On Wednesday, bank stocks were under pressure as a sector of the market was already reeling from two significant bank failures in the previous week. This was due to the rapid decline of Credit Suisse.
The Swiss bank’s stock dropped more than 27% after its biggest financial backer announced it would stop giving it more money. On Tuesday, Credit Suisse disclosed that it had discovered “significant weaknesses” in its preceding years’ financial reporting procedures. Several European banks also experienced declines, with Deutsche Bank seeing an 8% loss.
The action seems to be affecting major American banks as well. In premarket trade, shares of Wells Fargo and Citi plummeted by more than 4% each, while Bank of America
down 3%. More than 2% was lost by JPMorgan and Goldman.
The troubles of Credit Suisse follow the failure of Silicon Valley Bank and Signature Bank in the United States. On Monday, regional bank stocks saw sharp sell-offs as a result of these failures. S&P Regional Bank ETF by SPDR (KRE)
plummeted by more than 4% on Wednesday in premarket trade. Western Alliance and Zions Bancorp both had more than 6% declines.
Despite the fact that Credit Suisse’s problems don’t seem to be connected to those of the mid-tier U.S. banks, Peter Boockvar of Bleakley Financial Group believes that the two problems taken together may cause investors to reevaluate the banking system more broadly.
“What this is telling us is that there’s the possibility of just a significant contraction in loan extension that banks will start to engage in [to] focus more on firming up balance sheets and On CNBC’s “Squawk Box,” Boockvar remarked, “instead of concentrating on lending.”
The markets have changed their perspective on balance sheets. Moreover, you have to consider if many of these institutions may need to begin raising equity, he continued.
In that vein, Wells Fargo submitted a document on Tuesday seeking approval to sell debt, warrants, and other instruments in order to raise $9.5 billion in capital. The fresh funds will be utilized for ordinary company reasons, according to the bank.
The effects of SVB’s failure could potentially increase regulation and the cost of doing business for the U.S. banking industry, including possibly greater fees to regulators to cover deposit insurance.