Stock markets plummet after Credit Suisse crashed. ECB asks banks for their exposure

Tension still high on the financial markets after the turbulence caused by the failure of the American bank Silicon Valley Bank (SVB). When the largest shareholder, Saudi National Bank (SNB), said it would not provide additional liquidity to the bank, losses for the Swiss bank's shares rose to -30%, before rising slightly to -24%, thus recording the worst decline ever experienced by the bank elevetica in its history.

The crash triggered a sell-off storm across the entire banking sector in Europe. The Stoxx index lost 7.11%. It is no longer the small American SiliconValley Bank that is frightening, but the second Swiss bank, which today is in Arab hands.

The Saudi National Bank holds the majority stake with 9.8% in Credit Suisse, but the Arabs in all hold a block that reaches almost 20% of the capital, including the shares of Qatar Holding (5.03%) and Olayan Group (4.93%).

Founded in 1856, Credit Suisse is a pillar of the Swiss financial centre that has contributed to the development of railways in the country as well as to the emergence of insurance giants such as Swiss Re or Swiss Life and the financing of large industrial companies. But Credit Suisse has been in turmoil for two years since the bankruptcy of British financial firm Greensill, which marked the beginning of a series of scandals that have weakened the bank. Since March 2021, the stock has lost more than 83% of its value. "The pressure on Credit Suisse has hit an already nervous market," Rabobank analyst Jane Foley told AFP.

The Arab shareholder's statements struck at the heart of investors who were already worried about the risk of contagion following the failure of US bank SVB. "It seems that there are more and more investors worried," Finalto analyst Neil Wilson said of the tensions in the markets. But if Credit Suisse were to face "existential problems," then "we would be faced with something of a whole other dimension. It's really too important to let go," he said. Unlike SVB, Credit Suisse is one of 30 banks in the world considered too big to fail, which imposes stricter rules on it to withstand the shock in the event of a challenge.

For analyst Jérémie Boudinet, Head of Investment Grade Credit, La Française AM, Credit Suisse is one of the few banks really at risk of contagion after the collapse of SVB, precisely because of its fragility that is no longer recent: "The price of its shares is at an all-time low and since the beginning of 2022 it has left around 70% of its value on the ground" , the expert wrote in a note, adding that "the coming months will, therefore, be fundamental for Credit Suisse, whose primary need is to stabilize its deposit base, even at the cost of profitability, already severely compromised. It is conceivable that a division of the Bank's activities could lead to the sale of some of them, such as the partial or total sale of the Investment Banking activities and the maintenance, instead, of the Swiss retail branch as well as part of the global Wealth Management business. However, we believe this hypothesis is linked to the Bank's ability to counteract cash outflows in the short and medium term".

The collapse of the Silicon Valley Bank in the United States "underlines the importance of Europe continuing to make progress on the banking union". Paschal Donohoe, president of the Eurogroup, the coordination of eurozone finance ministers, told the Financial Times. Speaking after Credit Suisse shares plummeted, Donohoe said that "none of us can ever be absolutely sure where the next risk might come from." "The biggest antidote" is to speed up work to strengthen EU rules for dealing with insolvent creditors.

The concern has involved American markets already under stress over the failure of SVB. The US Treasury Department is in contact with counterparties and is closely monitoring the situation with Credit Suisse. The department is also monitoring U.S. banks' exposure to Credit Suisse, a department spokesman said.

For European stock markets overwhelmed by the collapse of Credit Suisse, it was a deep red Wednesday. The Old Continent stock markets have sent 355 billion in terms of capitalization up in smoke. Among the individual lists, Frankfurt lost 3.27% (Dax 14,735 points), London 3.83% (Ftse 100 7,344 points), Paris 3.58% (Cac 40 at 6,885 points).

The spread between BTP and Bund closed sharply higher at 198 basis points compared to 185 points at the opening after the collapse of Credit Suisse. The 4-year rate fell to 108.4% from 318.<>% at the opening. According to the Wall Street Journal, ECB officials contacted supervised banks to inquire about their possible financial exposure to Credit Suisse.