Fears of banking crisis stoked amidst falling stocks in Europe & US, troubled Credit Suisse loses 30% of share price

Deutsche Bank
Wed, 15 Mar 2023 22:40 UTC

© Seth Wenig/AP

Shares in global investment bank Credit Suisse fell sharply on Wednesday sending shares plunging in other European banks.

A record drop in shares at Swiss banking giant Credit Suisse on Wednesday has fanned fears of a possible banking crisis.

US-listed shares at the global investment bank plummeted by more than a quarter after the banks largest shareholder — the Saudi National Bank — said it would not inject in more cash into the bank.

The Financial Times reported that Credit Suisse had appealed to the Swiss National Bank for a public show of support, citing people familiar with the matter.

At the close of trade in Europe on Wednesday, Credit Suisse's stock price was down 24%, having recovered slightly from its lowest ebb during the day. It was trading at around €1.84 — compared to almost €3 per share last week and more than €7.50 per share late last March.

Stocks fell in Europe and Wall Street on Wednesday amid worries about the strength of banks on either side of the Atlantic.

• Germany's DAX had lost 3.32% at the close of trade in Europe
• The FTSE 100 in London fell 3.80%.
• France's CAC 40 dropped 3.68%
• European STOXX 600 index (aggregating 600 of the core companies across the continent) shed almost 3%
• And the STOXX Banks index of 21 leading European lenders sagged 8.4%, showing the sector under the most pressure
• The S&P 500 was -0.69% at the close of trade
• The Dow Jones Industrial Average was down -0.87%
• The Nasdaq composite finished up at 0.05% in the green
• All major cryptocurrency platforms were also deep in the red for the day; Bitcoin was the most stable, but still down 2.6%

Aftermath of Silicon Valley Bank collapse

The volatility comes after last weeks sudden collapse of Silicon Valley Bank in the US which forced authorities to intervene to prevent the spread of market disturbances.

Multi-national investment firm BlackRock's Chief Executive, Laurence Fink, warned on Wednesday that the US regional banking sector was at risk, and predicted continued high inflation and rate increases.

Europe's bank index has seen more than €120 billion ($127 billion) of value by market capitalization wiped out since March 8.

Germany's financial supervisory authority (BaFin) has moved to allay fears and said the German banking system appeared robust and capable of absorbing higher interest rates.

"Our main focus is currently on some smaller banks with little surplus capital and increased interest rate risks — we are closely monitoring these institutions," a BaFin spokesperson said in a statement.

The European Central Bank looks poised to hike interest rates again on Thursday in a bid to tackle high inflation.

Reuters news agency cited a spokesperson from the US treasury as saying that officials are "monitoring" the problems surrounding Credit Suisse and that they have "been in touch with global counterparts."

Swiss National Bank will offer liquidity 'if necessary'

The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA) said in a statement that "the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets," and pointed to "the strict capital and liquidity requirements" which applied to Swiss financial institutions.

The SNB said that Credit Suisse met the capital and liquidity requirements imposed on what it called "systemically important banks" and said "If necessary, the SNB will provide CS with liquidity."

Comment: So Switzerland claims it will be fine because it has stricter requirements, but at the same time it admits that it will bail out any of its banks that need it?...

More on the situation from The Guardian:

The suggestion of a limit to support for Credit Suisse, which has reported a 7.3bn Swiss francs (£6.6bn) loss for 2022, sent its shares down more than 30% during the day.

The bank, Europe's 17th largest lender, has been struggling to keep customers after a string of scandals in recent years. Credit Suisse strengthened its balance sheet with a 4bn Swiss francs (£3.6bn) fundraising in November designed to finance a restructuring plan.

Credit Suisse isn't alone in being mired by scandal, many of the big banks have been, including Deutsche Bank, Danske Bank, J P Morgan, Barclays, and HSBC - but, as powerful tools of the establishment, they're essentially all at it.

In a statement on Wednesday, the chairman, Axel Lehmann tried to reassure customers and investors, saying: "We have strong capital ratios, a strong balance sheet. We already took the medicine."

