Banking crisis triggers bailouts in US and Europe

Banking crisis triggers bailouts in US and Europe: Credit Suisse shares soar after £45bn lifeline while Wall St giants plough £25bn into First Republic

Wall Street’s largest banks last night agreed to pump emergency funds into First Republic just hours after Credit Suisse took a £45billion bailout.

A group of 11 firms including JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley will deposit £25billion with the stricken San Francisco-based lender to shore up its finances.

The move to save First Republic was the latest example of efforts across America, Europe and the UK to limit the fall-out from the turbulence shaking the global banking sector.

Headache: A trader on the floor of the NYSE. A group of 11 Wall Street Banks are to deposit £25bn with the stricken San Francisco-based lender First Republic to shore up its finances

Headache: A trader on the floor of the NYSE. A group of 11 Wall Street Banks are to deposit £25bn with the stricken San Francisco-based lender First Republic to shore up its finances

It followed pressure from the US government amid fears the collapse of three regional US banks – Silicon Valley Bank, Silvergate and Signature Bank – could trigger a new financial crisis.

‘The actions of America’s largest banks reflect their confidence in the country’s banking system,’ the banks said in a joint statement.

‘Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.’

It was the latest act in a global drama which has swung from one side of the Atlantic to the other and back again.

Credit Suisse, already badly damaged by recent scandals and an exodus of £99bn in funds at the end of last year, is the biggest lender to have been ensnared in the turmoil.

Its share price crumbled to a new low on Wednesday after its largest shareholder said it would not put in any more money. That prompted an offer from the Swiss National Bank, which was accepted yesterday morning.

It staved off the threat of immediate peril but doubts remain over its future. Credit Suisse’s share price leapt by an initial 33 per cent on the announcement but by the end of the session it was ahead by only 19 per cent.

Nine days of mayhem 

  • March 8 Crypto lender Silvergate Capital shuts down and liquidates its assets; Silicon Valley Bank (SVB) surprises investors with £1.8billion fundraising after bond losses
  • March 9 SVB shares fall 60 per cent as customers rush to withdraw funds, triggering wider sell-off in bank stocks
  • March 10 US regulators close down SVB; Bank of England announces insolvency process for its UK arm
  • March 11 Officials assess impact on tech sector as crisis deepens
  • March 12 Regulators shutter New York’s Signature Bank to prevent spread of financial contagion
  • March 13 HSBC buys SVB UK for £1; Joe Biden insists US banking system is safe as financial stocks fall further
  • March 14 Bank stocks recover some of their losses; US officials open probes into SVB’s collapse
  • March 15 Shares in Credit Suisse fall 24 per cent to record low as panic reaches Europe; Jeremy Hunt’s Budget
  • March 16 Credit Suisse gets £45billion lifeline; ECB hikes interest rates; US banks put £25billion into First Republic

Its bonds were still trading at ‘distressed’ levels, meaning investors have marked down the chances of the firm meeting its repayment obligations.

Analysts at JP Morgan said the ‘status quo was no longer an option’ for Credit Suisse and it was likely to be taken over, probably by Swiss rival UBS. However it was reported that both would oppose a forced tie-up.

The bailout was the first extended to a major bank since the financial crisis 15 years ago. 

But fears of a wider 2008-style crash were played down by senior figures, from US Treasury Secretary Janet Yellen to European Central Bank chief Christine Lagarde, who said banks were in a ‘much stronger position’.

Credit Suisse’s woes come after the collapse of Silicon Valley Bank (SVB) last week, while two smaller US lenders also hit the buffers. 

The Swiss bank is a much bigger and globally significant firm – and the 24 per cent collapse in its share price on Wednesday set alarm bells ringing.

Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey have been in contact over the situation, which is being monitored by UK regulators. 

Hunt and Bailey scrambled over the weekend to save SVB’s UK arm, which was bought by HSBC before stock markets opened on Monday.

Credit Suisse said that by accepting the lifeline it was ‘taking decisive action to pre-emptively strengthen its liquidity’.

It also announced offers to buy back up to £2.7billion of debt. Chief executive Ulrich Koerner said: ‘These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation.’

Ian Stuart, chief executive of HSBC UK, asked about contagion risk, told Sky News: ‘You can never say never. 

But what I would say is that post the financial crisis in 2008-09, banks in the UK are in a very different place.’