Markets improve on reports of lifelines for First Republic and Credit Suisse

Bank stocks started to bounce back in midday trading after reports that two troubled lenders received fresh financial support, easing some of the worries on Wall Street about a global banking crisis.

Shares in U.S. lender First Republic were still down about 15% on Thursday, but rebounded from a 35% drop earlier in the day after Bloomberg reported the bank was exploring its options, including a potential sale.

The regional bank pared some of those losses after a Wall Street Journal report said it was in talks with financial giants including JPMorgan and Citigroup to potentially provide a cash injection to First Republic — whose stock plunged after two credit rating agencies downgraded the one for junk. status earlier this week.

None of the media reports, each citing people familiar with the discussions, have been independently confirmed by NBC News.

First Republic is among a handful of mid-sized and regional bank stocks that have come under pressure since the collapses of Silicon Valley Bank and Signature Bank. First Republic had the third-highest rate of uninsured U.S. deposits after these two failed lenders.

The S&P was up more than 1% Thursday afternoon and the Dow Jones Industrial Average was up more than 170 points. A fund that pools regional bank stocks traded about 1.4% higher.

The rally followed news earlier in the day that Credit Suisse had agreed to borrow $54 billion from the Swiss central bank. Credit Suisse – Switzerland’s second-biggest commercial lender – saw its shares rise on the announcement, reversing a steep decline on Wednesday as part of a broader market sell-off.

Testifying before the Senate Finance Committee on Thursday, Treasury Secretary Janet Yellen sought to pacify markets, saying the financial sector was on solid footing.

“I can assure the members of the committee that our banking system remains healthy and that Americans can feel confident that their deposits will be there when they need them,” Yellen said. “This week’s actions demonstrate our resolute commitment to ensuring depositors’ savings remain safe.”

Volatility on Wall Street came after Credit Suisse led a sell-off in bank stocks as the share price hit a record low on Wednesday. The lender’s long-running problems were compounded when its biggest investor, the National Bank of Saudi Arabia, said earlier this week it would not offer more financial assistance because of regulatory checks that would start.

Early Thursday, the Saudi bank’s chairman, Ammar Al Khudairy, said the market turmoil in shares of the Swiss lender was “unfounded.”

“If you look at how the whole banking industry has gone down, unfortunately a lot of people were just looking for excuses,” he told CNBC’s Hadley Gamble. “It’s panic, a little bit of panic – I mean completely unjustified, whether it’s for Credit Suisse or for the whole market.”

Thursday’s Credit Suisse action is the first major international bank to receive such a lifeline since the 2008 financial crisis, and the move could raise questions about how banks will navigate rising inflation around the world. Last month, Credit Suisse reported its biggest annual loss since the crisis.

Problems at the bank, founded in 1856 and one of the largest in the world, have shifted the eyes of the financial world from the United States to Europe.

SVB, the US tech sector’s lender of choice, was shut down last week by regulators, and the feds moved quickly thereafter to guarantee all its deposits, including those that exceeded the $250,000 insurance limit. Two days later, New York regulators shut down Signature Bank, a major lender in the cryptocurrency industry.

While Credit Suisse has had its own problems separate from those that felled SVB and Signature, analysts said higher interest rates in the United States 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 on Tuesday that a recent flow of customer withdrawals had slowed but “not yet reversed.” The admission coincided with the announcement that Credit Suisse had found “material weaknesses” in its financial reporting for 2021 and last year.

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 significant entanglements with a collapsed hedge fund and a bankrupt UK lender.

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