Credit Suisse shares plunge to record low as top shareholder rules out investing more – business live

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Credit Suisse has appealed to the Swiss National Bank for a public show of support after its shares cratered as much as 30% this morning, the Financial Times reports.

The FT says:

The request for a reassuring statement about Credit Suisse’s financial health came after its shares sank as low as SFr1.56, having earlier been halted amid a heavy sell-off, according to three people with knowledge of the talks.

Credit Suisse also asked for a similar response from Finma, the Swiss regulator, two of the people said, but neither institution has yet decided to intervene publicly.

The turmoil in the banking system, and the financial markets, is creating uncertainty in the US housing sector.

Alicia Huey, chairman of the National Association of Home Builders, says builders are ‘highly uncertain’ about the economic outlook in the short and medium term.

“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory.

“But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.

The NAHB’s latest housing market index increased 2 points to 44 in March, but remained below the 50-point mark which shows stabls sentiment.

The chief executive of Silicon Valley Bank’s UK arm has abandoned plans to leave the role following its ?1 rescue takeover by HSBC, Sky News report.

Erin Platts is to stay in her job following talks in the last 48 hours with Ian Stuart, the CEO of HSBC UK Bank.

Sources said that SVB UK’s independent directors, who include chairman Darren Pope, are also expected to stay on under HSBC’s ownership.

That indicates HSBC’s plan to enable the technology-focused lender to operate with some degree of autonomy on an ongoing basis. More here.

Mairead McGuiness, the EU’s financial services chief, said that the SVB collapse has a limited impact on the EU, where it has only a limited presence but added that lightly-regulated foreign lenders need to meet stricter rules inside the EU. She told the European parliament:

Silicon Valley Bank has a very limited presence in the European Union and we are in touch with the relevant supervisory authorities.

So the direct impact of these bank failures on the EU seems to be limited.

John Leiper, chief investment officer at Titan Asset Management, fears that the problems in the banking sector will “ripple” across the economy.

Leiper says:

Credit Suisse stock is plunging today as the fallout from the Silicon Valley Bank collapse continues.

We remain concerned that these ripple effects will continue to spread across the economy and retain a defensive exposure at this time.

Leiper adds that the fall in US producer price inflation today points to a slowdown in the economy, as recent interest rate rises start to bite.

Here are the main business measures outlined by Jeremy Hunt today in the spring budget:

Changes to capital allowances worth ?27bn to businesses over three years

A ?500m per year package of support for 20,000 research and development (R&D) intensive businesses through changes to R&D tax credits

Reforms to tax reliefs for the creative sectors will ensure theatres, orchestras, museums and galleries are protected against ongoing economic pressures

The Medicines and Healthcare products Regulatory Agency (MHRA) will receive ?10m extra funding over two years to maximise its use of Brexit freedoms and accelerate patient access to treatments. This will allow, from 2024, the MHRA to introduce new, swift approvals systems, speeding up access to treatments already approved by trusted international partners and ground-breaking technologies such as cancer vaccines and AI therapeutics for mental health.

?900m of funding for an AI research resource and an exascale computer – making the UK one of a handful of countries to have one – and a commitment to ?2.5bn ten-year quantum research and innovation programme through the government’s new Quantum Strategy.

Shares on Wall Street have fallen, but not as much as UK and European stock markets. The Dow Jones and the S&P 500 have both lost 1.7% while the Nasdaq is down 0.8%.

Over here, the FTSE 100 index has tumbled 240 points to 7,396, a drop of 3.1%. The French stock market is also down more than 3% while the German Dax has dropped 2.5% and the Swiss Market Index has fallen 1.6%.

The Euro Stoxx Banks Index has tumbled nearly 8% as fears over the future of Credit Suisse intensified, after a major shareholder, Saudi National Bank, which has a 9.9% stake, ruled out investing more because of regulatory restrictions. Credit Suisse shares plunged 30% to a new record low of 1.55 Swiss francs earlier and are now trading 25% lower at 1.67 Swiss francs.

The pound is trading 0.9% lower against the dollar at $1.20.

