Investors are on edge over the possibility of further banking turmoil after Credit Suisse shares fell nearly $2 a share on Wednesday and the Swiss National Bank said it would provide liquidity if needed. “Credit Suisse is front and center,” Jeff Schulz, investment strategist at Clearbridge Investments, said by phone Wednesday after markets closed in New York.
See: Here’s why Credit Suisse’s failure matters to US investors. A promised liquidity backstop for Credit Suisse CS, -13.94% “will go a long way and calm this burst of volatility,” he said. “But I don’t think we’re out of the woods yet.” The Swiss central bank and its banking regulator said on Wednesday that Credit Suisse met strict capital and liquidity requirements imposed on systemically important banks and that problems at some US banks did not pose a direct contagion risk to Swiss financial markets. “This is not ’08,” George Catrambone, DWS Group’s head of Americas trading, said in a phone interview Wednesday. But he also thinks “volatility is here to stay,” with concerns about contagion risks in the banking system posing a threat to financial markets. As evidence of fear, Catrambon pointed to big moves across markets Wednesday, including front-end Treasury rates, with the 2-year yield TMUBMUSD02Y falling to 3.990% on Wednesday from a one-year high of 5.06% a week ago to 3.97%. He also pointed to pressures in corporate bonds and the CBOE market volatility index VIX, +10.16% or Wall Street’s “fear gauge,” which rose 20.6% in the year to Wednesday, according to FactSet. Watch those areas for signs of stability, he said. Swiss ‘whatever you do’ moment While markets are unsettled by banking risks, Catrambone also said the Swiss central bank’s response on Wednesday reminded him of the famous “whatever it takes”. In 2012 Mario Draghi, the former president of the European Central Bank, pledged to save the euro. “This seems to be a Swiss version along those lines,” he said. “I think the markets are looking for that confirmation, that we’re not going to allow a massive bank failure to spread to others.” Shares of Credit Suisse hit a record low on Wednesday after its largest shareholder, Saudi National Bank 1180, -2.73% , said it would not buy any more shares. Doing so would exceed its 10% regulatory limit, SNB Chairman Ammar Al Khudairi told Reuters. U.S. stocks ended mostly lower on Wednesday, but at their worst levels of the session, after the Swiss central bank’s statement of support. Stocks started 2023 on an upbeat note with hopes that signs of easing inflation will encourage the Federal Reserve to continue its aggressive pace of rate hikes. The focus will also be on what the Fed does with interest rates at its March 22 policy meeting, particularly stability in the banking system in New York after the sudden collapse of Northern California’s prized Silicon Valley bank SIVB, -60.41% and Signature Bank SBNY, -22.87% pay attention In response, regulators shored up all depositors at those banks, and the Fed opened an emergency lending facility for banks that allowed them to pledge dilutive Treasury and agency mortgage bonds as collateral. Read: Silicon Valley Bank’s ‘Safe’ Investments Banks and Fed The Dow Jones Industrial Average DJIA, -0.87% was down 3.8% by Wednesday, while the S&P 500 index SPX, -0.70% was up 1.4. % and the Nasdaq Composite Index COMP, +0.05% rose 9.2% in 2023.
