Investors have wiped nearly half a trillion dollars off the value of bank stocks around the world in the worst defeat for the financial sector since the start of the Covid-19 pandemic.
Financial stocks tumbled this week as the fallout from the collapse of the Silicon Valley bank spilled over into global markets. Banks in the US, Europe and Japan have lost a total of $459 billion in market value so far this month – the 16 percent drop is the sharpest drop since March 2020.
The biggest losses came in the US, where the KBW bank index fell 18 percent in March. Europe’s Stoxx 600 banking index is down 15 percent, while Japan’s banking sector index Topix is down 9 percent.
Efforts to stabilize the financial system and stave off a broader panic have met with only partial success. Shares in troubled California bank First Republic fell more than a quarter in afternoon trade on Friday, despite a $30 billion cash infusion from Wall Street banks including JPMorgan Chase and Goldman Sachs.
Credit Suisse shares fell 8 percent even after a SFr50 billion ($54 billion) emergency credit line was provided by the Swiss central bank on Thursday. The Zurich-based lender’s credit default swaps and bonds were trading at distressed levels.
Volatile markets have hurt even banks viewed as stronger, with some affected by the sharp fall in yields on the two-year Treasury note since 1987. Goldman lost about $200 million on its trading desk, which trades interest rate products. according to persons familiar with the matter. Goldman declined to comment.
Global regulators held talks Friday night to discuss how to allay fears about the health of the financial system, with some focusing on options to stabilize Credit Suisse and its international subsidiaries.
Executives and board members of the Swiss bank are also debating the future of the 167-year-old bank, which has been reeling from one crisis to the next for years.
“Of course we need to review the strategic plan,” said one person involved in emergency talks. “It’s been a crazy week. We’re looking at everything that could be done. There is nothing that is taboo. But whatever happens, the bank will survive.”
Another senior figure at the lender said she needed to “think about 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 the time to work.”
Options under consideration include winding up the bank and raising funds through a public offering of its shielded Swiss division, selling its wealth and wealth management units, the two people said. This would most likely be in competition with UBS as the government and regulators would prefer it remain under Swiss control.
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One of the bank’s largest shareholders is increasing pressure on management and is now publicly calling for a domestic entity separation to protect depositors, mortgages and small businesses.
“Drastic measures are required. The Swiss branch must be completely spun off. We have to isolate that now because the contagion is spreading to it,” said Vincent Kaufmann, executive director of the Ethos Foundation, which represents Swiss pension funds and institutions holding up to 5 percent of the shares.
Credit Suisse’s dedicated domestic bank is worth twice the group’s total market cap, according to analyst estimates.
“The SNB [Swiss National Bank] must intervene,” added Kaufmann. “I’ve had a few calls from Swiss pension funds who are very concerned about their commitment and have reduced it.”
Other proposals to be considered over the weekend include accelerating cuts at the investment bank or even shutting it down entirely, the people added.