Investors remain on edge about the potential for more banking turmoil to unfold after shares of Credit Suisse fell to about $ 2 a share on Wednesday and the Swiss National Bank said it would provide liquidity.
“Credit Suisse is front-and-center,” said Jeff Schulze, investment strategist at ClearBridge Investments, by phone Wednesday after markets closed in New York.
See: Here’s why a failure of Credit Suisse matters to U.S. investors
Wednesday night, Credit Suisse said it would borrow up to $ 54 billion from the Swiss central bank, calling it “decisive action” to calm investors.
The liquidity backstop for Credit Suisse CS, -13.94% “will go a long way, and provide calm to this eruption of volatility,” he said. “But I don’t think we are out of the woods yet.”
The Swiss central bank and its banking regulator said Wednesday that Credit Suisse meets strict capital and liquidity requirements imposed on systemically important banks, and that the problems of certain U.S. banks don’t pose a direct contagion risk for Swiss financial markets.
“This is not ’08,” said George Catrambone, DWS Group’s head of Americas trading, in a phone interview Wednesday. But he also thinks “volatility is here to stay,” with concerns about contagion risks in the banking system remaining a threat to financial markets.
As evidence of jitters, Catrambone pointed to big moves Wednesday across markets, including front-end Treasury rates, with the 2-year yield TMUBMUSD02Y, 3.907% tumbling to 3.97% on Wednesday from a one-year high of 5.06% a week ago.
He also pointed to pressure in corporate bonds and to the CBOE Market Volatility Index VIX, +10.16%, or Wall Street’s “fear gauge,” which FactSet pegged as up 20.6% on the year through Wednesday. Watch those areas for signs of stabilization, he said.
A Swiss ‘do whatever it takes’ moment
While markets have been unnerved by banking risks, Catrambone also said the Swiss central bank’s response on Wednesday reminded him of the famous “do whatever it takes” vow in 2012 from former European Central Bank President Mario Draghi to preserve the euro.
“This seems to be the Swiss version along those lines,” he said. “I think markets are looking for that confirmation, that we are not going to allow a large-scale bank failure that can spread to others.”
Shares of Credit Suisse hit a record low on Wednesday after its biggest shareholder, Saudi National Bank 1180, -2.73%, said it wouldn’t buy more shares.
SNB chairman Ammar Al Khudairy told Reuters that doing so would exceed its 10% regulatory cap.
U.S. stocks ended Wednesday mostly lower, but well off the session’s worst levels, after the Swiss central bank’s statement of support. Stocks kicked off 2023 on an upbeat tone, with hopes that signs of easing inflation might prompt the Federal Reserve to let up on its aggressive pace of rate hikes.
The focus also will be on what the Fed does with interest rates at its March 22 policy meeting, particularly after the sudden collapse of Northern California’s prized Silicon Valley Bank SIVB, -60.41% and Signature Bank SBNY, -22.87% in New York put the focus on stability in the banking system.
In response, regulators shored up all depositors in those banks and the Fed rolled out an emergency lending facility for banks that allows them to pledge downtrodden Treasury and agency mortgage bonds as collateral.
Read: Why Silicon Valley Bank’s ‘safe’ investments turned into a problem for banks and the Fed
The Dow Jones Industrial Average DJIA, -0.87% was 3.8% lower on the year through Wednesday, while the S&P 500 index SPX, -0.70% was up 1.4% and the Nasdaq Composite Index COMP, +0.05% was up 9.2% in 2023.