As concerns over the health and viability of US banks cross the Atlantic, the FTSE 100 has suffered along with other European stock markets.
After suffering the worst points-based fall since the beginning of the COVID crisis, London’s bluechip index suffered a combined loss of PS75bn in market value at the close.
The mood was sour across Europe when Credit Suisse’s top shareholder declared that it couldn’t provide more financial assistance to the bank in trouble.
Analysts said that this led to a drop in its shares of almost a quarter at one point to new records lows. It also caused a decline in wider financial stocks.
Switzerland’s second largest bank has been in crisis for the past few years. Concerns about its financial health have increased since the collapse Silicon Valley Bank last Wednesday.
Investors have focused mainly on whether lenders can absorb the sharply increased interest rates that were introduced last year, which has made it harder for them to service their debts.
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Speculations that the European Central Bank (ECB), in its ongoing efforts to combat inflation, would raise its core deposit interest rate by 0.5 percent this Thursday added to the selling mood.
According to Reuters, a source close to the ECB Governing Council stated that the ECB would not abandon plans for a large rate increase this week due to its credibility.
Wednesday morning’s markets were pricing in a 90% chance for a 0.5 percentage points increase.
However, due to the magnitude of the market chaos facing financial service firms, the probability was down to 20% late Wednesday afternoon.
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Credit Suisse shares closed today 24% lower. According to the Financial Times, it requested a statement from Swiss National Bank.
Other European banks stocks also dropped sharply, but not as severely.
Spain’s IBEX was more than 4% lower than the Italian MIB.
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It is important to remember that this had nothing to do Mr Hunt’s announcements, and everything to do other events around the globe.
All across Europe, markets have collapsed and Credit Suisse, the risk-prone Swiss lender, is once more at the center of the storm.
These concerns are centered on problems that have plagued US regional banks over the past few days, and which now appear to be a problem in Europe.
Credit Suisse already rattled markets Tuesday by admitting that it found “material weaknesses” in its financial reporting process for 2021-2022.
The shares fell another 30% when the largest shareholder, Saudi National Bank said Wednesday that it would no longer provide financial assistance as rules prohibit it from increasing its equity stake beyond 10%. This is close to where it is currently sitting.
Financial markets may find the Credit Suisse share debacle to be more significant than the rest.
London’s FTSE 100 ended the day 3.8% lower at 7,344, more than 1% below where it started the year.
All major losers were asset managers and insurers.
Barclays, one of the worst performing UK banks, finished the day 9% less than the previous day. This brought its losses for the year to 13%.
The US equity markets opened lower, with financial stocks leading. The Dow Jones Industrial Average fell 2%.
Another notable market move was Brent crude oil falling to its lowest point in over a year. It fell 6% to $72 per barrel. Market analysts blame uncertainty for financial stocks.
However, Credit Suisse was the focus of all attention.
Saudi National Bank (SNB), the largest shareholder of the bank, said that it would not purchase more shares due to regulatory reasons as it would increase its stake to over 10%.
Credit Suisse customers outflows rose to over 110 billion Swiss Francs (PS100bn) in the fourth quarter due to a series of scandals.
SNB stated that it was satisfied with Credit Suisse’s turnaround plan, and didn’t think it would require more money.
This was despite the fact that its annual report for 2022 was released earlier this week and acknowledged that there were “material weaknesses” in financial reporting controls. Customer outflows also had not been stopped.
Craig Erlam, OANDA’s senior market analyst for Europe, commented on the Credit Suisse-led rout, writing in a note that it didn’t feel the worst was over.
“Fear grips the markets once more, worried about repeating past crises – one in specific, for obvious reasons – and its implications for the financial sector and global economy.
“Ofcourse, this is normal when so little information is available about the situation and its implications for the health of all of it.
“In the absence facts, everyone has little choice but speculate. And frankly, any commentary we have had hasn’t helped. In fact, the exact opposite is true.
“Ignoring the comforting words of its chief executive, Ulrich Koerner and chairman, Axel Lehmann and those of its largest shareholder, Saudi National Bank and the lack of input by the regulator and central bank have only fuelled fear.”