by tyler | Mar 30, 2023 | CNN, investing
Silicon Valley Bank’s collapse earlier this month dealt a major blow to the wine and crypto firms that entrusted their money with and depended on the lender to stay afloat.
But it also gave the fine wine and crypto industry a big boost as panicking investors rushed out of the financial sector and into alternative assets.
Bittersweet banking: SVB lent over $4 billion to winery clients since 1994, with over 400 wine industry clients (including wineries, vineyards and vendors) working with the bank’s premium wine division, according to the bank’s website.
Recent SEC filings, meanwhile, indicated SVB had about $1.2 billion in outstanding loans to high-end wine clients when the bank collapsed. Those wineries will be able to recover their money, but what happens to their lines of credit is still uncertain as the details of the bank’s sale to First Citizens BancShares gets hammered out.
SVB also had deep ties to the crypto industry. Circle, the company behind popular stablecoin USDC, said it had about $3.3 billion of its $40 billion in reserves at SVB. The firm’s USDC coin plunged in value on the news that the bank had failed, though it has since recovered.
The collapse of Signature Bank, a major crypto lender, also had serious implications for the industry. The Federal Deposit Insurance Corporation (FDIC) recently told the bank’s crypto clients that they must close their accounts and move their money by April 5, as the deposits were not included in the rescue deal arranged with Flagstar Bank this month.
Still, Bitcoin surged more than 4% on Wednesday, marking its best performance in over a week. The coin is up 23% this month. A single coin now costs more than $28,000 — its highest level since last spring.
That’s because investors are worried about the security of the US banking system and are looking for a way to protect their money outside of it, said crypto advocates.
“Bitcoin and other cryptocurrencies are built on a blockchain in a decentralized structure that is not controlled by just one entity,” said Karan Malik, head of Web3 Strategy at Legacy Suite. “The argument for decentralization and the adoption of cryptocurrency has become more valid after the banks’ collapse.”
Cathie Wood, founder of Ark Investment Management, said in a tweet that the surge in crypto isn’t surprising. “Their blockchains are decentralized, transparent and auditable. Banks are not and, in the last few days, have become less so,” she said.
Investments in fine wines have also surged as investor confidence in the banking system has been shaken.
“Fine wine’s performance over different market backdrops demonstrate its ability to generate alpha and improve risk-adjusted returns in a diversified portfolio due to its stability and low correlation with the equity market,” said CEO and co-founder of Cult Wine Investment Tom Gearing.
The Knight Frank Wealth Report, an annual analysis by the real estate consultancy, found that 39% of ultra high networth individuals will likely invest in wine this year.
“Interest in alternatives is on the rise and will be where wealth is grown over the coming decade,” said the report.
Other safe-haven investments like gold jumped in the wake of SVB’s and Signature Bank’s collapses. The spot price for gold is now up 7.4% for the month, though it has leveled off in recent days. Silver is up 11% for the month.
What’s next: The market realizes we’re “walking into a contraction in credit and an earnings contraction and the recession that will cause the default cycle. We are right in the middle of that,” said Mark Connors, head of research at digital asset management firm 3iQ in a note. “So as that happens, what assets are you going to go to?” he asked. “The 10 year [Treasury] is up, gold is up, yen is up — and Bitcoin is up.”
So will the surge in alternative investments last?
Goldman Sachs estimated this week that households will be net sellers of $750 billion in equities in 2023, and that corporations will buy a net $350 billion in equities in 2023, a 47% slowdown from 2022. That money has to go somewhere.
But the Federal government, FDIC and Federal Reserve Bank have been working around the clock to ensure investors and customers that the US financial system is safe. Alternative investments in crypto, wines and metals, meanwhile, come with their own volatility and risk.
The Federal Reserve went without a supervisory chair for nine months between fall 2021 and summer 2022 — the same period when Silicon Valley Bank’s “business strategy went awry,” according to US Rep. French Hill, a Republican from Arkansas, on Wednesday.
The Fed’s current vice chair for supervision is Michael Barr, who was sworn into his role in July 2022 to replace Randal Quarles after he left the post in October 2021. Barr told The House Financial Services Committee on Wednesday that he is unsure what happened and who was in charge of supervision during that nine-month interim period.
“I apologize, I don’t know the technical answer to that question,” Barr said when asked who was supervising banks during that time.
