Bank fears spread to Europe, drag down shares of big lenders
GENEVA (AP) — Fears about the world banking system spread to Europe on Wednesday as shares in the globally connected Swiss bank Credit Suisse plunged and dragged down other major European lenders in the wake of bank failures in the United States.
At one point, Credit Suisse shares lost more than a quarter of their value, hitting a record low after the bank’s biggest shareholder — the Saudi National Bank — told news outlets that it would not put more money into the Swiss lender, which was beset by problems long before the U.S. banks collapsed.
The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. That fanned new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the U.S.
When asked if he would rule out government assistance in the future, Credit Suisse Chairman Axel Lehmann said: “That’s not a topic. … We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”
A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.
Credit Suisse stock dropped about 30%, to about 1.6 Swiss francs ($1.73), before clawing back to a 24% loss at 1.70 francs ($1.83) in late afternoon trading on the SIX stock exchange. At its lowest, the price was down more than 85% from February 2021.
The stock has suffered a long, sustained decline: In 2007, the bank’s shares traded at more than 80 francs ($86.71) each.
With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.
France’s Societe Generale SA dropped 12% at one point. France’s BNP Paribas fell more than 10%. Germany’s Deutsche Bank tumbled 8%, and Britain’s Barclays Bank was down nearly 8%. Trading in the two French banks was briefly suspended.
The STOXX Banks index of 21 leading European lenders sagged 8.4% following relative calm in the markets Tuesday.
Credit Suisse is “a much bigger concern for the global economy” than the midsize U.S. banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.
“Credit Suisse is not just a Swiss problem but a global one,” he said.
The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”
Investors responded to “a broader structural problem” in banking following a long period of low interest rates and “very, very loose monetary policy,” said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.
In order to earn some yield, banks “needed to take more risks, and some banks did this more prudently than others.”
Now investors are worried that banks “have risks on their balance sheet that they don’t know about and therefore have accumulated significant losses that haven’t been yet realized.”
In an annual report released Tuesday, Credit Suisse said customer deposits fell 41%, or by 159.6 billion francs ($172.1 billion), at the end of last year compared with a year earlier.