18th March 2023 – (Washington) On Friday, Wall Street concluded on a negative note, culminating in a tumultuous week marked by a banking sector crisis and the looming possibility of an economic recession. Wealthspire Advisors’ Senior Vice President, Oliver Pursche, commented that the current banking crisis has increased the likelihood of a recession and expedited the economic slowdown timeline. Pursche further stated that although the Federal Reserve should review its course of action, inflation continues to be a concern and requires control. All three indexes ended the session deeply negative, with the Dow Jones Industrial Average falling by 1.19 percent to 31,861.98, the S&P 500 losing 1.1 percent to 3,916.64, and the Nasdaq Composite dropping 0.74 percent to 11,630.51.
Following an unprecedented $30-billion rescue package from major financial institutions, First Republic Bank experienced a significant drop of 32.8 percent after announcing the suspension of its dividend. Dong Shaopeng, executive deputy editor-in-chief of the Securities Daily, noted that the liquidity injections would not be enough when risks erupt in the banking and financial system, leading to further liquidity injections being required by additional banks.
Moody’s downgraded its credit rating on First Republic Bank due to deterioration in the bank’s financial profile and challenges faced by the lender from increased reliance on funding amidst deposit outflows. Moody’s reduced the bank’s long-term issuer rating and local currency subordinate ratings to B2 from Baa1. Among First Republic’s peers, PacWest Bancorp fell by 19 percent, while Western Alliance slid by 15.1 percent. Additionally, Credit Suisse’s U.S.-traded shares concluded on Friday sharply lower, down by 6.9 percent.
The impact of interest rate hikes on capital and balance sheets have caused a real impact beyond a run on Silicon Valley Bank or First Republic, according to Pursche. Pursche added that the impact is being felt by significant institutions such as Credit Suisse, leading to market unease. Over the last two weeks, the S&P Banking index and the KBW Regional Banking index experienced a massive drop of 4.6 percent and 5.4 percent, respectively, representing their largest two-week drops since March 2020.