President Joe Biden failed to immediately nominate a replacement for Quarles and the Fed did not have a plan to replace him in the interim, wrote Peter Conti-Brown — a professor at The Wharton School of the University of Pennsylvania and Brookings Fellow — shortly after Quarles’ term ended. Instead, the Fed’s vital supervisory and regulatory priorities were “managed by the Fed’s Board of Governors, through their committee structure,” Conti-Brown said.
Biden did eventually nominate former Fed governor and Treasury official Sarah Bloom Raskin for the role, but withdrew her name from consideration after she was caught in a controversy involving a Colorado financial technology company. Biden eventually nominated Barr in May 2022.
“It appears to me that we have a lack of supervisory urgency here,” said Hill, noting that it took a full 12 months between when trends in banking triggered concern in Federal Reserve examiners and when action was taken to correct them.
During that period without a chair of supervision, wrote Conti-Brown, financial regulation and supervision likely were not at the forefront of the Fed’s policymaking.
“I think you raise an absolutely essential question. It’s one of the things we’re going to be asking in our review,” Barr told Hill. “Should the supervisors have been much more aggressive in the way that they responded to the risk that they noted? It’s something we’re going to take a good look at.”
The collapse of Silicon Valley Bank and Signature Bank has caused weeks of turmoil and fear in the US financial system. On Wednesday, the House Financial Services Committee used their hearing to try to figure out what exactly went wrong.
According to Barr, there were multiple causes.
“I think that anytime you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed,” Barr said at the hearing. “So we’re looking at all of that.”
by tyler | Mar 28, 2023 | CNN, investing
Silicon Valley Bank’s downfall sent waves of panic through the financial system earlier this month, setting off a chain reaction of chaos with which regional banks are still grappling.
Now, lawmakers are in the midst of an investigation into what led to the second-largest and third-largest bank collapses in US history — and how to prevent something similar from happening again.
On Tuesday, members of the Senate Banking Committee probed federal regulators: Martin Gruenberg, chairman of the board of directors of the Federal Deposit Insurance Corporation; Nellie Liang, under secretary for domestic finance at the US Treasury; and Michael Barr, vice chair for supervision at the Federal Reserve, about the tumultuous events that sent financial systems into a frenzy.
Here are some of the key issues that arose from the hearing:
New details that emerged underscored the enormity of the bank run at SVB as it became the second-largest bank failure in American history.
Panicked customers attempted to withdraw a staggering $100 billion from Silicon Valley Bank on the day the tech lender was shut down by regulators, Barr revealed on Tuesday.
Officials have previously detailed that customers successfully pulled $42 billion from Silicon Valley Bank on March 9, the day before it was shut.
In his testimony, Barr also detailed how SVB leadership failed to effectively manage interest rates and the risk of running out of cash.
SVB’s failure is a “textbook case of mismanagement,” Barr said.
The Fed official pointed out that SVB’s belated effort to fix its balance sheet only made matters worse.
“The bank waited too long to address its problems and, ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure,” said Barr, adding that there was “inadequate” risk management and internal controls.
“Social media saw a surge in talk about a run, and uninsured depositors acted quickly to flee,” he said.
Barr echoed comments from other top regulators in assuring the public about the safety of banks.
“Our banking system is sound and resilient, with strong capital and liquidity,” he said Tuesday. “We are committed to ensuring that all deposits are safe. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools for any size institution, as needed, to keep the system safe and sound.”
Gruenberg of the FDIC said that the collapses of SVB and Signature Bank “demonstrate the implications that banks with assets over $100 billion can have for financial stability. The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk.”
Democratic Senator Elizabeth Warren of Massachusetts grilled federal regulators on their commitment to tightening banking rules.
“Executives at SVB and Signature [Bank] took wild risks and must be held accountable for exploding their banks,” Warren said. “But let’s be clear, these collapses also represent a massive failure in supervision over our nation’s banks.”
All three federal regulators called to testify agreed with Warren that the government needs to strengthen the rules for banks to help prevent future bank collapses.
“I anticipate the need to strengthen capital and liquidity standards for firms over $100 billion,” said Barr.
Both Gruenberg and Barr confirmed on Tuesday that they are considering serious action against the people who ran the banks.
Recent Securities and Exchange Commission filings also show that former SVB CEO Greg Becker sold more than $2 million in bank stocks in late February and $1.1 million in stocks in January, ahead of the bank’s failure.
