by March 17 (Reuters) – European Central Bank regulators see no contagion for eurozone banks from the recent turmoil, a source said Friday, after US lenders First Republic Bank (FRC.N) tossed a $30bn lifeline and record amounts from the Federal Reserve. To book.
Major US banks stepped in on Thursday to bail out the San Francisco-based lender, which was caught up in market volatility caused by the collapse of two other medium-sized US banks.
The rescue package came shortly after embattled Credit Suisse (CSGN.S) tapped an emergency central bank loan of up to $54 billion to bolster its liquidity. Shares of Switzerland’s second largest bank fell again on Friday despite the move.
The ECB, which raised interest rates on Thursday, held another ad hoc supervisory board meeting earlier this week, an unusual move ahead of a scheduled meeting next week.
ECB regulators saw no contagion of eurozone banks from the market turmoil, a source familiar with the contents of the meeting told Reuters, adding that regulators were told deposits remained stable at all banks in the Eurozone and that exposure to Credit Suisse was irrelevant.
“While markets are relieved that the Swiss central bank has intervened, sentiment will remain very fragile, especially as investors are likely to worry about the ultimate economic impact of an aggressive tightening of monetary policy by the ECB,” said Frédérique. Carrier, head of investment strategy. for RBC Asset Management.
Shares of First Republic, listed in Frankfurt, rose as much as 5% in early trading on Friday. Shares of the bank were up 10% on Thursday in New York but fell 17% in aftermarket trading after it disclosed its cash position and how much emergency liquidity it needed. They were quoted 5% lower in Friday’s US pre-market trading.
While the two deals and the action taken by policymakers have helped restore calm to global markets, following a torrid week for banking stocks, analysts and investors are still concerned that the potential for a full-blown banking crisis is far from over.
The magnitude of the stress was underscored on Thursday by data showing US banks have requested record amounts of emergency liquidity from the Fed in recent days, expanding the central bank’s balance sheet after months of contraction.
The First Republic deal was brokered by power brokers, including US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and JP Morgan CEO Jamie Dimon, a source familiar with the situation said.
“They will keep the money in First Republic to keep it alive for self-interest… to stop the run on banks. Then they will gradually take it out and the bank will play a slow death,” says Mathan Somasundaram, founder of research company Deep Data Analytics in Sydney, said on Friday.
Some of the largest US bank names, including JP Morgan Chase & Co (JPM.N), Citigroup Inc (CN), Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N), Goldman Sachs (GS. N) and Morgan Stanley (MS.N) were involved in the rescue, according to a statement from the banks.
While the aid has prevented impending collapse, First Republic’s belated revelations shocked investors.
“People are concerned that the contagion risk is real, and that is damaging confidence,” said Karen Jorritsma, head of Australian equities, RBC Capital Markets.
“I don’t think we are in the crux of a global financial crisis. Balance sheets are much better than in 2008, banks are better regulated,” she added.
Credit Suisse became the first major world bank to include a lifeline since the 2008 financial crisis amid doubts over whether central banks will be able to push aggressive rate hikes to curb inflation.
LESSONS FROM 2008
For now, authorities are confident that the banking system is resilient and have tried to emphasize that the current turmoil is different from the global financial crisis of 15 years ago, as banks are better capitalized and funds are more readily available.
The ECB went ahead with its 50 basis point rate hike, arguing that eurozone banks were in good shape and that higher rates should at least strengthen their margins.
The focus now turns to the Fed’s policy decision next week and whether it will stick with its aggressive rate hikes to bring inflation under control.
In Asia, Singapore, Australia and New Zealand said they were monitoring financial markets but confident their local banks were well capitalized and able to withstand major shocks.
While capital remains ample, analysts say a A$300bn ($201bn) refinancing task for Australia’s largest banks is about to get tougher as hunger for new debt diminishes.
Japan’s finance ministry, financial regulator and central bank said they would meet on Friday to discuss developments.
Banking stocks worldwide have been battered since Silicon Valley Bank collapsed last week due to bond-related losses that accumulated as interest rates rose last year, raising questions about what else is lurking in the wider banking system.
Reporting by Pete Schroeder and Chris Prentice in Washington, Nupur Anand in New York, Tom Westbrook and Rae Wee in Singapore, Scott Murdoch in Sydney, Noel Randewich in Oakland, California, Balazs Koranyi, Francesco Canepa and John O’Donnell in Frankfurt, John Revill in Zurich; Written by Deepa Babington, Sam Holmes and Alexander Smith; Edited by Sonali Paul and Kirsten Donovan
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