Financials fall as Credit score Suisse turns into the sector’s newest disaster

A man is seen in silhouette walking past a branch of Swiss bank Credit Suisse March 15, 2023 in Vevey, western Switzerland

Fabrice Coffrini | AFP | Getty Images

Bank stocks were under pressure on Wednesday as the sharp fall of Swiss credit shook a segment of the market already battered by two major bank failures in the past week.

Shares of the Swiss lender fell more than 20% after the head of its biggest lender – the National Bank of Saudi Arabia – said it will not provide any further financial support, although it sees Credit Suisse as a strong bank and happy with its turnaround plan is .

After the European markets closed, the Swiss National Bank said in a statement that it would provide additional liquidity to Credit Suisse if needed. US-listed stocks pared some of their losses following the news, closing about 14% lower.

Credit Suisse announced on Tuesday that it had identified “material weaknesses” in its financial reporting process from previous years. Other European banks also slid, including a 6.8% drop for US-traded Deutsche Bank shares.

The move also appeared to affect major US banks. shares of Wells Fargo fell by more than 3%, as well as Goldman Sachs. JP Morgan 4.7% lost while Citigroup fell by 5.4%.

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Wells Fargo shares were under pressure on Wednesday.

Some regional bank stocks posted even larger declines. shares of First Republic fell more than 21% after its debt rating was downgraded by S&P Global Ratings and Fitch. PacWest Bancorp fell by almost 13%. Western Alliance saw steep losses in morning trade before turning back higher, continuing the volatile trend of trading the stock.

Credit Suisse struggles follow collapse of Silicon Valley Bank And signature bank in the US, those defaults led to sharp sell-offs in regional bank stocks on Monday. The SPDR S&P Regional Bank ETF (KRE) fell 1.6% on Wednesday.

While Credit Suisse’s problems may appear unrelated to middle-market US banks, the combination of the two problems could trigger a broader scrutiny of the banking system among investors, according to Bleakley Financial Group’s Peter Boockvar.

“What this tells us is that there is the potential for just one big contraction in the loan rollover that the banks will initiate [to] Focus more on tightening balance sheets and not on lending,” Boockvar said on CNBC’s “Squawk Box” on Wednesday.

“It’s a balance sheet rethink that the markets have made. Also, with a lot of these banks, you have to wonder if they need to start going out and raising equity,” he added.

Along those lines, Wells Fargo filed Tuesday to raise $9.5 billion of capital through the sale of debt, warrants and other securities. The bank said the new money will be used for general corporate purposes.

The fallout from the collapse of the SVB could also lead to more regulation and rising costs for the US banking sector, including potentially higher fees for deposit insurance regulators.

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