Monday December 04, 2023

Global banks shed $459bn in market rout as Goldman Sachs loses on rate swing

March 19, 2023

By News Desk

London/New York: Investors have wiped nearly half a trillion dollars from the value of bank shares around the world in the worst rout for the financial sector since the onset of the Covid-19 pandemic.

Financial stocks dived this week as the fallout from the collapse of Silicon Valley Bank spread through global markets. Banks in the US, Europe and Japan have collectively lost $459 billion in market value so far this month — the 16 percent fall is the sharpest slump since March 2020.

The heaviest losses came in the US, where the KBW Bank index has lost 18 percent in March. Europe’s Stoxx 600 banks index has fallen 15 percent, while Japan’s Topix banking sector index is down 9 percent.

Efforts to stabilise the financial system and head off broader panic have been only partly successful. Shares in troubled Californian bank First Republic fell more than a quarter in afternoon trading 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 Thursday’s provision of a SFr50 billion ($54 billion) emergency credit line from the Swiss central bank. The Zurich-based lender’s credit default swaps and bonds were trading at distressed levels.

The volatile markets have hurt even banks that are seen as stronger, with some affected by the yield on the two-year Treasury note falling at its fastest pace since 1987. Goldman lost about $200 million at its trading desk that deals in interest rate products, according to people familiar with the matter. Goldman declined to comment.

Global regulators held talks on Friday evening to discuss how to calm fears about the health of the financial system, with some focusing on options to stabilise Credit Suisse and its international subsidiaries.

Executives and board members at the Swiss lender are also debating the future of the 167-year-old bank, which for years has lurched from one crisis to another.

“Clearly we have to review the strategic plan,” said one person involved in emergency talks. “It has been a week of madness. We’re looking at everything possible that could be done. There is nothing that is taboo. But whatever happens the bank will survive.”

Another senior figure at the lender said they had to “reflect on the various contingency options that we have”. “We have a good strategy, but there is a question now whether market conditions and investor support will allow it the time to work.”

Options under consideration include breaking up the bank and raising funds via a public offering of its ringfenced Swiss division, with the wealth and asset management units being sold, the two people said. This would most likely be to rival UBS because the government and regulators would prefer them to stay under Swiss control.

Adding pressure on management, one of the bank’s largest shareholders is now publicly calling for a separation of the domestic unit to protect depositors, mortgages and small businesses.

“Drastic action is needed. There needs to be a full spin-off of the Swiss branch. We need to isolate that now because contagion is spreading to it,” said Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds and institutions holding up to 5 percent of the stock.

Credit Suisse’s ringfenced domestic bank is worth as much as double the group’s entire market capitalisation, according to analyst estimates. —News Desk

“The SNB [Swiss National Bank] needs to step in,” Kaufmann added. “I had some calls from Swiss pension funds who are very worried about their exposure and they have been reducing it.”

Other proposals to be examined over the weekend include speeding up cuts at the investment bank, or even closing it entirely, the people added.