Investors are worried about potential unrealised losses lurking in the portfolios of other European banks. As traders dumped stocks, more than £75bn was wiped off London's blue chip index. The FTSE 100 was down 3.83%, marking its sharpest one-day drop since Russia invaded Ukraine in February last year. UK-headquartered Standard Chartered fell 7.7% and HSBC, which bought the UK operations of Silicon Valley Bank in a government-brokered deal on Monday, dropped 5%. Barclays fell 9%.

Credit Suisse shares recovered slightly but still ended the day down 24.5%. The cost of insuring against Credit Suisse defaulting on its bonds also hit a record high on Wednesday.

Shares in other big European banks slumped on the news, with the gyrations triggering stock market circuit breakers that briefly halted trading in Société Générale, BNP Paribas, Monte dei Paschi di Siena and UniCredit. The Swiss lender UBS dropped 8.7% and Germany's Deutsche Bank slipped 9.2%.

Regulators in the US and UK were monitoring the situation as stocks continued to slide.

The Bank of England said the UK banking system was not at risk. The central bank, which is in charge of monitoring financial stability, referred to its statement released earlier this week, which said: "The wider UK banking system remains safe, sound, and well capitalised."

Echoes of the crash of 2007-8 abound.

Credit Suisse's problems - which have led to a leadership overhaul and sparked a wide-ranging turnaround plan in recent months - are relatively unique and should not come as a surprise to investors, according to some analysts.

The lender has been trying to draw a line under multiple scandals over the past decade involving corporate espionage, alleged misconduct, sanctions busting, money laundering and tax evasion.

In the past two years alone, Credit Suisse has admitted to defrauding investors as part of the Mozambique "tuna bonds" loan scandal, resulting in a fine worth more than £350m; and been embroiled in the collapse of the lender Greensill Capital and the US hedge fund Archegos Capital in 2021. It also came under fire after the Guardian and other media outlets revealed the bank had been serving clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes over decades.

The bank has since suffered an exodus of clients, who have continued to pull their cash, contributing to ballooning losses that grew to 7.3bn Swiss francs in 2022. It has since been abandoned by its former top shareholder, Harris Associates, which revealed earlier this year that it had dumped its entire stake amid frustration over Credit Suisse's strategy and failure to stem losses.

However, Andrew Kenningham, the chief European economist at Capital Economics, said there are still questions about potential weaknesses across the financial system. "The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another "idiosyncratic case", he said. Credit Suisse was widely seen as the weakest link among Europe's large banks, but it is not the only one to have struggled with weak profitability in recent years.

The high-profile economist Nouriel Roubini, known as Dr Doom for having predicted the 2008 financial crisis, warned that while Sillicon Valley Bank's collapse had a "ripple effect" on the financial sector, any potential failure by Credit Suisse could prove to be a "Lehman moment", referring to the collapse of the US investment bank Lehman Brothers in August 2007 that sparked the global banking crunch.

The 'crunch' that resulted in hundreds of billions being robbed from the tax payer to (temporarily) prop up criminal banks.

Markets are now expecting that central banks including the Bank of England may hold back from raising interest rates further, amid fears that further hikes could increase pressure on investment portfolios.

Silicon Valley Bank collapsed shortly after revealing it had a hole in its finances, caused by a drop in the value of bonds that it tried to sell to make up for a drop in its tech customers' deposits. Those bonds had dropped in value due to recent interest rate hikes. The shortfall spooked investors, led to a share sell-off and a run on its deposits, before authorities stepped in last week.

The Bank of England had been given an almost 100% probability by traders in financial markets of raising rates by 0.25 percentage points at its next meeting on 23 March. However, that has since fallen to 40%.

Saudi National Bank gained its 9.9% stake in Credit Suisse this past autumn, after investing 1.5bn Swiss francs as part of a 4bn Swiss franc capital fundraising to support Credit Suisse's turnaround plan, which is meant to cut the size of it

See also:

• Federal Reserve announces emergency lending to ALL US banks in attempt to stem contagion from collapse of SVB, Signature Bank
• Israeli bankers transferred $1 billion out of Silicon Valley Bank over to 2 of Israel's largest banks right before collapse
• How Blackrock's Larry Fink created the global energy crisis