Swiss regulators stepped in to reassure global financial markets after fresh fears about the viability of Credit Suisse threatened wider fallout just days after two historic U.S. bank failures.
The Swiss National Bank offered the embattled lender financial support if necessary in a statement issued late Wednesday, a move that helped markets pare some of the day’s steep losses.
Credit Suisse shares closed 14% lower in U.S. trading. Other bank stocks took hits, as well, with JPMorgan closing down 4% and Wells Fargo and Goldman Sachs closing down about 3%. Bank of America closed down less than 1%.
The broader Dow Jones Industrial Index ended Wednesday's session down about 280 points — roughly 0.9% — while the S&P 500 closed 0.7% lower. The tech-heavy Nasdaq finished the day roughly flat.
Analysts said the turmoil increased the likelihood that the Federal Reserve will hold its fire on raising interest rates aggressively when it meets next week, even as inflation remains elevated.
The risk of roiling markets further “makes it more likely that they pass on raising rates,” Pantheon Macroeconomics Chief Economist Ian Shepherdson wrote in a note to clients late Wednesday. “It is more important, in our view, not to take risks with the stability of the system than to reassert your determination to fight inflation.”
Wednesday's broad-based fallout was sparked in part when Credit Suisse’s largest shareholder, Saudi National Bank, said it had ruled out adding to its existing investments to help steady the embattled lender.
Credit Suisse shares had tanked as much as 25% in morning trading, and the turmoil quickly spread across the banking sector and beyond. Even traditionally safer assets, including U.S. government bonds, took a pummeling, although yields began to tick back up before markets closed.
The market rout came one day after bank stocks regained some footing since regulators took over and shut down California-based Silicon Valley Bank and Signature Bank in New York.
Two ratings agencies Wednesday downgraded the credit of First Republic Bank, a midsize lender whose shares have been on a roller coaster ride in recent days, to junk status, sending its stock down more than 21%.
"An expansion in contagion overseas is troubling but not entirely unexpected," said Ian Lyngen, the managing director and head of U.S. rates strategy at BMO Capital Markets, sizing up Wednesday’s tumultuous session. "Credit Suisse is a key part of the European and global banking system."
While Credit Suisse has had its own issues distinct from the problems that felled SVB and Signature, Lyngen said higher interest rates in the U.S. and abroad have put pressure on the value of assets held by lenders around the world.
The Swiss bank, which has struggled with weak profitability in recent years, warned Tuesday that a recent stream of customers pulling their money out had slowed down but “not yet reversed.” The acknowledgment coincided with the disclosure that Credit Suisse had found “material weaknesses” in its financial reporting for 2021 and 2022.
The bank has faced one scandal after another in recent years. It was convicted in connection with a money laundering plot involving a drug ring last summer. And it has had substantial entanglements with a collapsed hedge fund and a bankrupt British lender.
Last month, Credit Suisse reported its largest annual loss since the 2008 financial crisis. In the last three months of last year, clients pulled more than $100 billion of assets, Bloomberg reported, as concerns about its financial health mounted.