Investors have wiped nearly half a trillion dollars off the value of bank stocks around the world in the worst scenario for the financial sector since the start of the Covid-19 pandemic.
Financial stocks fell this week as fallout from the collapse of a Silicon Valley bank rippled through global markets. Banks in the US, Europe and Japan have collectively lost $459bn in market value so far this month – a 16 per cent decline, the sharpest decline since March 2020.
The biggest losers were in the US, where the KBW Bank Index fell 18 percent in March. Europe’s Stoxx 600 bank index fell 15 percent, while Japan’s Topix banking sector index was down 9 percent.
Efforts to stabilize the financial system and alleviate widespread panic have been only partially successful. Shares in troubled Californian bank First Republic were down more than a quarter in afternoon trading on Friday, despite an infusion of $30bn in cash from Wall Street banks including JPMorgan Chase and Goldman Sachs.
Shares in Credit Suisse also fell 8 percent after the Swiss central bank provided an emergency credit line of SFr50bn ($54bn) on Thursday. Credit default swaps and bonds of the Zurich-based lender were trading at distressed levels.
Volatile markets have also hurt banks that are seen as strong, some affected by the yield on the two-year Treasury note falling at its fastest pace since 1987. Goldman lost about $200 million on its trading desk that deals in interest rate products, according to people familiar with the matter. Goldman declined to comment.
Global regulators met on Friday evening to discuss how to calm fears about the health of the financial system, with some focusing on options for stabilizing Credit Suisse and its international subsidiaries.
Executives and board members of the Swiss lender are also debating the future of the 167-year-old bank, which has lurched from one crisis to another over the years.
“Clearly we have to review the strategic plan,” said one person involved in the crisis talks. “It’s been a crazy week. We are looking at everything possible that can happen. There is nothing that is taboo. But whatever happens the bank will survive.
Another senior person at the lender said they “have to look at the various contingency options that we have”. “We have a good strategy, but the question now is whether market conditions and investor support will give it time to work.”
Options under consideration include breaking up the bank and raising funds through a public offering of its ringfenced Swiss division, which sells wealth and asset management units, the two people said. This would largely be to rival UBS as the government and regulators would prefer them to remain under Swiss control.
Adding to the pressure on management, one of the bank’s largest shareholders is now publicly calling for the local unit to be spun off to protect depositors, mortgagees and small businesses.
“Draconian measures are needed. A complete spin-off of the Swiss branch is required. We need to isolate it now because it is contagion,” said Vincent Kaufmann, chief executive of the Ethos Foundation, which represents Swiss pension funds and institutions holding up to 5 percent of stocks.
According to analyst estimates, Credit Suisse’s ringfenced domestic bank is worth twice the market capitalization of the group as a whole.
“SNB [Swiss National Bank] There’s a need to move forward,” Kaufman added. “I’ve had some calls from Swiss pension funds who are very concerned about their exposure and are reducing it.”
Other proposals to be examined at the end of the week include rapid cuts to the investment bank or even shutting it down altogether, the people added.