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Health of European banks in focus as stocks plunge again over Credit Suisse and rate rise worries | Business News

Banking stocks are enduring fresh, steep losses on Wednesday as concern over the health of US banks crosses the Atlantic.

Credit Suisse shares plunged to new record lows following comments by its largest investor that it could not provide the Swiss bank with more financial assistance.

Switzerland’s second-largest bank, no stranger to crisis over the past few years, has seen concerns for its financial health come into sharper focus since the collapse of Silicon Valley Bank last week.

The attention of investors has mostly been on the ability of lenders to absorb the aggressive tightening of interest rates since last year, which has soured their bond holdings.

Adding to the selling mood was speculation that the European Central Bank (ECB) planned to raise its core deposit rate by 0.5 percentage points this Thursday.

A source close to the ECB Governing Council, the Reuters news agency reported, had said that the ECB was unlikely to ditch plans for a big rate move this week because that would damage its credibility.

Analysts backed that assessment.

Investors took to the hills, with the European banking index down by almost 6%, leaving it on course for €120bn of losses since the crisis of confidence began last week.

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Markets react to SVB collapse

Read more:
How Silicon Valley Bank chaos has had a bearing on us all – and why we’re in for a bumpy few months

Credit Suisse shares were more than 20% lower.

In London, the FTSE 100 was trading 2.5% down by late morning, blow the level it had started 2023.

Financial stocks were again enduring the worst of the pain.

US equity futures were sharply lower.

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Silicon Valley Bank – what happened?

Attention, however, was firmly focused on Credit Suisse.

Its largest shareholder, Saudi National Bank (SNB), said it would not buy more shares on regulatory grounds as it would take its stake above 10%.

A string of scandals have undermined the confidence of its investors and clients, with Credit Suisse customer outflows in the fourth quarter rising to more than 110 billion Swiss francs (£100bn)

SNB said it was happy with Credit Suisse’s turnaround plan and did not think it would need more money.

That was despite its annual report for 2022, released earlier this week, admitting that “material weaknesses” in controls over financial reporting had been identified and customer outflows had not yet been stemmed.

Retail sales boosted by warm weather but inflation worries loom | Business News

The summer heatwave prompted shoppers to spend more on summer clothes, picnic food and air conditioning in July, according to the latest figures.

The British Retail Consortium said the value of total sales was 2.3% higher last month than it was in July 2021 – good news for retailers after falls in each of the previous three months.

Like-for-like sales were up 1.6% after four months of falls.

But the figures are not adjusted for inflation and the consortium said they represented a fall in volume terms.

Inflation hit a 40-year high of 9.4% in June, and July’s figures will be revealed later this month.

Helen Dickinson, chief executive of the BRC, said that, with inflation over 9%, many retailers were still contending with falling sales volumes during what “remains an incredibly difficult trading period”.

“Consumer confidence remains weak, and the rise in interest rates coupled with talk of recession will do little to improve the situation,” she added.

Overall sales of non-food items, such as homeware, declined by 2% in the latest quarter.

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Sales of non-food products from stores were up 2% in the three-month period, but online sales were down 3.9%, reversing the trend seen during the COVID-19 lockdowns.

Paul Martin, UK head of retail at KPMG, said: “The summer could be the lull before the storm with conditions set to get tougher as consumers arrive back from summer breaks to holiday credit card bills, another energy price hike and rising interest rates.

“With stronger cost-of-living headwinds on the horizon, consumers will have to prioritise essentials, and discretionary product spending will come under pressure.”

Consumer spending was up 7.7% in July compared to a year earlier, figures from Barclaycard showed, boosted by sales of clothing, beauty products and staycations.

But it also included a 44% leap in spending on utilities and a 30% leap in fuel.

Households are cutting back on overseas travel and dining out but Barclaycard said that its survey showed confidence in household finances.

Some 66% of survey respondents said they felt confident about their household finances, compared to 59% in June.

Jose Carvalho, head of consumer products at Barclaycard, said: “This shows that, faced with difficult circumstances, many are finding ways to budget and manage their finances successfully, to cope with ongoing inflationary pressures.”