Credit Suisse (SWX:CSGN) is freefalling.
PTSD for Europeans is flaring up, as a phrase they thought had been condemned to the annals fo history – “banking failure” – is suddenly again receiving airtime.
Of course, nothing has come anywhere near failing, and comparisons to the bloodbath that was 2008 remain off, but today is throwing up violent volatility in the banking sector as the contagion from the collapse of Silicon Valley Bank (SVB) in the US spreads to Europe.
But Credit Suisse is the headliner, the bank plunging 28% to record lows as its biggest lender, Saudi National Bank, said it could not go above 10% ownership due to regulatory concerns. The stock has sunk below 2 Swiss Francs for the first time ever.
Credit Suisse are not the only bank to get caught up in a mass selloff. European banks across the board are getting pummeled, while the European Stoxx 600 index is off 2.66%.
BNP Paribus is off 10.5%, Societe Generale is down 9.6% and Deutsche Bank off 7.7%. Many European stocks also saw trading halted at several points throughout the day due to the sharp volatility.
The selloff comes following a week which saw US banking collapses spark fear in the wider market. While the crisis appears to have been contained in the US with the market since rebounding, Europe is getting slammed.
While the selloff is alarming, there is no reason to believe this will turn into a crisis. The scale of the banking crash in Europe was so stark during the GFC that their capital restrictions are much stricter than their counterparts in the US.
Besides, the demise of SVB in the US came about as a result of a liquidity crisis due to mismanagement of interest rate risk rather than insolvency as a result of bad investments, such was the case with subprime mortgages in 2008. That is an important distinction.
The management of interest rate risk should also be more prudent in Europe than with SVB/the US banks – not to mention the fact that the US has been far more aggressive in its hiking schedule, which is what triggered SVB’s duration mismatch.
Nonetheless, this hasn’t stopped the European sector selling off today with investors of Credit Suisse spooked by the Saudi comments – and perhaps still a little scarred by what happened in 2008.
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