Investors Warily Approach the End of a Tumultuous Week

A tentative sense of relief prevailed among investors on Friday morning after two very different financial rescues the day before: one of a global banking giant in Switzerland and another of a midsize regional lender in San Francisco. The moves to shore up the flailing lenders with injections of tens of billions of dollars produced a pause in the mayhem that had gripped banks and markets.

As Asia and Europe opened for business on the last day of a tumultuous week, markets conveyed a measure of calm, at least for the moment. Stock indexes in Asia posted gains, Europe’s markets were mixed and banks recovered some of their losses.

“We’re starting to see a modest change in the mood music,” Jim Reid, a research strategist at Deutsche Bank, wrote in a Friday note assessing the early moves in the markets. He cited the stabilization of bank stocks and signs of less stress in the bond market, after the European Central Bank on Thursday stuck to its plan to raise interest rates despite the market turmoil.

Still, there is little confidence that this crisis has fully run its course. Banks in the United States borrowed record amounts from the Federal Reserve to meet short-term needs this week, and shares of the recently rescued banks remain shaky.

Some sense of solace took shape just after midnight on Thursday in Zurich, when Credit Suisse, staring down anxious investors worried about the bank’s financial health, announced that it had grabbed a $54 billion lifeline from Switzerland’s central bank.

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Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years. But on Thursday, shares in the 166-year-old Swiss bank, which had plunged to a record low the day before, turned around and rose nearly 20 percent.

The rescue of Credit Suisse, which the bank and Swiss regulators had earlier insisted did not need to be rescued, followed a classic playbook: A powerful central bank threw its full support — and a big chunk of financial firepower — behind an institution that investors had decided needed urgent help. Investors responded in kind.

Later that day, First Republic Bank, a midsize lender based in San Francisco whose stock price has fallen more than 70 percent this month, erasing roughly $16 billion in value, announced a $30 billion rescue package that was as unconventional as the Credit Suisse support was traditional.

Credit Suisse’s headquarters in Zurich. The banking giant grabbed a $54 billion lifeline from Switzerland’s central bank.Credit…Lea Meienberg for The New York Times

Four storied names in American finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, mainstays of Wall Street, pitched in $2.5 billion apiece, and five smaller regional banks added $1 billion each.

The industry-led action spoke loudly: These 11 institutions were confident that First Republic deserved saving.

The banks, normally fierce rivals, issued a joint statement explaining their move: “America’s larger banks stand united with all banks to support our economy and all of those around us.”

The government’s overseers of the banking industry, some of whom helped bring the deal together, otherwise stood on the sidelines, issuing a bland statement saying that the banks’ show of support for First Republic was “most welcome.”

Stocks in the United States on Thursday swung from early losses to close 1.8 percent higher. The S&P 500 index remains up for the year and is on course to close out its second-best week of 2023, absent another reversal on Friday.

U.S. stock futures, which signal the direction markets will take when they open in New York, indicated a small decline on Friday.

Other signs of anxiety persist. New data from the Federal Reserve released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank, tapping both existing facilities and a new program to shore up liquidity that was announced after the government takeovers of a once-obscure lender to the tech world, Silicon Valley Bank, and the small Signature Bank in New York.

And First Republic’s shares are slipping again, with premarket losses on Friday erasing all of the previous day’s gains suggesting that trading in banking shares will remain volatile on Friday. Credit Suisse’s stock also fell in European trading, reversing part of Thursday’s gain.

Analysts at UBS wrote that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes. (The deposits from other banks are uninsured and for an initial term of 120 days.) An index tracking the largest U.S. largest banks has fallen nearly 20 percent this year, with much of the loss concentrated in the past week, versus a gain in the broader market over that period.

Before the broad panic about banks first surfaced last week, the biggest challenge facing economic policymakers was rapid inflation. Central bankers were caught between trying to tame price rises while not causing growth to stall. Those efforts suddenly appeared far more complex with the sudden prospect of successive bank runs.

In China, which is trying stabilize its economy after it stalled last year because of stringent “zero Covid” measures, the central bank on Friday evening acted to get more money in the hands of companies and consumers. It said it would reduce by a quarter-point the share of assets that Chinese commercial banks must keep on reserve. This frees the banks to lend more money, especially to real estate developers.

With a few exceptions, trading in bank stocks, the focus of this week’s turmoil, appeared relatively calm at the end of a seesaw week of trading. But “we shouldn’t get ahead of ourselves,” wrote Mr. Reid of Deutsche Bank. “It’s worth remembering that we’ve already had a temporary period of stability on Tuesday that was then dented by the Credit Suisse worries on Wednesday.”

Keith Bradsher, Joe Rennison, Rob Copeland and Lauren Hirsch contributed reporting.