On Wednesday March 15, a movement of panic took hold of the prices of European banks, which recorded heavy losses on the stock market. Their fall was precipitated by that of Credit Suisse, in an already very nervous market a few days after the bankruptcy of three American banks. A first “clumsy statement” set things on fire, Axiom Alternative Investments director of investments David Benamou told AFP, “in an already very tense context”.
Ammar al-Khudairy, president of the Saudi National Bank, the largest shareholder of Credit Suisse, explained to Bloomberg TV that he “absolutely did not” intend to increase his stake in the bank. These comments heard by the markets as a lack of support for an already struggling banking player come after “a series of bad news” for Credit Suisse, observes Guillaume Larmaraud, partner at Colombus Consulting. They logically rushed the title to the abyss (up to -30% in Wednesday’s session, -24% at the close).
Credit Suisse “is a much bigger concern for the global economy than U.S. regional banks,” Capital Economics analyst Andrew Kenningham said in a note. The second Swiss bank “is much more interconnected” to international finance, he adds.
Splattered by a series of scandals, the bank also admitted on Tuesday “substantial weaknesses” in its internal controls, arousing the annoyance of investors who are impatient to see the bank put “its house in order”.
The large sales on Wednesday came “probably from North American investors who wished to cautiously exit the European banking system,” Benamou said. The bankruptcy in a few hours of the American bank Silicon Valley Bank (SVB) last week threw a chill across the Atlantic on an entire sector.
“Everyone remembers the crisis of 2008, the systemic risk and the banking contagion that occurred at the time,” continues the head of Axiom. “It’s very fresh in people’s minds and it creates reflexes” of caution among investors.
The magnitude of the disaster on Wednesday (-10% for BNP Paribas, -12% for Societe Generale, -9% for Unicredit…) is also the result of a movement of panic, already seen on the financial markets. “We are witnessing a correction on the stock market after several months of increases, a mechanism that is ultimately quite classic,” notes Eric Pichet, economist and professor at Kedge Business school. BNP Paribas shares, for example, fell just below their price on January 1 on Wednesday.
“The most important thing for the banking sector is trust. When it erodes, panic begins, ”notes the manager at Tikehau Capital Thibault Douard, interviewed by AFP.
“When one part of the financial system goes into crisis, it is normal that there is some risk of contagion of the whole system, because investors tend to ask themselves: who is next? asks Societe Generale Chairman of the Board of Directors Lorenzo Bini Smaghi in an interview with the German business daily Börsen Zeitung posted online at the end of the day on Tuesday.
The analysts interviewed want to be reassuring and categorically rule out any risk of contagion between banks, beyond the strict subject of the stock market price. Credit Suisse “is not a bank on the verge of bankruptcy, far from it,” says Guillaume Larmaraud. “I really believe that Europeans have learned all the lessons of the 2008 financial crisis to strengthen the protection of the European banking system,” Economy Minister Bruno Le Maire explained to French deputies on Tuesday.
Since the 2008 financial crisis, major European banks have had to increase their minimum capital levels in order to absorb any losses. The European Banking Authority is also subjecting fifty major banks on the continent to stress tests and a resolution fund, topped up by the banks themselves, has been set up to remedy any failure in the sector.
