It was an exciting week for banks and their shareholders. First of all, there was the collapse of the American Silicon Valley Bank last Friday and the anxious question: Is it an isolated event, or does it have systemic consequences?
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The niche bank from California had misjudged the risks of the interest rate turnaround and invested heavily in long-term government bonds in recent years. The attempt to compensate for the losses in value through a capital increase was perceived by customers as a liquidity problem and triggered a bank run. Shortly thereafter, the Federal Deposit Insurance Corporation took over. To prevent more U.S. regional banks from being hit by a bank run, the U.S. government provided a guarantee for SVB's entire customer deposits, and the Fed provided loans to financial institutions that provide bonds as collateral.
Blackrock CEO Larry Fink warned of ongoing risks for the banking sector. Although the regulatory measures against contagion effects have helped so far, "the markets remain nervous". The Dow Jones started the new trading week cautiously with a slight gain. In contrast, the German benchmark index fell by 3.3 percent on Monday and fell below 15,000 points for the first time since mid-January.
Donohoe: No risk of contagion for Europe
The finance ministers of the euro countries Paschal Donohoe stressed at the beginning of the week that they saw no risk of contagion for Europe, since most European banks were not involved in the SVB and the confidence between the banks was still intact, recognizable by the interbank interest rates Libor and Euribor. Therefore, one sees no evidence of a new banking crisis. Nevertheless, German bank shares were also shaken by the quake. Deutsche Bank shares fell by 7.8 percent to 9.88 euros at the beginning of the week. The same happened to Commerzbank, which lost 14 percent of its value on Monday alone.
It was not until Tuesday that the stock markets on both sides of the Atlantic recovered. Many market participants concluded that the collapse of Silicon Valley Bank, while tragic, did not trigger a new financial crisis. But already on Wednesday, the financial markets were shaken by the next quake: rumors of liquidity problems of Credit Suisse, which has been struggling for months, caused the already battered share to rush into the basement. The reason was a statement by the president of the major shareholder Saudi National Bank that no further money could be invested in the major Swiss bank for regulatory reasons. As a result, the stock lost 30 percent and fell to a record low of 1.55 Swiss francs.
The shock waves destroyed Tuesday's recovery and sent the stock markets down again. In order to calm markets and investors and avoid panic, the Swiss National Bank held out the prospect of CHF 50 billion in liquidity in the event of an emergency, which the bank used on Thursday. This allowed both Swiss bank customers and the German stock market to breathe a sigh of relief. Credit Suisse's share price rebounded, rising 23 percent by the end of the week, but remained below the two-franc mark.
As if that wasn't enough for a week, the European Central Bank's interest rate decision was still pending on Thursday. As announced, it stuck to the course of fighting inflation and raised the key interest rate by 0.5 percentage points to 3.5 percent. As a result, the bank stocks continued their rollercoaster ride and slipped a bit lower. At the end of the turbulent week, Deutsche Bank stocks were 14 percent lower. Commerzbank even lost 20 percent this week. The Dax and Euro Stoxx 50 ended the week with a minus of four percent each. It remains to be seen what consequences the turnaround in interest rates will have and how seriously they will affect banks. The spectre of crisis has not yet been banished.