Shares of Credit Suisse, a Swiss bank with significant operations in the United States and abroad, plummeted by almost 25% on Wednesday as pressure on the financial sector escalated.
538 points, or 1.7%, were lost by the Dow Jones Industrial Average. The S&P 500 fell 1.6% while the Nasdaq Composite lost 1.2%. The S&P 500’s year-to-date gain is now less than 1% following Wednesday’s loss.
Due to inadequate management in the face of eight interest rate increases by the Federal Reserve in the previous 12 months, regional banks have recently come under pressure, with the collapse of Silicon Valley Bank and Signature Bank at the center of the crisis. After shares of Credit Suisse hit an all-time low on Wednesday morning, focus shifted to the major banks.
According to a Reuters story, Saudi National Bank, the largest shareholder in Credit Suisse, declared on Wednesday that it was unable to continue funding. The Swiss lender had earlier in the week disclosed that it had discovered “some substantial vulnerabilities in our internal control over financial reporting” for the years 2021 and 2022.
The European Bank sector was negatively impacted by Credit Suisse, and US big bank shares also fell. Together with Wells Fargo, Citigroup
Goldman Sachs and Bank of America decreased by about 4% and 3%, respectively, while they shed close to 5% and 4% each. After rising 2% on Tuesday, the Financial Select Sector SPDR Fund (XLF) dropped 2.7% in trade.
Regional banks experienced a Tuesday rally that improved market confidence; however, they reverted to losing ground on Wednesday. Losses of more than 10% at First Republic Bank and PacWest Bancorp caused the SPDR S&P Regional Banking ETF (KRE) to decline by 4.7%.
In general, pressure on the financial sector is increasing, according to Peter Boockvar of Bleakley Financial Group, as a result of the banking failures changing the industry’s outlook.
“What this is telling us is there’s the possibility of just a huge credit extension contraction that banks are going to start [to] focus more on firming up balance sheets and instead of emphasis on lending,” Boockvar said to CNBC’s “Squawk Box.”
The market has “rethought its balance sheet,” Boockvar continued, pointing out that many banks may have purchased longer-maturity bonds that have lost value since the Fed started hiking rates. “With a lot of these banks, you have to question if they’ll need to start issuing equity,” the author continued.