Credit Suisse shares led a 7% plunge in the European banking index as the flagship bank’s five-year cost of insuring debt (CDS) hit an all-time high, reigniting fears of risk to the financial system.
Two supervisory sources told Reuters the European Central Bank (ECB) had contacted the banks under its watch to question them about their exposure to Credit Suisse. One of the sources said, however, that they viewed Credit Suisse’s problems as bank-specific rather than systemic.
The US Treasury is monitoring Credit Suisse’s situation and is in contact with global peers, a Treasury spokesman said Wednesday.
The European banking index has seen more than 120 billion euros ($127 billion) of market value evaporate since March 8.
“The markets are crazy. We went from the problems of the American banks to the problems of the European banks, first of all Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
The Swiss National Bank declined to comment on the situation of the country’s second-largest lender, after its biggest investor said it could not provide Credit Suisse with any further financial help due to regulatory restrictions.
“There has to be some kind of decisive game-changing measure to reverse and stabilize the situation,” Exane analysts said.
Credit Suisse has asked the Swiss National Bank and Swiss financial watchdog FINMA for a public show of support, the Financial Times reported.
Germany’s financial supervisory authority (BaFin) said it saw no direct risk of contagion and the local banking system appeared sound and able to stomach higher interest rates.
“Our main focus is currently on a few smaller banks with little excess capital and higher interest rate risks. We are closely monitoring these institutions,” a BaFin spokesperson said in a statement.
Global panic over Credit Suisse crash
In the United States, regional banks were also collapsing, with First Republic Bank down 23%, Western Alliance Bancorp 5% and PacWest Bancorp around 20%.
Shares of big US banks such as JPMorgan Chase & Co, Citigroup and Bank of America Corp fell between 2% and 6%.
The executive president of BlackRock, Laurence Finkwarned that the US regional banking sector remained in jeopardy, and he predicted more inflation and rate hikes.
Fink described the financial situation as the “price of easy money” and said in an annual letter that he expected more interest rate hikes from the US Federal Reserve. He said that “liquidity mismatches” could follow the regional banking crisis, because low rates have led some to increase their exposure to higher-yielding investments that are not easy to sell.
“It is too early to tell how far the damage has spread,” Fink wrote. “The regulatory response has so far been swift, and determined measures have helped ward off contagion risks. But markets remain on edge.”
Rapid rate hikes have made it difficult for some companies to repay or service loans, increasing the chances of losses for lenders, also worried about a recession.
Investors have begun to doubt the ECB’s commitment to another big rate hike, after the collapse of Silicon Valley Bank (SVB) in the United States rocked markets.
In the United States, attention is turning to the possibility of tightening rules for banks, particularly mid-tier ones like SVB and New York-based Signature Bank, whose collapses triggered the market shock.
The CS action came to lose 30% during the session and its fall generated significant falls in other markets, accentuating the turmoil caused by the recent bankruptcy of the US bank SVB.
“The answer is absolutely no, for many reasons, apart from the simplest, which is regulatory and statutory,” said the president of the Saudi National Bank, Ammar Al Khudairy, in an interview with Bloomberg TV this Wednesday. The bank, owned by the nation’s sovereign wealth fund, This was in response to a question about whether the bank was open to new injections into Credit Suisse in the event that there was another request for additional liquidity.
The selective Spanish Ibex-35 closed this day with heavy lossesdragged down by the banking sector after the Credit Suisse crisis, after the main shareholder of the Swiss group, the Saudi National Bank, ruled out increasing its participation.
So, the Ibex-35 closed with a fall of 399.90 points, 4.4%up to 8,759.10 points, while the FTSE Eurofirst 300 index of large European stocks lost 3%.
It is the largest percentage decline in the Ibex since November 26, 2021, when the appearance of the omicron variant of the coronavirus triggered panic in the financial markets.
In the banking sector, Santander lost 6.9%, BBVA fell 9.6%, Caixabank lost 6.72%, Sabadell fell 10.5%, Bankinter dropped 6.5% and Unicaja Banco lost one 6.1%
For his part, the president of the entity, Axel Lehmann, pointed out that state aid “is not on the table” for the lender. Speaking at the Financial Sector Conference in Saudi Arabia on Wednesday, Lehmann said it would not be accurate to compare the current problems of Credit Suisse with the recent collapse of Silicon Valley Bank, mostly because banks are regulated differently.
Despite the fact that both leaders expressed their confidence in the bank’s good data to demonstrate its financial soundness, investors are clearly concerned about the entity’s future. Credit default swaps (CDS), i.e. the cost of insuring the Swiss company’s short-term bonds against default, are approaching dangerous levels, skyrocketing to over 830 points, up from 430 on Tuesday, meaning that it costs more to protect against an immediate bankruptcy than against a later default. That is to say, the risk of non-payment of the Swiss entity has multiplied by two in a matter of hours, which is dragging down the entire European banking sector.
Source: Ambito
