The collapse of Credit Suisse on the stock market and its effects on the price of the European banking sector have analysts, academics and observers in suspense. In general, they coincide in highlighting that Credit Suisse is part of the fifteen systemically important banks too big to fail and in the efforts at the European level to strengthen the solvency of the entities, but they recognize that the moment is of great uncertainty.
“All of this is a bit dizzying,” says Juan Torras, a finance professor at EADA Business School, before warning that, despite reputational problems and management errors, Credit Suisse “is a healthy bank that has a particularly strong liquidity balance and solvency”. “I would be surprised if they dropped it”, when if the entity stands out for something at the present time, it is for being the most exposed to speculative attacks. “It’s the weakest in Europe” and “the hedge funds are rubbing their hands together,” he says.
The bank’s shares have fallen 24% this Wednesday after its main shareholder, the Saudi bank SNB, refused to participate in a new capital increase. The entity has asked the Swiss Central Bank for help to stop the bleeding.
Economist Nouriel Roubini, known as ‘Doctor Doom’ for his apocalyptic style, agreed today on the systemic nature of Credit Suisse. He has done it with nuances because, as he stated on Bloomberg TV, “Credit Suisse’s problem is that it might be too big to fail, but also too big to be saved.”
Another of the big questions is whether the Swiss bank crisis will infect European and Spanish entities, and whether it will damage the economy. Nuria Álvarez, an analyst at Renta 4 Banco, describes the stock market punishment of European banks as “excessive”, which “is in question” and must now demonstrate the proper functioning of the supervision mechanisms. The collapse in the stock market may be partly due to the fact that banks “accumulate very strong revaluations” with the rise in interest rates and “many investors are taking advantage to make capital gains.”
European banks have closed the trading session with sharp falls. Among them are the Spanish, with declines from 6.4% of Bankinter to 10.4% of Sabadell. The Ibex has closed with a setback of 4.3%.
The main risk for banks, indicates the Renta 4 analyst, is actually “the macro picture.” The ECB could find itself in a “very complicated” situation in which it would have to stop rate rises, as the market already partly discounts, and that could put banks in more trouble. “They would lose their business catalyst without reactivating the demand for credit in return.”
Diego Morín, an analyst at IG, agrees with the growing pressure on the ECB to slow down its policy of raising interest rates. The analyst highlights the rises in the bond markets and concludes that “investors are sending a message to central banks in their aggressive interest rate policies.”
Regarding the banking situation, Juan Abellán, director of the IEB’s Master’s in Financial Markets and Asset Management, agrees that “a real storm” is taking place, but he also understands that “Spanish and European banks are well anchored.” “Let’s hope, and I don’t think so, that the anchor does not loosen. Another interesting thing is to see what Christine Lagarde does tomorrow,” he says, alluding to the ECB’s decision.
Abellán defends the solvency of Spanish entities, as do sources from the entities themselves, who insist that the capital requirements are above the ECB’s requirements to cover possible risks.
Alexander Londoño, market analyst at ActivTrades, alludes to the growing “risk aversion” in the markets, both in Europe and the United States. After the fall of Silicon Valley Bank (SVB), two other entities have also entered the operating room, Signature and the Silvergate bank.
A PitchBook report warns of the financing difficulties of technology companies, while Pimco now sees a recession in the United States as likely and Lazard highlights the enormous sensitivity in the markets to any banking problem.
According to Reuters, Blackrock chief executive Laurence Fink has said that the country’s banking sector is at risk and that inflationary pressure could increase. It is “the cost of easy money”, he has specified. Moody’s credit rating agency has issued a report warning of increased risks for the US banking sector.
