Bank bailouts fail to calm markets as First Republic Bank collapses on Wall Street and gold hits all-time highs

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Shares of bank First Republic fell on Monday more than 18% in e-commerce before the Wall Street Stock Market opened, notwithstanding injection of 30,000 million dollars received last week from a group of major US banks, who were holding out.

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The drop in its share value comes a day after S&P Global further downgraded its credit rating from ‘BB-plus’ to ‘B-plus’. This agency, together with the companies Moody’s and Fitch Ratings, had already downgraded the bank last week to the trash category.

S&P insisted on Sunday that the entity has dealt with a “high liquidity stress with large outflows” of deposits.

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The Bank of the First Republic, in trouble.  Photo: Reuters

The Bank of the First Republic, in trouble. Photo: Reuters

First Republic is in the eye of the latest financial storm after Silicon Valley officials and Signature Banks stepped in two weeks ago due to an explosive cocktail of liquidity shortages and a massive withdrawal of deposits by of their customers.

For their part, the shares of the major banks that came to the rescue of First Republic last Thursday remained stable before the opening of the New York Stock Exchange.

Thus, only JPMorgan and Bank of America shares fell by 0.45% and 0.11%, respectively, while those of Citigroup rose by 0.45% and Wells Fargo by 0.64%.

Gold, with record highs

In turn, the price of gold moved higher, driven by banking sector concerns over a clearing purchase of another troubled bank, Switzerland’s Credit Suisse, and on Monday it traded above the symbolic threshold of 2,000 dollars an ounce.

This metal – which is traditionally a safe haven – increased by more than 9% since the collapse of US bank Silicon Valley Bank (SVB) ten days ago.

Credit Suisse headquarters in Zurich.  Photo: Fabrice COFFRINI / AFP

Credit Suisse headquarters in Zurich. Photo: Fabrice COFFRINI / AFP

The purchase of troubled bank Credit Suisse by rival UBS, orchestrated this weekend by the Swiss authorities, did not reassure investors and this MondayBank stocks continue with losses.

Conversely, metallic gold rose 0.33% to $1,995 after climbing as high as $2,009.73, a one-year high.

Gold has broken the symbolic $2,000 barrier twice, in August 2020 at the height of the covid-19 pandemic and in March 2022, in the first weeks after the Russian invasion of Ukraine.

Gold is “very attractive at a time when holders of large accounts at failing banks are wondering how much they can recover,” Rupert Rowling, an analyst at precious metals buying platform Kinesis Money, said in a statement.

skeptical markets

THE financial markets greeted with skepticism this Monday the purchase of Credit Suisse by rival UBS.

Asian markets closed with losses this Monday (Hong Kong -2.7%, Tokyo -1.4%, Shanghai -0.5%) and European markets opened followed the negative trend.

In Paris the stock market fell by 0.63%, in Frankfurt shares lost 1.10% and in London the market fell by 1.17%. In Madrid the Ibex-35 traded downwards with a drop of 0.90% and in Milan the market fell by 2.73%.

The negative trend was mainly due to the decline in bank stocks, which indicates investor distrust in an environment in which the collapse of two US entities has raised fears.

The losses in the stock market come after a week of tensions on the markets and in a context in which investors I am awaiting what position the Federal Reserve will take in the United States.

Opinions differ on whether the Fed will continue to raise rates as many have pointed out that the collapse of US bank SVB is related to the increase in borrowing costs over the past year.

The sharp drop in oil prices and the increase in “safe haven values”, which are gold and the yen, are further indications that investors “they’re still scared” noted Stephen Innes of SPI Asset Management.

Agencies

Source: Clarin

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