Banks fall back again as bailouts fail to restore calm

Banking stocks fell on both sides of the Atlantic as efforts to shore up the financial system failed to calm investor nerves.

After a rough week in markets around the world, distressed lenders in the US and Europe were on the decline again – despite bailouts from Zurich-based Credit Suisse and San Francisco-based First Republic.

The latest sale came just a day after First Republic delivered a £25bn lifeline in a desperate bid to boost confidence.

This rescue package came just hours after the £45 billion bailout of Credit Suisse.

But it did little to calm markets left reeling from the collapse of three US regional banks in quick succession – Silvergate on March 8, Silicon Valley Bank (SVB) on March 10 and Signature Bank two days later.

In the red: Distressed lenders in the US and Europe were on the decline again

With investors fearing the worst is yet to come, First Republic crashed another 32.8 percent in early trade. Other regional lenders that felt pressured included Western Pacific, which fell 7.2 percent, Western Alliance, which lost 15.1 percent, Zunes Bancorp, which fell 3.9 percent, and Comerica, which fell 5.2 percent. In Europe, Credit Suisse fell by 10.9 percent.

The repercussions were felt in stock markets around the world, as the FTSE 100 gave up early gains to close down 1 percent, or 74.63 points, to 7,335.4.

“Fear and loathing in banking and the markets,” warned Neil Wilson, a strategist at Markets.com, adding, “We are not out of the woods.”

It sets the stage for a rocky weekend for industry heads, regulators, central bankers, government ministers and officials before markets reopen Monday morning.

The sale came despite the fact that late Thursday night, a group of some of America’s largest banks got together to inject £25 billion into First Republic.

There are now serious questions about what can be done to stem the crisis engulfing the banking sector as confidence continues to erode.

Investors sharply criticized the decision to inject aid into the First Republic, saying it was wrong to expose the country’s largest lenders to such risky assets. Bill Ackman, of hedge fund management firm Pershing Square, said in a tweet that it had created a ‘false sense of confidence’ in the lender and spread financial contagion.

“It raises more questions than it answers – it’s bad policy,” the investor continued. I said before those hours are important. We have let the days go by. Half measures don’t work when there is a crisis of confidence.

Yesterday the European Central Bank called an unscheduled meeting to discuss how to stop the contagion and the state of banks in the Eurozone.

The BoE said it was monitoring the situation and remaining “engaged” with banks and regulators at all times.

But there was little relief for Credit Suisse as the bank, which was founded in 1856, has been hit with legal action by a group of investors who claim it overestimated its prospects before crashing this week.

Swiss authorities are exploring the possibility of linking up with UBS to support Credit Suisse – but there is understandably opposition to the idea. Sources say UBS wants to focus on its own wealth management strategy and is reluctant to take risks related to Credit Suisse.

Analysts believe that the breakup of Credit Suisse remains the most likely solution.

Last week, Credit Suisse admitted it had ‘material weaknesses’ in its reporting and oversight procedures when it published its overdue annual report for 2022.

“We’re in no way out of the woods yet,” said Stuart Cole, chief macro economist at Equiti Capital, the liquidity provider. “We need to get through the weekend without any more drama,” said Craig Erlam, an analyst at Oanda.