Falling Stocks in Europe and US Stoke Banking Crisis Fears

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

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 bank’s largest shareholder – the Saudi National Bank – said it would not inject more cash into the bank.

After Credit Suisse had appealed to the Swiss National Bank for a public show of support, it secured a $54 billion lifeline.

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.

European and US markets react

Stocks fell in Europe and on 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%
  • The STOXX Banks index of 21 leading European lenders sagged 8.4%, showing the sector under the most pressure
  • The S&P 500 was down 0.69% at the close of trade
  • The Dow Jones Industrial Average was down 0.87%
  • The Nasdaq composite finished 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 1.3%

Aftermath of Silicon Valley Bank collapse

The volatility comes after last week’s 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 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.”

This article was originally published on DW.