearheaded by smaller regional lenders after the demise of Silicon Valley Bank, Silvergate Capital Corp. and Signature Bank spurred fears over contagion in the industry as customers pulled funds and investors dumped shares.
The slide in larger banks comes after they have been raking in billions in deposits from new customers after confidence in regional lenders took a hit, with Bank of America adding more than $15 billion in new client funds.
Regulators have taken extraordinary steps to shore up confidence, introducing a backstop for banks to protect the whole nation’s deposits. Meanwhile, the Federal Reserve is considering tougher oversight rules for midsized banks following the turmoil.
First Republic remains on credit watch negative, S&P said in a statement Wednesday. “We believe that First Republic’s deposit base is more concentrated than most large U.S. regional banks, which presents heightened funding risks in the current environment.”
–With assistance from Blaise Robinson, Ksenia Galouchko and Matt Turner.
(Updates shares, adds analyst comment in fourth paragraph.)
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