By Stefania Spezzati, Oliver Hirt and Tom Sims
LONDON/NEW YORK - Credit Suisse Group AG (CSGN.S) began a make-or-break weekend after some rivals grew cautious in their dealings with the bank and regulators urged it to pursue a deal with Swiss rival UBS AG (UBSG.S).
Credit Suisse Chief Financial Officer Dixit Joshi and his teams will hold meetings over the weekend to assess strategic scenarios for the bank, people with knowledge of the matter said on Friday.
The 167-year-old bank is the biggest name ensnared in the market turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week, forcing the Swiss bank to tap $54 billion in central bank funding.
After wild swings in the bank's share price this week, Credit Suisse had lost a quarter of its market value by Friday night.
To stamp out the crisis, Swiss regulators are encouraging UBS and Credit Suisse to merge but neither bank wants to do so, one source said. The regulators do not have the power to force the merger, the person said.
The boards of UBS and Credit Suisse were expected to separately meet over the weekend, the Financial Times said.
Credit Suisse and UBS declined to comment.
The mood in Switzerland, long considered an icon for banking stability, was pensive as executives wrestled with the future of the country's biggest lenders.
"Banks in permanent stress" read the front page headline of the Neue Zuercher Zeitung newspaper.
In a sign of its vulnerability, at least four of Credit Suisse's major rivals, including Societe Generale SA (SOGN.PA) and Deutsche Bank AG (DBKGn.DE), have put restrictions on their trades involving the Swiss bank or its securities, five people with direct knowledge of the matter told Reuters.
"The Swiss central bank stepping in was a necessary step to calm the flames, but it might not be sufficient to restore confidence in Credit Suisse, so there’s talk about more measures," said Frederique Carrier, head of investment strategy at RBC Wealth Management.
Efforts to shore up Credit Suisse come as policymakers including the European Central Bank and U.S. President Joe Biden sought to reassure investors and depositors the global banking system is safe. But fears of broader troubles in the sector persist.
Already this week, big U.S. banks provided a $30 billion lifeline for smaller lender First Republic (FRC.N), while U.S. banks altogether sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.
This reflected "funding and liquidity strains on banks, driven by weakening depositor confidence," said ratings agency Moody's, which this week downgraded its outlook on the U.S. banking system to negative.
In Washington, focus turned to greater oversight to ensure that banks - and their executives - are held accountable.
Biden called on Congress to give regulators greater power over the sector, including imposing higher fines, clawing back funds and barring officials from failed banks.
Some Democratic lawmakers asked regulators and the Justice Department to probe the role of Goldman Sachs (GS.N) in SVB's collapse, said the office of Representative Adam Schiff.
MARKET TROUBLES LINGER
Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the financial system.
U.S. regional bank shares fell sharply on Friday and the S&P Banks index (.SPXBK) posted its worst two-week calendar loss since the pandemic shook markets in March 2020, slumping 21.5%.
First Republic Bank ended Friday down 32.8%, bringing its loss over the last 10 sessions to more than 80%.
While support from some of the biggest names in U.S. banking prevented First Republic's collapse this week, investors were startled by disclosures on its cash position and how much emergency liquidity it needed.
INTEREST RATE RISK
The failure of SVB brought into focus how a relentless campaign of interest rate hikes by the U.S. Federal Reserve and other central banks was putting pressure on the banking sector.
Many analysts and regulators have said SVB's downfall was due to its specialised, tech-focussed business model, while the wider banking system was much more robust thanks to reforms adopted in the years after the global financial crisis.
However, a senior official at China's central bank said on Saturday high interest rates in the major developed economies could continue to cause problems for the financial system.