Becker took home about $10 million in compensation last year. Joseph DePaolo, the former CEO of Signature Bank, received about $8.6 million.
Both the FDIC and Federal Reserve have the authority to claw some of that money back and further penalize bank executives.
“The board does have authority to pursue actions against individuals who engage in violations of the law, who engage in unsafe or unsound practices who have engaged in breaches of fiduciary duty,” said Barr.
“We retain this authority even after a bank fails, and we stand ready to use this authority to the fullest extent based on the facts and circumstances,” he said. Potential consequences include prohibition from banking, civil money penalties, or the payment of restitution.
Gruenberg said that his agency is already conducting investigations into the conduct of board members, executives and other affiliated parties of the failed banks.
On Wednesday, the House Financial Services Committee will continue with its own line of questioning — and it’s not likely to be the last, as lawmakers contemplate and debate potential changes to finance regulations and supervision.
Becker and DePaolo have both been asked to testify at a later date.
— CNN’s Matt Egan and Krystal Hur contributed to this report.
by tyler | Mar 28, 2023 | CNN, investing
The job market has remained strong even as the Federal Reserve has spent a full year attempting to cool off the economy by raising interest rates. But economists think that the recent banking turmoil may be what finally raises unemployment.
Tech giants like Google, Amazon, Meta and Microsoft have all conducted large layoffs this year. Accenture announced it would slash 19,000 jobs worldwide this month and Disney has begun laying off 7,000 people.
Even with those big job cuts, the labor market in the United States remains white hot. US unemployment is near a five-decade low. The recent spate of layoffs, particularly in tech, have largely been shrugged off as companies’ adjusting their headcount after overhiring during the pandemic-era boom.
But the collapse of Silicon Valley Bank and Signature Bank and the ensuing banking meltdown have led some financial institutions to tighten their standards and issue fewer loans. Worries about maintaining enough cash through the downturn, closer scrutiny by regulators and interest rate hikes by the Fed have led to regional banks in particular to pull back on lending — a trend that may continue.
“Lending standards will tighten more, to a degree that’s greater than during the dot-com crisis,” wrote Goldman Sachs analysts in a note this week.
Economists believe that as loans dry up, so will jobs.
“Community and regional banks are the backbone of the real economy, and tighter lending will lead to slower overall economic activity and higher unemployment,” said Joe Brusuelas, principal and chief economist for RSM in a recent note.
Since the pandemic, regional banks “have provided a vast majority of lending to small firms, underwriting local small business formation,” said Philip Wool, an analyst with asset manager Rayliant. The recent banking crisis and rate hikes have suppressed that lending, he said, and “this contraction will play out in the job market.”
Small businesses account for about 63% of net new job creation in the United States, according to the Small Business Administration. Nearly 47% of all private sector employees in the country work at small businesses. “As higher borrowing costs and the associated belt tightening hit main street,” said Wool, “we expect to finally see a slowdown in growth and job gains.”
The importance of the regional banks in the lending equation “cannot be overstated,” wrote Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note this week.
Current lending standards “signal that unemployment could increase by 2.5 percentage points in the next 12 to 24 months,” she said.
Silicon Valley Bank’s liquidity crisis and subsequent downfall sent waves of panic through the financial system in early March, setting off a chain reaction of chaos with which regional banks are still grappling.
Now, lawmakers are set to begin their investigation into what led to the second-largest and third-largest bank collapses in US history — and how to prevent something similar from happening again.
On Tuesday morning, members of the Senate Banking Committee will probe federal regulators: Martin Gruenberg, chairman of the board of directors of the Federal Deposit Insurance Corporation; Nellie Liang, under secretary for domestic finance at the US Treasury; and Michael Barr, vice chair for supervision at the Federal Reserve, about the tumultuous events that sent financial systems into a frenzy.
Tuesday’s hearing doesn’t begin until 10 a.m. ET, but all three federal regulators have already released their prepared testimony.
Here’s some of what you can expect to hear from each panelist.
▸ In his prepared testimony ahead of the hearing, Gruenberg of the FDIC said that the failures of SVB and Signature Bank “demonstrate the implications that banks with assets over $100 billion can have for financial stability. The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk.”
One preliminary lesson learned from the collapses, wrote Gruenberg, is that “heavy reliance on uninsured deposits creates liquidity risks that are extremely difficult to manage, particularly in today’s environment where money can flow out of institutions with incredible speed in response to news amplified through social media channels.”
