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Credit Suisse faces crunch weekend

Credit Suisse executives will hold meetings over the weekend to chart a path forward for the ailing Swiss bank, people familiar with the matter said, after an emergency lifeline only offered temporary relief and its shares took another beating on Friday.

The 167-year-old Swiss bank is the biggest name ensnared by market turmoil unleashed by the collapse of U.S. lenders Silicon Valley Bank and Signature Bank over the past week, forcing it to tap $54 billion in central bank funding.

In the latest sign of its mounting troubles, at least four major banks including Societe Generale and Deutsche Bank have put restrictions on their trades involving the Swiss lender or its securities, according to five sources with direct knowledge of the matter.

Credit Suisse declined to comment on the banks’ actions.

Chief Financial Officer Dixit Joshi’s teams will now assess scenarios for the bank at weekend meetings, which analysts speculate could involve Credit Suisse selling or winding down some units or even being bought outright by a rival.

The frantic efforts to shore up Credit Suisse come as assurances from policymakers – from the European Central Bank to U.S. President Joe Biden – that the global banking system is safe fail to assuage fears about broader troubles in the sector.

Already this week, big U.S. banks had to swoop in with a $30 billion lifeline for smaller lender First Republic, while U.S. banks altogether sought a record $153 billion in emergency liquidity from the Federal Reserve in recent days.

That surpassed a previous high set during the most acute phase of the financial crisis some 15 years ago.

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 – who earlier this week promised Americans that their deposits are safe – on Friday called on Congress to give regulators greater power over the banking sector, including leveraging higher fines, clawing back funds and barring officials from failed banks, a White House statement said.

Banking stocks globally have been battered since Silicon Valley Bank collapsed, raising questions about other weaknesses in the wider financial system.

Shares in Switzerland’s second-largest bank closed down 8% on Friday, with Morningstar Direct saying Credit Suisse had seen more than $450 million in net outflows from its U.S. and European managed funds from March 13 to 15.

With investor confidence far from restored, analysts, investors and bankers think the loan facility from the Swiss central bank only bought it time to work out what to do next. The move made it the first major global bank to take up an emergency lifeline since the 2008 financial crisis.

U.S. regional bank shares were also sharply lower, as the KBW Regional Bank index slumped 5.6%, with PacWest tumbling about 15% and First Republic down more than 30%.

The S&P 500 bank index dropped 4.5%, as JPMorgan and Bank of America slid roughly 4% each.

While support from some of the biggest names in U.S. banking prevented a collapse, investors were startled by First Republic’s late disclosures on its cash position and just how much emergency liquidity it needed.

“It appears that maybe the damage has been done to the brand reputation of First Republic. (It) is a shame because it was a high quality, well run bank,” said John Petrides, portfolio manager at Tocqueville Asset Management.

Earlier on Friday, SVB Financial Group said it had filed for a court-supervised reorganisation, days after its former banking unit SVB was taken over by U.S. regulators.

Investors are also increasingly seeking insurance against a sudden crash in stocks, fearing that more tumult is in store for markets. Gold prices rose by more than 1% as the banking sector tremors drove investors towards “safe haven” assets.

Authorities have repeatedly tried to emphasise that the current turmoil is different to the global financial crisis 15 years ago as banks are better capitalised and funds more easily available – but their assurances have often fallen on deaf ears.

In an unusual move, the ECB held an ad hoc supervisory board meeting, its second this week, to discuss the stresses and volatility in the banking sector.

The supervisors were told deposits were stable across the euro zone and exposure to Credit Suisse was immaterial, a source familiar with the meeting’s content told Reuters.

An ECB spokesperson declined to comment.

Attention has now shifted to the Fed’s policy decision next week and whether it will stick with its aggressive interest rate hikes as it seeks to get inflation under control.

A German government spokesperson said the current situation with European banks is not comparable to the 2008 financial crisis, adding during a regular news briefing that there is no cause for concern about the country’s banking sector.

Earlier, Japan Prime Minister Fumio Kishida said after a three-way meeting between the country’s government, banking regulator and central bank that the talks were held as part of efforts to monitor any impact on financial system stability.

“Japan’s financial system remains stable as a whole,” Kishida told a news briefing.

Singapore, Australia and New Zealand also said they were monitoring financial markets but were confident their local banks were well capitalised and able to withstand major shocks.