Volkswacht Bodensee - Bank fears return to haunt stock markets

Markets had rallied on Thursday after Wall Street titans including JP Morgan, Bank of America and Citigroup pledged to inject $30 billion into embattled First Republic Bank.

Credit Suisse had also rebounded after it said it would borrow up to $54 billion from the Swiss central bank.

But shares of First Republic Bank and Credit Suisse dove back deep in the red on Friday, with the US lender shedding 26 percent and Switzerland's second biggest bank dropping almost 10 percent.

The stock prices of other major banks also fell, with JP Morgan and Citigroup down more than three percent while Bank of America sank four percent.

The wider markets also tumbled, with Wall Street and European indices down more than one percent towards the end of a rollercoaster week.

"The negative disposition for the broader market has a familiar driver: worries about the state of the banking industry," said market analyst Patrick O'Hare at Briefing.com.

Banks stepped in to save First Republic over fears it could suffer a run of withdrawals by customers worried it would follow US lenders Silicon Valley Bank and Signature Bank, which went under last week and fuelled fears of another financial crisis.

O'Hare said the market was unnerved by data showing that bank borrowing from the US Federal Reserve's discount window hit a record high of approximately $153 billion for the week ending March 15, "exceeding anything seen during the financial crisis".

The Fed's discount window allows banks to quickly access funds, providing them with liquidity when customers withdraw more deposits than expected, and the record figure is an indication of stress in the sector.

O'Hare said some investors are seeking refuge in the stocks of big companies, which has helped cushion the drop in the wider market.

The dollar fell against its major rivals, while oil prices sank more than four percent.

- Fed's next move -

Investors will focus next week on whether the US Federal Reserve will stick to its interest rate-hike policy to combat inflation.

Before the SVB crisis unfolded, there had been a widespread expectation the Fed would ramp up its tightening campaign and push on for as long as needed until it had quelled inflation.

But with SVB's demise largely blamed on the sharp rise in borrowing costs -- fuelling fears of a repeat at other banks -- speculation has swirled that the Fed may stop hiking and maybe even cut rates to provide some stability.

However, the European Central Bank on Thursday stuck to its plan to lift rates by a half percentage point despite the turmoil.

Some analysts believe this increases the likelihood the Fed will also raise rates by half a percentage point.

SVB's demise has been blamed on the losses it took after the value of its bond portfolio cratered due to the higher rates.

The ECB called a meeting on Friday on the state of banking in the eurozone, but no decision was expected.

Despite the crisis, the OECD raised its world economic growth outlook for the year to 2.6 percent from 2.2 percent previously, though it warned that the recovery is "fragile".

"Signs of the impact of tighter monetary policy have started to appear in parts of the banking sector, including regional banks in the United States," the OECD said.

But OECD chief economist Alvaro Santos Pereira said there was no "systemic risk" to the sector.

- Key figures around 1550 GMT -

London - FTSE 100: DOWN 1.1 percent at 7,329.16 points

Frankfurt - DAX: DOWN 1.4 percent at 14,765.76

Paris - CAC 40: DOWN 1.6 percent at 6,917.04

EURO STOXX 50: DOWN 1.4 percent at 4,059.71

New York - Dow: DOWN 1.3 percent at 31,815.48

Tokyo - Nikkei 225: UP 1.2 percent at 27,333.79 (close)

Hong Kong - Hang Seng Index: UP 1.6 percent at 19,518.59 (close)

Shanghai - Composite: UP 0.7 percent at 3,250.55 (close)

Euro/dollar: UP at $1.0643 from $1.0617 on Thursday

Pound/dollar: UP at $1.2151 from $1.2106

Euro/pound: DOWN at 87.59 pence from 87.62 pence

Dollar/yen: DOWN at 132.07 yen from 133.69 yen

Brent North Sea crude: DOWN 4.1 percent at $71.65 per barrel

West Texas Intermediate: DOWN 4.1 percent at $65.54 per barrel

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J.Bergmann--BTB