Three days after US regulators stepped in to rescue the banking sector and two failed banks, Credit Suisse accepted a lifeline to restore confidence in the banking system. Although that calmed some nerves, markets remain extraordinarily volatile.
Focus has shifted again to: Who’s next? What’s the next domino to fall?
First Republic Bank is the consensus choice. Fitch Ratings and S&P on Wednesday both downgraded the bank’s credit rating over concerns that depositors could pull their cash despite federal intervention. The bank is reportedly exploring strategic options, including a sale, according to Bloomberg. (That’s Wall Street for: Help!) First Republic’s stock fell 28% in premarket trading.
On Thursday, Fitch Ratings put Western Alliance bank on notice, saying its credit rating could fall if customers continued to pull money out of the bank. Shares of Western Alliance, a regional bank like SVB, fell 10% in premarket trading. PacWest Bank fell 16%, and shares of other regional banks fell again, too. JPMorgan said in a note to clients that the Swiss central bank’s intervention was insufficient, and Credit Suisse will most likely need to be taken over.
In the meantime, concerns continue to shift from Credit Suisse to other parts of the banking industry.
The problems at Credit Suisse are “a reminder that as interest rates rise, vulnerabilities are lurking in the financial system,” said Neil Shearing, Group Chief Economist of Capital Economics.
Key areas to monitor, Shearing says: Smaller European banks, shadow banks and open-ended funds that might struggle under pressure from customers withdrawing money — and a boat-load of government bonds in their portfolios that have crumbled in value as rates have surged.
