Credit Suisse slides in Europe bank rout as SVB fallout grows

Credit Suisse CSGN.S shares hit a record low on Wednesday in a rout of European bank stocks, as investor concerns about sector stresses triggered by Silicon Valley Bank's implosion deepened.

Regulators and financial executives around the world have sought to assuage contagion fears after tech-focused lender SVB and another US bank failed last week, but fears persist.

Credit Suisse shares dropped by as much as 30%, leading a 7% fall in the European banking index .SX7P, while five-year credit default swaps (CDS) for the flagship Swiss bank hit a new record high, highlighting increasing investor concerns.

Two supervisory sources told Reuters that the European Central Bank (ECB) had contacted banks on its watch to quiz them about their exposures to Credit Suisse.

One of sources said, however, that they saw Credit Suisse's problems as specific to that bank, rather than being systemic.

Europe's bank index has seen more than 120 billion euros evaporate ($127 billion) in value since March 8. Among the biggest decliners on Wednesday were French lenders Societe Generale SOGN.PA, down 12%, and BNP Paribas BNPP.PA, off 9%.

"Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse," said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.

The Swiss National Bank declined to comment on Switzerland's second-largest bank, after its largest investor said it could not provide Credit Suisse with more financial assistance because of regulatory constraints.

"There has to be some kind of game-changing decisive action to reverse and stabilise the situation," Exane's analysts said.

Credit Suisse had appealed to the Swiss National Bank and Swiss financial watchdog FINMA for a public show of support, the Financial Times reported.

Germany's financial supervisory authority (BaFin) said it saw no direct risk of contagion and the German banking system appeared robust and capable of digesting higher interest rates.

"Our main focus is currently on some smaller banks with little surplus capital and increased interest rate risks - we are closely monitoring these institutions," a BaFin spokesperson said in a statement.

'Easy money'

In the United States, regional banks also fell, with First Republic Bank FRC.N down 18%, Western Alliance Bancorp WAL.N down 7.5% and PacWest Bancorp PACW.O off around 16%,

Big US banks such as JPMorgan Chase & Co JPM.N, Citigroup C.N and Bank of America Corp BAC.N slid by between 1.7% and just over 5%.

BlackRock BLK.N Chief Executive Laurence Fink warned on Wednesday that the US regional banking sector remained at risk, and predicted further high inflation and rate increases.

Fink described the financial situation as the "price of easy money" and said in an annual letter that he expected more US Federal Reserve interest rate increases.

He said that after the regional banking crisis "liquidity mismatches" could follow because low rates have driven some asset owners to raise their exposure to higher-yielding investments that are not easy to sell.

"It's too early to know how widespread the damage is," Fink wrote, adding: "The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge."

Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.

However, ECB policymakers are still leaning towards a half-percentage-point rate hike on Thursday, a source told Reuters, as they expect inflation will remain high.

Investors had begun to doubt the ECB's commitment to another big rate hike as SVB's collapse rattled markets.

But the source said the central bank was unlikely to diverge from its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.

Unease sparked by SVB's demise has prompted depositors to seek out new homes for their cash.

Ralph Hamers, CEO of Credit Suisse rival UBS UBSG.S said market turmoil has steered more money its way.

"In the last couple of days as you might expect we've seen inflows," Hamers said. "It is clearly a flight to safety from that perspective, but I think three days don't make a trend."

Deutsche Bank DBKGn.DE CEO Christian Sewing said that the German lender has also seen incoming deposits.

SVB aftermath

In the United States, the focus is shifting to the possibility of tougher rules for banks, particularly mid-tier ones like SVB SIVB.O and New York-based Signature Bank SBNY.O, whose collapses triggered the market tumult.

Moody's Investors Service on Tuesday revised its outlook on the US banking system to "negative" from "stable", citing heightened risks for the sector.

SVB's shutdown prompted assurances from President Joe Biden that the US financial system is safe, alongside emergency steps giving banks access to more funding.

The Tokyo Stock Exchange banks index .IBNKS.T jumped more than 4% on Wednesday, after three straight days of selling.

Investors had been particularly concerned about the huge bond holdings of Japan's lenders, but Japanese finance minister Shunichi Suzuki said differences in the structure of deposits, meant local banks would not face incidents similar to SVB.