Rise on Wall Street – but the crisis bank of the First Republic is destroyed

On the first trading day of the week, the major stock indices on Wall Street opened well, continuing the jittery trade. This is how Monday night ended:

• The Dow Jones Industrial Average rose 1.20 percent.
• The Standard & Poor’s 500 index closed up 0.89 percent.
• The Nasdaq Technology Index closed 0.39 percent higher.

The share price of the crisis-stricken First Republic nearly halved on the stock exchange on Monday after a period of banking turmoil in the United States, Europe and the rest of the world.

But the banking sector rose in the US on Monday, and several regional banks in particular performed well and recovered from some of last week’s slump.

Fears of the collapse of the Silicon Valley bank, which has been placed in receivership, quickly spread to many banks last week. Both US banks Silicon Valley Bank and Signature Bank closed their doors permanently within one week.

Over the weekend, the major Swiss bank was acquired by rival UBS for $3.25 billion. Then it also became clear Credit Suisse’s bondholders would lose around NOK 185 billion after selling the scandal-hit bank to rival UBS on Sunday.

The crisis of talking about the first republic

The turmoil that has spread throughout the market over the past week seems to be affecting the banking sector.

US bank First Republic fell 47.2 percent on Monday, after the S&P 500 credit rating agency downgraded the bank’s credit rating from BB+ to B+. The drop in stocks comes on top of last week’s drop of more than 71 percent. The stock recovered a bit during the afternoon and was down nearly 30 percent at 6 p.m

Veteran Jamie Dimon, now CEO of JPMorgan Chase & Co., is leading a group made up of CEOs of America’s largest banks to discuss measures to stabilize First Republic.

According to Bloomberg News and other US media, the talks are scheduled to be in the preliminary stage, but they will be about whether the banking sector can do something to strengthen the capital base of the First Republic. Another suggestion that will be on the table is whether other banks should step in directly and invest in First Republic, for example by buying shares.

Last week, 11 of the largest banks in the United States agreed to deposit $30 billion into First Republic, in hopes that it would restore confidence in the bank, and eventually in the entire banking sector. The alternative must now be to convert these deposits into shares in the bank through an increase in capital.

Awaiting notification of the new interest rate

This week, the US central bank’s new interest rate decision is expected on Wednesday. Just under three weeks ago, the market priced in two rate hikes, but since the banking crisis occurred, the market has broken expectations.

A lot has changed since Central Bank Governor Jerome Powell spoke to the Senate Banking Committee on March 7, which sent a small interest rate shock to the market. Powell emphasized that stronger rate hikes are likely to be needed than the central bank signaled in December. He justified this by the fact that, in the meantime, a number of strong headline numbers came out, including higher-than-expected inflation as well as strong job growth and a low unemployment rate in January.

Powell said that recent economic data has been stronger than expected, suggesting that the peak in interest rates may be higher than previously expected.

The shock waves in global financial markets have created enormous uncertainty about the way forward. At the time of writing, the market still expects a 0.25 percentage point rate hike with good probability, although the chance that the rate will remain unchanged has increased in recent days.(conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We’d like you to share our statuses using links that lead directly to our pages. Reproduction or other use of all or part of the Content may be made only with written permission or as permitted by law. For more terms see here.