Brace for more bank failures, warns Fink
Credit Suisse forced to seek help from national bank after share price plunge triggers panic
THE chief executive of the world’s biggest money manager has warned that more banks could collapse, as Swiss regulators were last night forced to reassure investors that Credit Suisse was not at risk.
Larry Fink, the chief executive of Blackrock, said the recent failure of Silicon Valley Bank, Silvergate and Signature Bank in the US could be the start of a “slow, rolling” crisis that may see others fail.
The warning, made in his annual letter to investors, came as shares in Credit Suisse plunged by as much as 30pc yesterday, triggering a wave of panic and speculation that it may be forced into a bailout.
Late last night the Swiss National Bank and regulator FINMA issued a joint statement reassuring investors that Credit Suisse remained financially sound. Officials said “the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets” but pledged to provide emergency liquidity support for Credit Suisse if needed.
The US Treasury said it was monitoring the situation and was in contact with officials around the world about the crisis.
Credit Suisse has insisted its finances are sound, but investors are growing increasingly nervous about the banking sector after the recent run of failures in the United States.
Barclays fell 9pc and HSBC dropped 4pc in London, where the FTSE 100 closed down 3.8pc. The drop wiped £75bn off the value of the index, which was the ninth biggest daily drop by value in its history.
Mr Fink, who oversees $10trillion (£8trillion) of assets at Blackrock, said recent bank failures in the US were the “price of easy money” and warned there could be more “domino[es] to fall”.
He wrote: “This past week we saw the biggest bank failure in more than 15 years as federal regulators seized Silicon Valley Bank. This is a classic assetliability mismatch. Two smaller banks failed in the past week as well. It’s too early to know how widespread the damage is. The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”
Mr Fink, who is one of the world’s most influential investors, said banks were running into difficulties because of higher interest rates, which were putting pressure on the business models of some lenders. Interest rates have risen rapidly in the US over the past year, climbing from near zero to approaching 5pc.
He said: “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 [savings and loans associations] went under.”
The collapse of smaller American savings and loan institutions in the 1980s and 1990s ultimately cost the economy $160bn.
Mr Fink said: “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.”
Mr Fink said it seemed “inevitable” that some banks would now need to pull back on lending and shore up their balance sheets. At the same time, he
‘The regulatory response has been swift and decisive actions have helped stave off contagion risk’
said regulators were likely to tighten capital standards. His comments came as trouble at Credit Suisse sent shockwaves through European stock markets. Shares in the Swiss bank crashed after the lender’s biggest investor, the Saudi National Bank, ruled out providyou ing it with fresh funding. Credit Suisse has lurched from crisis to crisis and the announcement triggered fears it may be forced into a bailout.
Oil prices plunged to their lowest level since December 2021, with the price of Brent crude tumbling 4.7pc to just under $74 a barrel. Robert Yawger, director of energy futures at Mizuho in New York, told Reuters that traders were “pulling the plug across different instruments”.
He said: “Nobody wants to go home with a big position on anything today. have nowhere to hide, really.”
Mr Fink also warned yesterday that the world is sleepwalking into a “silent” retirement crisis as people live longer.
He said: “It’s not this year’s – or even next year’s – problem. But it is a crisis.
“And the longer we delay the conversation about it, the larger the crisis grows.”
Ageing populations and lower birth rates will make affording retirement “more challenging than ever”, he said.
On a day when all attention would usually be focused on Westminster, the Square Mile had more pressing issues to deal with than Jeremy Hunt’s Budget.
“Credit Suisse has dominated everyone’s attention on the trading floor,” says one City trader. “The Budget failed to garner any attention.”
For years, Credit Suisse has been the bad apple of the European banking industry. A series of costly and cack-handed blunders had cost it billions and seen its share price slide almost continuously.
But what had been a slow-burning mess exploded into an acute crisis that triggered a scramble across City trading floors yesterday.
What triggered the panic was two words: “Absolutely not”.
Credit Suisse’s share price plunged as much as 30pc after its biggest investor said it will not stump up any more cash. Ammar al Khudairy, chairman of the Saudi National Bank, ruled out any further support, saying there were “many reasons” not to put more money in.
Market sentiment was already febrile following the collapse of Silicon Valley Bank (SVB) and amid lingering concerns about Credit Suisse. Al Khudairy’s words were like a match thrown into gasoline.
Investors frantically sought to figure out how bad things were and what it meant for the wider economy. The result was wild swings in prices of everything from oil to gold and government debt.
The bank’s credit default swaps, which investors buy to protect themselves from a company defaulting on their debts, surged to a record high as speculation swirled that it could be forced into a bailout.
Banking stocks across the world fell, while the price of oil dropped to its lowest level in over a year on concerns about possible recession.
The euro slumped nearly 2pc against the dollar as traders fretted about what it could mean for the eurozone’s economy.
The price of gold spiked and the yield on US government debt dropped sharply as investors rushed to put their money into safer assets.
Nouriel Roubini, an economist known as “Dr Doom”, raised the spectre of a Credit Suisse default becoming a “Lehman moment”. He told Bloomberg TV: “The problem is that Credit Suisse might be too big to fail, but also too big to be saved.”
Early yesterday, Axel Lehmann, Credit Suisse’s chairman, had ruled out government support as he sought to reassure investors.
Yet as its share price tumbled, Credit Suisse reached out to the Swiss National Bank (SNB) to ask for a public show of support.
While regulators in Switzerland and Britain were keeping tight-lipped last night, the European Central Bank (ECB) was reportedly contacting other banks to ask about their exposure to the embattled Swiss lender.
Gary Greenwood, a banking analyst at Shore Capital, said: “A failure of a bank of this size would clearly raise systemic concerns.
“We may find out sooner rather than later whether all the new tools that have been put in place post-financial crisis to allow for an orderly failure of a large bank without causing massive contagion actually work.”
Analysts at Exane said they thought a bailout by the SNB and financial regulator Finma, possibly with one or more other banks, was the “most likely scenario” if Credit Suisse needed an emergency lifeline.
Pressure on the bank’s share price eased slightly as the US woke up. Credit Suisse shares rallied in midafternoon and ended the day in Zurich down 25pc. Shares traded in New York eased back to a loss of 20pc.
Yet the crisis is far from over. Octavio Marenzi, an analyst at Opimas, told the Financial Times: “It is looking inevitable that the SNB will have to intervene and provide a lifeline.”
Even if the short-term emergency abates, Credit Suisse’s new management team is embarking on a complex restructuring that will see it spin out the investment bank and focus on its key wealth management business. It is a high risk strategy.
The bank has limped from crisis to crisis over the past two years, but its
problems deepened this week as the economic backdrop worsened.
Amid the market fallout triggered by the collapse of Silicon Valley Bank, the Swiss lender said it had found weaknesses in its financial reporting controls and had failed to reverse a trend of customers pulling out funds.
If Credit Suisse does run further into trouble, it would test the mettle of regulators both in the UK and abroad.
Hendrik du Toit, chief executive of UK asset manager Ninety One, which has a very small holding in the Swiss bank, said: “Sizeable bank failures, unless dealt with firmly, sow the seeds of contagion. Expect volatility to continue.”
The Bank of England declined to comment.
‘The problem is that Credit Suisse might be too big to fail, but also too big to be saved’