After a vigorous campaign from the consumer rights champion Martin Lewis and many charities, Jeremy Hunt confirmed today that the energy price guarantee will remain at ?2,500 until July – it had been set to rise to ?3,000.

He said the measure would save the average family ?160. Hunt also announced extra help for those with prepayment meters, saying he will “bring their charges in line with comparable direct debit charges”.

In addition, he announced a ?63m fund to help leisure centres and pools afford their energy bills, and ?100m extra for charities facing soaring costs.

The chancellor also outlined major changes to childcare. As revealed in the Guardian, he said parents of children aged nine months to three years will be offered 30 hours a week of free childcare in term time – as long as both parents are working at least 16 hours a week.

The economic outlook has improved. Hunt said the Office for Budget Responsibility (OBR) expects inflation to slow sharply, from 10.7% in the fourth quarter of last year, to 2.9% by the end of 2023 – meeting Rishi Sunak’s target of halving it.

Since the autumn statement, the OBR, along with many other forecasters, has become slightly less gloomy about the prospects for 2023. It is now expecting GDP to contract by 0.2%, instead of the 1.4% it predicted in November. Hunt said that will be followed by growth of1.8% next year, 2.5% in 2025 and 2.1% in 2026.

Here are the key points of the budget at a glance, with some instant analysis – by Heather Stewart and Aubrey Allegretti:

You can find the budget documents here.

Credit Suisse shares have plunged 30% to another fresh all-time low, of 1.56 Swiss francs.

Andrew Kenningham, chief Europe economist at Capital Economics, has outlined the issues:

First, Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week. Admittedly, its problems were well known so do not come as a complete shock to either investors or policymakers. However, Credit Suisse has a much larger balance sheet than SVB (CHF530bn at end-2022) and is much more globally inter-connected, with multiple subsidiaries outside Switzerland including in the US. It is also a US primary broker. Credit Suisse is not just a Swiss problem but a global one.

Second, if Credit Suisse were to fail much would depend on how orderly the resolution is. As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or “living wills”) have not been put to the test since they were introduced during the Global Financial Crisis. Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected. While regulators will be aware of this, the risk of a botched resolution will be worrying the markets until a solution becomes apparent.

Third, the sell-off may have implications for the ECB’s policy decision due tomorrow. Clearly there is a strong case for the ECB to wait and see how things develop. But our best guess at this stage is that the Bank will press on with its pre-announced plan to raise the deposit rate from 2.5% to 3.0%, while stressing that policy is not on a predetermined path.

Finally, and most importantly, the problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another “idiosyncratic” case. Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years. Moreover, this is the third “one-off” problem in a few months, following the UK’s gilt market crisis in September and the US regional bank failures last week, so it would be foolish to assume there will be no other problems coming down the road.

Over in the UK parliament, Jeremy Hunt has just sat down after speaking for around an hour. He said that the UK economy would avoid a technical recession this year – defined as two or more consecutive quarters of economic contraction – although it is forecast to shrink by 0.2% this year by the Office for Budget Responsibility.

Fast-moving financial markets have today seen attention switch from the (ongoing) banking crisis in the US towards Europe. Credit Suisse shares have fallen as much as 26% and the Eurostoxx Banks Index is down more than 8%.

Stress in money markets is moving back to Monday’s levels and the euro is softening, said Chris Turner, global head of markets and regional head of research for the UK & Central & Eastern Europe at ING.

Earlier today we had described a ‘nervous calm’ returning to financial markets. That has not lasted long at all as attention has switched to Europe and the pressure on Credit Suisse’s (CS) share price after The Saudi National Bank, one of CS’s top investors, said it was not open to a further capital injection into CS. Heavy losses in CS have un-nerved European bank stocks in general at a time when the failure of SVB, formerly the United States’ 16th largest bank, is still being assessed.

Heavy losses in European banks have raised stress levels in money markets. The 3-month USD FRA-OIS spread has widened back out to +57bp (near Monday’s peak) and the 3m EUR cross-currency basis swap has widened to 38bp from 15bp at the start of European trading. Remember that the cross-currency swap represents the extra cost the interbank market is prepared to pay to secure dollar funding using the euro swaps market. It was a key measure of stress both during the 2008 financial crisis and again during the start of the pandemic in March 2020.