▸ In his testimony released on Monday, Barr, the Fed’s vice chair for supervision, detailed how SVB leadership failed to effectively manage interest rate and liquidity risk.
SVB’s failure is a “textbook case of mismanagement,” Barr said in his remarks.
The Fed official pointed out that SVB’s belated effort to fix its balance sheet only made matters worse.
“The bank waited too long to address its problems and, ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure,” said Barr, adding that there was “inadequate” risk management and internal controls.
▸ Under Secretary for Domestic Finance Liang’s testimony echoed earlier speeches made by Treasury Secretary Janet Yellen. “As Secretary Yellen has said, we have used important tools to act quickly to prevent contagion. And they are tools we would use again if warranted to ensure that Americans’ deposits are safe,” she said.
Liang also added that this turmoil was very different from the financial crisis of 2008. “Back then, many financial institutions came under stress because they held low credit- quality assets. This was not at all the catalyst for recent events,” she said. “Our financial system is significantly stronger than it was 15 years ago. This is in large part due to post-crisis reforms for stronger capital and liquidity requirements.”
The recent emergence of generative artificial intelligence (AI) could increase global GDP by 7% annually, according to a new research report by Goldman Sachs economists.
AI will likely lead to job loss, they wrote, but technological innovation that initially displaces workers has historically created employment growth over long haul.
Using census data, they found that that 60% of workers today are employed in occupations that did not exist in 1940. That implies that about 85% of employment growth over the past 80 years, “is explained by the technology-driven creation of new positions,” wrote Goldman economists Joseph Briggs and Devesh Kodnani in the report.
“Most workers are employed in occupations that are partially-exposed to AI automation and, following AI adoption, will likely apply at least some of their freed-up capacity toward productive activities that increase output,” they said. “We anticipate that many workers that are displaced by AI automation will eventually become reemployed — and therefore boost total output — in new occupations.”
by tyler | Mar 28, 2023 | CNN, investing
Bank of England governor Andrew Bailey has said investors are hunting for “points of weakness” in banking, as fears linger that the crisis in the sector could engulf more lenders.
On Monday, European bank shares rose, boosted by news that First Citizens Bank in the United States would buy most of the assets of Silicon Valley Bank, which collapsed earlier this month. But the rise followed a sharp selloff on Friday, which was led by Deutsche Bank
(DB).
“I think there are moves in markets to, if you like, test out firms,” Bailey told a UK parliamentary committee Tuesday. “I would not want to say that those in my estimation are based on identified weakness.”
He later added: “Markets are trying to find points of weakness at the moment.”
Regulators and investors on both sides of the Atlantic are on edge about potential pockets of vulnerability in the banking sector.
José Manuel Campa, the head of the European Banking Authority, told Germany’s Handelsblatt Monday that European lenders remained vulnerable. “The risks in the financial system remain very high,” he said.
Bailey said the central bank was keeping a close watch on the banking sector, despite his “very strong view” that UK lenders were in a strong position.
“I don’t think we’re at all in the place we were in in 2007/2008… but we have to be very vigilant,” he said. “We are in a period of very heightened, frankly, tension and alertness.”
UK lawmakers questioned Bailey and other Bank of England officials about events surrounding the failures of SVB and Credit Suisse. The Swiss heavyweight was rescued by UBS, while SVB UK was bought by HSBC
(HBCYF) for £1 after its US parent was shut by regulators.
Bailey said the speed of SVB UK’s collapse had taken him by surprise. “In my experience, which goes back 30 years now, it’s probably the fastest passage from health to death since Barings. Barings was a sort of Friday-to-Sunday thing, and this was pretty similar,” he said.
Barings Bank collapsed in 1995 after more than $1 billion was lost by a single rogue trader, Nick Leeson.
Despite being well-capitalized, SVB UK would not have survived the demise of its US parent, according to Bailey. He said the Bank of England had continued to prepare for its insolvency until the sale to HSBC was finalized.
Sam Woods, deputy governor for prudential regulation at the Bank, told the parliamentary committee that he had been in “intensive discussions” with the Federal Reserve and Switzerland’s financial regulator Finma since October over contingency plans for embattled Credit Suisse.
