Credit Suisse shares plummeted 30% this Wednesday, March 15, reaching the lowest in the firm’s more than 100-year history, and generating uncertainty in the European financial sector. A situation that came after the Saudi SNB group, its main shareholder, expressed its refusal to contribute more capital to the Swiss institution.
The first alarms sounded in the United States with the bankruptcy of the Silicon Valley Bank. This Wednesday, March 15, they moved to Europe. The shares of one of the main Swiss banks, Credit Suisse, fell 30%, meeting a record low.
A collapse that is explained because its greatest shareholder, the Saudi National Bank, reported that couldn’t provide him with any more financial help.
At the news, andhe Swiss National Bank was willing to provide liquidity to Switzerland’s second largest bank “if necessary.”
Hours later, Credit Swiss Group AG announced it will borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank, calling it a “decisive move” to strengthen its liquidity.
A domino effect?
The fall in the Swiss bank’s shares appeared to have a ripple effect on other European banking giants. With losses of 12% for the French Société Generale and 10% for BNP Paribas. While the Spanish BBVA and Santander have yielded between 8% and 11%.
For its part, the European Banking Index has reported losses of just over 127 billion dollars in European entities since March 8.
“Credit Suisse is not just a problem for Switzerland, it’s a global problem,” said Andrew Kenningham, chief European economist at Capital Economics, a firm that analyzes the global financial market.
The last straw in a glass full of past scandals
The bank has been embroiled in numerous financial controversies in the past.
First, due to the largest commercial loss in the history of the institution as a result of the bankruptcy of British financial firm Greensill, in which Credit Suisse had committed some $10 billion through four funds.
Second, by the financial collapse of the investment fund Archegos Capital, in which it was affected by some 5,000 million dollars.
The concern of the European banking sector over the fall of Credit Suisse translates into default insurance on the Swiss giant’s bonds —the famous ‘credit default swap’ or CDS— which have reached levels close to 800 points.
CDS are insurance that bank investors buy so they don’t lose their money in case the institutions can’t pay the debts: the increasing cost of CDS for Credit Suisse means that the sector sees its implosion increasingly likely .
Strengthening financial regulations in Europe after 2008
The financial crisis that hit global markets in 2008 caused the old continent to sharpen the rules to regulate banking activity in its jurisdiction. One of the most important moves in this area was to transfer the supervision of large financial firms to the European Central Bank.
Before that decision was made, each national central bank was in charge of supervising the institutions of its country. According to expert voices, this sought to have the European supranational banking entity monitor national regulatory entities, making it less likely that problems would be ignored compared to if there was only control by the authorities of each country.
Despite this measure, Credit Suisse is not supervised by the European Central Bank, although it is monitored by other European entities outside the Swiss government. In addition, it has to be governed by international regulations that require high standards of financial health.
A contagion in the global financial system?
The collapse of Credit Suisse shares adds to the tension in the international market caused by the bankruptcy of two US banks, Silicon Valley Bank (SVB) and Signature Bank, last week.
For some experts it is not an international contagion. “Credit Suisse is an isolated case,” said Charles-Henry Monchau, head of Syz Bank’s investment office.
Despite the calm transmitted by a sector of the European financial scene, the sum between the crisis caused by the implosion of US banks and a possible bankruptcy of the Swiss giant could wreak significant havoc on the international economic system.
Although regulations have tightened significantly after the 2008 crisis, some institutions like Credit Suisse have found loopholes for their risky financial moves.
SVB and Signature Bank were considered medium-sized banking institutions by experts. However, Credit Suisse is a European giant with considerable influence in the international market. A fall could open the doors to a complex scenario for the economic future of the world.
With Reuters, AP and local media