Bank lifelines fail to stem sell-off, ECB sees no Europe contagion

Credit Suisse and First Republic Bank shares came under renewed pressure despite multibillion-dollar support deals

Credit Suisse and First Republic Bank shares came under renewed pressure on Friday despite multibillion-dollar support deals, while a source said European Central Bank supervisors see no contagion for euro zone banks from the turmoil.

Shortly after Credit Suisse secured an emergency central bank loan of up to $54 billion on Thursday, big US banks swooped in with a $30 billion lifeline for San Francisco-based First Republic, which has been under scrutiny since the collapse of two other mid-size US banks.

US banks have sought a record $153 billion in emergency liquidity from the US Federal Reserve in recent days, surpassing a previous high set during the most acute phase of the financial crisis some 15 years ago.

This reflected "funding and liquidity strains on banks, driven by weakening depositor confidence," said ratings agency Moody's, which this week downgraded its outlook on the US banking system to negative.

Shares in Switzerland's second-largest bank fell by more than 10% on Friday, however, with Morningstar Direct saying Credit Suisse had seen more than $450 million in net outflows from its US and European managed funds from Mar 13 to 15.

With investor confidence far from restored, analysts, investors and bankers think the loan facility has only bought Credit Suisse some time to work out what to do next.

Meanwhile, US regional bank shares, including PacWest Bancorp, also opened sharply lower, with First Republic down around 25%.

Investors are also increasingly seeking insurance against a sudden crash in stocks, fearing that more tumult is in store for markets. Gold prices rose by more than 1% as the banking sector tremors drove investors towards "safe haven" assets.

The ECB held an ad hoc supervisory board meeting, its second this week, to discuss the stresses and volatility in the banking sector in an unusual move ahead of a scheduled one next week.

But the supervisors were told deposits were stable across the euro zone and exposure to Credit Suisse was immaterial, a source familiar with the meeting's content told Reuters.

An ECB spokesperson declined to comment.

Euro zone banks are still sitting on some 4 trillion euros' worth ($4.25 trillion) of excess liquidity, which they are keen to hand back to the ECB now that borrowing from it has become more expensive, central bank data showed.

A German government spokesperson said the current situation with European banks is not comparable to the 2008 financial crisis, adding during a regular news briefing that there is no cause for concern about the country's banking sector.

Banking stocks globally have been battered since Silicon Valley Bank (SVB) collapsed last week, raising questions about other weaknesses in the wider financial system.

SVB Financial Group said on Friday it had filed for a court-supervised reorganisation, days after its former banking unit SVB was taken over by US regulators.

While the deals to shore up Credit Suisse and First Republic, alongside action by policymakers, have helped restore some calm, fitful investors are still concerned about the potential for a full-blown banking crisis.

The First Republic deal was put together by power brokers including US Treasury Secretary Janet Yellen, Fed Chairman Jerome Powell and JP Morgan CEO Jamie Dimon.

While support from some of the biggest names in US banking prevented a collapse, investors were startled by First Republic's late disclosures on its cash position and just how much emergency liquidity it needed.

"It appears that maybe the damage has been done to the brand reputation of First Republic. (It) is a shame because it was a high quality, well run bank," said John Petrides, portfolio manager at Tocqueville Asset Management.

Credit Suisse became the first major global bank to take up an emergency lifeline since the 2008 financial crisis, fuelling doubts over whether central banks will be able to sustain aggressive rate hikes to rein in inflation.

The ECB pressed forward with a 50 basis-point rate hike, arguing that euro zone banks were in good shape and that if anything, higher rates should bolster their margins.

Attention has now shifted to the Fed's policy decision next week and whether it will stick with its aggressive interest rate hikes as it seeks to get inflation under control.

LESSONS FROM 2008

For now, authorities are confident the banking system is resilient and have tried to emphasise that the current turmoil is different to the global financial crisis 15 years ago as banks are better capitalised and funds more easily available.

Japan Prime Minister Fumio Kishida said after a three-way meeting between the country's government, banking regulator and central bank that the talks were held as part of efforts to closely watch any impact on financial system stability.

"Japan's financial system remains stable as a whole," Kishida told a news briefing.

Singapore, Australia and New Zealand also said they were monitoring financial markets but were confident their local banks were well capitalised and able to withstand major shocks.