Later on Tuesday, US lawmakers will begin their investigation into the collapse of SVB and Signature Bank, with financial regulators testifying before the Senate banking committee. US regulators will then appear before the House financial services committee on Wednesday.
by tyler | Mar 26, 2023 | CNN, investing
Federal regulators are being called to testify before the House Financial Services Committee on Tuesday about the collapse of Silicon Valley Bank and Signature Bank.
Here’s who’s slated to appear on the witness stand:
The hearing is likely to be the first of many covering the events that spiraled into a banking crisis that sent customers fleeing from regional banks and sent markets into a frenzy.
What lawmakers are saying: Elected officials want a review of what happened at Silicon Valley Bank and Signature Bank earlier this month, as well as stricter regulations to prevent it from happening again. A key theme will likely be: Why didn’t anyone see the collapses coming? Or, perhaps, did anyone see it coming?
“It is critical that we get to the bottom of how Silicon Valley Bank and Signature Bank collapsed so that we can maintain a strong banking system, protect Americans’ hard-earned money, and hold those responsible accountable, including the CEOs,” said US Sen. Sherrod Brown, a Democrat who has called for the executives of Silicon Valley Bank to be held accountable for the bank’s failure.
US Sens. Elizabeth Warren of Massachusetts and Rick Scott of Florida last Wednesday introduced legislation requiring an inspector general appointed by the president to report on the Federal Reserve Board and Bureau of Consumer Financial Protection.
What’s happened so far: The government has already set the wheels in motion for delving into the factors that contributed to the banks’ collapses. The Federal Reserve Board on March 13 said that Barr is spearheading a review of Silicon Valley Bank, with the report set for public release by May 1.
Treasury Secretary Janet Yellen on Friday led a private meeting with financial regulators held by the Financial Stability Oversight Council, which was founded in 2010 as part of the Dodd-Frank law as a watchdog for the financial system.
The federal government and key players in the banking sector have intervened in recent weeks to contain the tumult.
Regulators on March 12, just days after SVB collapsed, announced a guarantee of all deposits at the bank and Signature Bank. The Federal Reserve that same day announced a new funding program for eligible financial institutions to help them meet liquidity needs.
In the days that followed, the nation’s biggest banks intervened to rescue First Republic after its shares plunged. When the fear spread to Credit Suisse, the Swiss government and rival bank UBS stepped in to save the embattled lender.
What to expect: It’s unclear what will come of the hearings on SVB and Signature Bank.
While the banks’ collapses have been driven in part by poor investment choices and the Fed’s tightening of the economy, everyone from the tech sector to Wall Street has questions about how internal oversight, or the lack of it, could also have been a factor.
But a trail of clues suggest that the bank’s demise didn’t happen out of the blue, including its lightning-fast growth, clientele of tech start-ups and a vacant chief risk officer position. Depending on who’s called to testify during the hearings to come, some might have to answer how they missed these red flags.
Markets seesawed severely this week when two of the US economy’s most prominent leaders gave seemingly contradictory statements on the health of the banking sector. Expect more turbulence ahead.
Fresh off of the Federal Reserve’s decision on Wednesday to hike interest rates by a quarter point, Fed Chair Jerome Powell said in the central bank’s post-meeting press conference that “all depositors’ savings are safe.”
But elsewhere in Washington D.C., Treasury Secretary Janet Yellen testified Wednesday before a Congressional committee that she wasn’t considering a guarantee of all deposits.
A day later, Yellen said in something of a reversal that the federal government is ready to take more action to stop bank contagion if necessary to curb systemic risk.
The apparent disconnect baffled Wall Street investors, who for weeks have been searching for clues about the state of the banking sector and what the crisis means for the Fed in its fight against inflation.
“It kind of reeks of a lack of leadership from the people we need leadership from,” says Matthew Tuttle, CEO and CIO of Tuttle Capital Management. “They’ve got to get their story straight.”
By week’s end, the stock market emerged relatively resilient, with all three major indexes posting gains. The benchmark S&P 500 fell about 1.7% Wednesday. On Thursday, the index gained as much as 1.8% before paring back its gains to 0.3%. The broad-based index rose about 0.6% on Friday and finished the week up 1.4%.
This resilience is driven partly by the Fed’s signaling that it will pause interest rate hikes later this year. But the evolving banking crisis makes it unclear if the central bank’s best-laid plans will pan out.
Read more here.
Monday: Fed Governor Philip Jefferson speaks.