The pressure on European banks has also sparked a repricing of tomorrow’s European Central Bank meeting. What was seen as a solid 50bp hike from the ECB has today been cut to a 35bp hike.

Clearly, it looks like it will take some time for financial conditions to settle. The Fed announcing greater oversight for mid-sized US banks may not be enough and investors may want to hear of more support from monetary and regulatory authorities. Investors will also be looking out for the take-up of the Fed’s new liquidity scheme, data on which should be available tomorrow evening.

In the US, producer prices fell unexpectedly, by 0.1% in February from January, suggesting that cost pressures are easing. Economists had expected them to rise by 0.3%.

The annual rate slowed to 4.6%, according to data from the Bureau of Labor Statistics.

Charlie Bilello, chief market strategist at Creative Planning, tweeted:

BlackRock chief executive and chairman Larry Fink said the collapse of SVB, the biggest banking collapse in more than 15 years, could be followed by a “slow rolling crisis” in the US financial system.

In his annual letter to investors, he likened it to the savings and loan crisis from 1986 to 1995. He said the current banking crisis was a consequence of “years of easy money” and the recent rate hikes from the US Federal Reserve.

We’ve seen inflation move sharply higher to levels not seen since the 1980s. To fight this inflation, the Federal Reserve in the past year has raised rates nearly 500 basis points. This is one price we’re already paying for years of easy money – and was the first domino to drop.

Prior tightening cycles have often led to spectacular financial flameouts – whether it was the Savings and Loan Crisis that unfolded throughout the eighties and early nineties or the bankruptcy of Orange County, California, in 1994. In the case of the S&L Crisis, it was a “slow rolling crisis” – one that just kept going. It ultimately lasted about a decade and more than a thousand thrifts went under.

We don’t know yet whether the consequences of easy money and regulatory changes will cascade throughout the US regional banking sector (akin to the S&L Crisis) with more seizures and shutdowns coming.

It does seem inevitable that some banks will now need to pull back on lending to shore up their balance sheets, and we’re likely to see stricter capital standards for banks.

He added:

Over the longer term, today’s banking crisis will place greater importance on the role of capital markets. As banks potentially become more constrained in their lending, or as their clients awaken to these asset-liability mismatches, I anticipate they will likely turn in greater numbers to the capital markets for financing.

On the markets, the FTSE 100 index has fallen further since Jeremy Hunt started speaking, and is now down 229 points at 7,407, a 3% drop.

The pound has held its losses against the dollar and is trading at $1.2089, down 0.6%.

Interest rate futures are now pricing in a 60% chance that the Bank of England will not raise Bank rate at its next meeting on 23 March.

The high-profile economist Nouriel Roubini, known as Dr Doom, said that the Credit Suisse crisis could turn into “Lehman moment,” referring to the collapse of the US investment bank Lehman Brothers in August 2007 at the start of the global financial crisis. He tweeted:

Ministers have asked National Grid to “explore” whether winter contracts to keep coal-fired power plants on standby could be repeated next year.

Last year, the Grid agreed contracts with Drax, EDF and Uniper to keep five coal units ready to step in if other sources of power generation ran short, with the possibility of Russia cutting gas supplies into Europe looming large.

The coal plants were asked to warm up several times over the winter, but only put into action to produce power once, during the cold snap last week.

But Drax, which has faced heavy criticism over its biomass business model, said its coal units would close as planned at the end of this month.

A spokesperson for the company said: “With two major maintenance outages planned on our biomass units this summer, and a number of certifications expiring on the coal-fired units, the units would not be able to operate compliantly for winter 2023.”

Britain has set a goal to stop generating electricity using coal by October 2024 in an effort to cut carbon emissions. In 2021, the target was pulled forward by a year.

National Grid’s electricity system operator said ahead of this winter that the coal contracts would cost between ?220m to ?420m upfront.