At the end of a hectic week in which several US stocks collapsed, investors still seem unconvinced of a positive outcome. Even today, bank shares in particular are under pressure. Even after major interventions in the US and Europe.
To prevent another bank from falling after Silicon Valley Bank and Signature Bank, the American First Republic Bank (FRB) received a capital injection of more than 30 billion dollars last night. Earlier, Credit Suisse received a huge loan from the Swiss Central Bank to stay afloat. Has this prevented a domino effect or are investors’ concerns justified?
“Investors are happy that there is a direct and firm response,” says stock market expert Jim Tehupuring of 1Vermogensbeheer. “But the question is whether their confidence has been permanently restored by this financial support.” In the course of Friday, it was clear to see that the nervousness in the financial markets returned somewhat.
‘Bank fear not over yet’
The money to support FRB comes from eleven other US banks. The action is said to have been set up by the US government and the country’s central bank. The amount must remain in First Republic’s account for at least three months.
“If you want to deposit 30 billion with your competitor to show that you have confidence in that bank, that is a clear signal. Because if they do go bankrupt, you’ve lost it,” says analyst Corné Van Zeijl of asset manager Actiam. The fact that peers take this risk should therefore increase consumer confidence in the bank.
After the rescue plans for FRB were announced on Thursday, it seemed to work. First Republic’s share price rose and closed positive. But today things remain unsettled: First Republic’s share price fell by about a quarter at the opening of the stock exchange and Credit Suisse lost just under 10 percent.
Major US stock markets are also slightly in the red. “The shares show that the banking fear is not over yet,” says analyst Corné van Zeijl.
Because no matter how much extra support a bank receives, in the end everything revolves around the trust of the customers, says Tehupuring. “That signal is more important than money or the capital ratios of banks. That 30 billion may not even be necessary, but it can increase confidence.”
And that is very important: if customers no longer dare to deposit their money with a bank and withdraw their money en masse – a so-called bank run – a bank will go bankrupt. The money of account holders is largely invested in things that the bank cannot quickly cash in on, such as loans and mortgages.
That is why it is difficult to predict when peace will return to the banking world, says Van Zeijl: “all bank runs are fueled by emotions and you never know when they will surface.”
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