Tuesday: The House Financial Services Committee holds a hearing on the banking crisis. S&P Case-Shiller home price index and consumer confidence data from the Conference Board.
Wednesday: The House Financial Services Committee’s hearing on the banking crisis continues for a second day. Pending home sales.
Thursday: Q4 GDP and jobless claims.
Friday: Fed Governor Christopher Waller speaks. PCE and the University of Michigan consumer sentiment and inflation expectations.
by tyler | Mar 24, 2023 | CNN, investing
Europe’s banking stocks tumbled Friday as investors acted on their lingering worries that the recent crises at some banks could spill over into the wider sector.
Europe’s Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, closed 3.8% lower. The index is down 18% from its high in late February. London’s bank-heavy FTSE 100 index closed down 1.3%.
Shares in Germany’s biggest bank, Deutsche Bank
(DB), plunged as much as 14.5% before paring its losses to close 8.5% lower. Shares in UBS
(UBS) and Credit Suisse
(CS) were 3.6% and 5.2% down respectively.
The cost of insuring against a possible default by Deutsche Bank on its debt has soared in recent days. Deutsche’s five-year credit default swaps (CDS) skyrocketed to 203 basis points Thursday, according to data from S&P Market Intelligence. That’s their highest level since early 2019.
The swaps rose again Friday to trade at 208 basis points at midday ET.
German Chancellor Olaf Scholz said Friday that there was “no reason to be concerned” about Deutsche Bank.
“It’s a very profitable bank,” he told reporters in Brussels, where EU leaders issued a joint statement describing the European banking system as “resilient, with strong capital and liquidity positions.”
Deutsche Bank declined to comment.
“The rising price of insuring CDS senior debt is weighing on Deutsche Bank, as well as other European banks, on concerns over the impact of rising rates on the wider economy and banks’ balance sheets,” Michael Hewson, chief market analyst at CMC Markets, told CNN.
Last week, the European Central Bank stuck with its plan to hike interest rates by half a percentage point, judging that inflation posed a bigger threat to the economy than recent turmoil in the banking sector.
Then, on Thursday, the Bank of England raised its main interest rate by a quarter of a percentage point after data showed a surprise spike in inflation last month.
But Susannah Streeter, head of money and markets at investing platform Hargreaves Lansdown, told CNN that market nerves were out of step with reality.
“Worries about contagion are again rearing up even though more deposits appear to have been flowing into the German lender since the banking scare erupted, and it is thought to have capital reserves well in excess of regulatory requirements,” she said.
Some analysts said investors had been rattled by Deutsche Bank’s announcement Friday that it would pay back one of its bonds five years before its maturity date. Investors would usually interpret such a move as a sign that a company is in good financial health and able to pay back its creditors early.
But — after two bank collapses in the United States and an emergency takeover of Credit Suisse this month — some investors may have interpreted the announcement as a sign that Deutsche Bank is nervous about the state of the banking sector and trying to overcompensate, Jonas Goltermann, deputy chief markets economist at Capital Economics, told CNN.
Goltermann said the bank’s decision “seems to have backfired.”
Deutsche Bank’s decision to pay back the bond ahead of schedule was pre-planned and not a reaction to recent market developments, a source familiar with the matter told CNN. The bond would have gradually lost its eligibility as a form of regulatory capital according to rules brought in after the 2008 financial crisis, the source said.
The bank replaced the bond by issuing another bond of the same type in February, they added.
Shares of Germany’s Commerzbank
(CRZBF) and France’s Société Générale also suffered heavy losses, closing 5.5% and 5.9% lower respectively.
Last week, Switzerland’s biggest bank UBS bought its embattled Swiss rival for 3 billion Swiss francs ($3.25 billion) in an emergency takeover brokered by the Swiss government.
That helped restore some calm to markets rattled by the failure earlier this month of two US regional banks. But investors were on edge again Friday.
The falls in UBS and Credit Suisse come after Bloomberg reported Thursday that the US Department of Justice was investigating whether their staff had helped Russian oligarchs evade Western sanctions.
The DOJ had sent subpoenas to those employees before UBS took over Credit Suisse, according to the report.
Employees at some major US banks are also part of the probe, Bloomberg said.
Hewson at CMC Markets said “the DOJ probe into UBS is certainly playing a part in the share price weakness” in European banks.
UBS and Credit Suisse declined to comment to CNN.
