Markets on alert after US banks join forces to rescue First Republic – business live | Business

Key events

The UK chancellor Jeremy Hunt, who presented his spring budget on Wednesday, has ditched plans to make sovereign wealth funds (SWFs) pay corporation tax on property and commercial enterprises after cabinet warnings that the move would hit investment and economic growth, the Financial Times has reported.

Kemi Badenoch, business and trade secretary, led pressure on the Treasury to drop the proposals after warnings that SWFs, which include some of the largest global investors, might pull out of UK projects.

The decision to drop the proposals came as a surprise to tax experts. Ahead of the budget, Tim Sarson, UK head of tax policy at KPMG, told the FT he thought it was a “racing certainty” the changes would be made.

European shares open higher, oil prices rise

European markets have opened: The FTSE 100 index has risen 75 points to 7,487, a gain of over 1% Germany’s Dax opened 0.7% higher while France’s CAC added 0.8%, Spain’s Ibex climbed 0.6% and Italy’s FTSE MiB is 1.2% ahead.

The European banking index is up 1.2%, but is still on course for a weekly drop of 8%.

Crude oil prices are also heading higher. Brent and US light crude are both up more than 1%, with Brent at $75.49 a barrel.

US investors in Credit Suisse file legal action

Alex Lawson

Alex Lawson

US investors in Credit Suisse have hit the beleaguered Swiss bank with legal action, claiming that it overstated its prospects before this week’s shares crash.

The lender suffered a rapid sell-off with shares plunging as much as 30% on Wednesday after comments from Credit Suisse’s largest shareholder, Saudi National Bank (SNB), which said it was unable to pump in more cash because of regulatory restrictions limiting its holding to below 10%.

The Swiss central bank later stepped in to offer Credit Suisse a £44.5bn lifeline and the shares rallied, recovering some of their losses yesterday.

But Rosen Law Firm, a class action lawsuit specialist, has lodged a complaint in a court in Camden, New Jersey which claims the bank made “materially false and misleading statements” in its 2021 annual report.

The lawsuit would represent the first mounted against Credit Suisse since the crisis rapidly devalued shareholders’ investments.

Last week Credit Suisse admitted it had “material weaknesses” in its reporting and controls procedures when it published its delayed 2022 annual report. It said this could have resulted in “misstatements” of financial results.

Here’s a handy explainer for those scratching their heads over what this all means: How to understand Credit Suisse, Silicon Valley Bank and fears of a new crisis. By the Guardian’s banking correspondent, Kalyeena Makortoff, and financial editor, Nils Pratley.

People worry that that this is the start of what some fear could be a global, slow-rolling banking crisis.

First, the collapse of Silicon Valley Bank in the US caused jitters in markets that spread across the world. SVB was supposed to be a regional player whose failure would be unlikely to have profound ramifications – but then a longstanding set of problems at Credit Suisse, a far more consequential institution, turned into an emergency. Its shares dropped 24.5% in a day, and £75bn was wiped off the FTSE 100. Premature though it might have been, people started saying “2008”, which is basically Voldemort for financial markets.

Yesterday, Credit Suisse secured a loan facility with the Swiss Central Bank, intended as a guarantee of its future stability, and the panic somewhat abated – and it’s important to say that we are a long way from a full-blown crisis. But there was more evidence of trouble in the US, where Wall Street giants agreed an unprecedented plan to deposit $30bn to prop up First Republic, another bank on the brink.

Credit Suisse’s problems have not vanished, and suddenly investors are looking hard at whether other European and US institutions might be in the same boat. Impenetrable though much of this is to a layperson, it’s unfortunately not going away.

Facing heat for his investment fund’s role in triggering the run on Silicon Valley Bank last week, billionaire Peter Thiel told the Financial Times that he had $50m of his own money “stuck” in the bank when it collapsed.

Even as Thiel’s Founders Fund was advising companies to move their money from the bank, a decision that has been widely blamed for precipitating its failure, Thiel said that he kept a portion of his own $4bn personal fortune in the bank.

“I had $50m of my own money stuck in SVB,” Thiel told the Financial Times in a story published yesterday, saying that he believed the bank would not fail.

Introduction: Markets on alert after US banks join forces to rescue First Republic

Some calm has returned to financial markets at the end of a turbulent week, but investors remain wary. Asian shares have risen as help for struggling banks, such as the $30bn lifeline for First Republic Bank in the US, has eased banking crisis fears.

Large US banks – Bank of America, Goldman Sachs, JP Morgan and others – have joined forces to inject $30bn into First Republic, which has seen customers yank their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.

Despite the rescue, First Republic shares tumbled 17% in extended trading yesterday, after it said it was suspending its dividend.

Cash-strapped banks have borrowed about $300bn from the Federal Reserve in the past week. Nearly half the money – $143bn – went to holding companies for two major banks that failed in recent days, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets. The Fed did not identify the banks that received the other half of the funding or say how many of them did so.

US Treasury Secretary Janet Yellen said last night that “our [the US] banking system is sound and that Americans can feel confident that their deposits will be there when they need them”.

This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.

But she denied that emergency action after the two large bank failures meant that there was a blanket government guarantee for all deposits. In the case of SVB and Signature, she told the US Senate Finance Committee that

the chances of contagion that other banks might be regarded as unsound and suffer runs, seemed extremely high, and the consequences would be very serious.

US banking system ‘remains sound’ despite bank collapses, says Janet Yellen – video

Credit Suisse shares jumped 11% yesterday after the Swiss National Bank stepped in with a 50bn Swiss franc (£44bn) loan to prop up the beleaguered lender. Shares plummeted as much as 30% to record lows on Wednesday after the bank’s largest shareholder, Saudi National Bank, said it was unable to invest more money because of regulatory restrictions limiting its holding to below 10%. Credit Suisse is one of 30 banks globally deemed too big to fail.

A Credit Suisse executive said the central bank cash would buy it time to complete an overhaul of the lender. André Helfenstein, chief executive of the Credit Suisse’s Swiss bank, told the Swiss broadcaster SRF:

We see it as precautionary liquidity so that we can carry out the transformation of Credit Suisse and continue to work well in this turbulent situation.

In Asian markets, Japan’s Nikkei rose 1.2% while Hong Kong’s Hang Seng gained 1.6%. The Shanghai Composite advanced 0.7% and China’s CSI 300 blue-chip index was up 0.6%.

The Agenda

  • 10am GMT: Eurozone inflation for February (forecast: 8.5%, previous: 8.6%)

  • 1.15pm GMT: US Industrial production for February (forecast: 0.2%, previous: zero)

  • 2pm GMT: US Michigan Consumer sentiment for March (forecast: 67, previous: 67)

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