After several years of drills, the European Central Bank (ECB) and the eurozone financial system received a fire alarm yesterday. The fire comes from Credit Suisse, which collapsed on the stock market after losing the support of its main shareholder, and spread through the quotations of the main European banks. The Swiss entity has asked for help from its central bank, which last night offered to give it liquidity, and the ECB is already working with the entities of the euro zone to calibrate the scope of the crisis, which is coming days after Silicon Valley Bank (SVB), on the other side of the Atlantic.
The ghosts of the past returned yesterday when the president of the Saudi National Bank (SNB), Ammar al-Khudairi, assured in an interview with Bloomberg TV that his bank will not inject more money into Credit Suisse “for many reasons”. The SNB became the first shareholder of the Swiss bank last year, with 9.9% of the capital, after going to the capital increase intended to straighten out the business.
Yesterday’s message was a way to let the bank down at a time of particular uncertainty after the intervention of the SVB in the United States. Shares lost nearly 30% and ended the day down 24%. The bank lost 2.3 billion euros in value in one day, but the problem was that it dragged down the entire sector in Europe.
The contagion affected all major European banks, with Société Générale down 12%, BNP Paribas 10%, Deutsche Bank 9.2% and Commerbank 8.7% . The German reference index, the Dax, fell 3.27%, compared to 3.5% for the French CAC 40. In Spain, the Ibex lost 4.3%, with retreats in all the big banks. Sabadell fell by 10.4%, BBVA by 9.6%, Santander by 6.8%, CaixaBank by 6.8% and Bankinter by 6.4%.
The fire also reached the bond markets, where looser ECB policy is starting to be discounted by rate hikes, and raged on Credit Suisse’s own default insurance, CDS, which surpassed the 800 points, which in financial terms is equivalent to assigning it a bankruptcy risk similar to that of Greece in the worst moments of the financial crisis.
Credit Suisse also has bonds issued for 41.8 billion euros and, once again, the market’s bet is that it will have difficulty paying them back. Yesterday they were trading with strong discounts.
The crisis is served and has already reached the central banks. Credit Suisse has asked the National Bank of Switzerland for help, while in Frankfurt the European Central Bank began contacting the European banks it supervises and continues to ask for prudence in order to know the exposure to the convalescent entity. The Bank of Spain is taking charge of these local arrangements.
In the United States, the Treasury Department has also tightened its grip and is reviewing the exposure of national banks to Credit Suisse. The bank is part of those considered global systemic and yesterday analysts returned to the debate of whether it is too big to fail.
Speculation revolved around options such as a merger with UBS or the sale of assets. Morningstar analysts distributed a note yesterday in which they believed the bank should address a new capital increase or separate itself.
The ECB will make a decision on interest rates today, and while a half-point hike to 3.5% is expected, eyes are on the message about future revisions and the soundness of banking european
The crisis is not only from the Swiss bank, but continues to be fueled by messages coming from the United States. A report from Pimco yesterday indicated that a recession was likely in the country and another from Lazard emphasized the sensitivity of the markets to any banking problem.
As if that were not enough, one of the most influential financial sector executives in the United States, Larry Fink, the first executive of Blackrock, openly said that the country’s banking sector is at risk. It is “the price of easy money”, he asserted.
Not even the prophet of all apocalypses was missing, the economist Nouriel Roubini, known as Doctor Doom, who yesterday was true to his style and warned of the “problem that Credit Suisse could be too big to be saved” .
“All this is a bit dizzying”, says Juan Torras, professor of finance at EADA Business School, before warning that, despite the reputational problems, Credit Suisse “is a sound bank”.
Nuria Álvarez, analyst at Renta 4 Banco, describes as “excessive” the stock market punishment for European banking, which “remains in doubt” and which must now demonstrate the proper functioning of the supervisory mechanisms. The fall in the stock market may partly be due to the fact that banks “have very strong revaluations” with interest rate hikes and “many investors are taking advantage to make capital gains”.
Diego Morín, IG analyst, agrees with the growing pressure on the ECB to slow down the policy of interest rate hikes. “Investors are sending a message to central banks in their aggressive interest rate policies,” he says.
Juan Abellán, director of the master’s degree in Financial Markets and Asset Management at the IEB, believes that “Spanish and European banks are well anchored”.
