European banks moved to the centre of a growing global crisis over big-name financial stocks amid growing fears that the sector may be badly exposed to the impact of a stark drop in the value of government bonds.
The worries centred on Credit Suisse as its stock plunged by around 20% before trading as halted, with the scandal-prone lender at the centre of market speculation over its financial health. Its top shareholder, the Saudi National Bank, ruled out providing more support for Switzerland’s second biggest bank, which has been grappling with a run of customers withdrawing deposits.
Neil Wilson, chief market analyst at Finalto, said: “If Credit Suisse were to run into serious existential trouble, we are in a whole other world of pain. It really is too big to fail.”
Trading was also suspended in Italy’s UniCredit and Monte dei Paschi, as well as Societe Generale in France.
The turmoil hit stock indexes across the continent, with London’s FTSE 100 tumbling almost 180 points to 7458.0, a drop of over 2% to a three-month low.
Barclays fell by 11p to 141p, a drop of over 7%. Standard Chartered was down 40p, or 6% to 656p. NatWest fell 13p to 265p.
Overall, the pan-European Stoxx 600 fell by almost 3% to 438.78, wiping out its gains for the calendar year. The Stoxx index tracking the region’s banks fell even more sharply, by around 7%.
Last month Credit Suisse posted its biggest loss since the 2008 financial crisis. Since then, the collapse of Silicon Valley Bank in the US, caused in part by drops in the value of government bonds commonly held by major financial institutions, has sparked wider fears about the impact on the sector.
Investors have been dumping government bonds as central bank rate rises offer better returns elsewhere, pushing the price of the debt down and eroding the value of bond holdings at major banks, which use them to offset even risker investments.
It has caused big paper losses. SVB’s demise came in part because of a $1.8 billion hole created in this way on its balance sheets, adding to worries among account holders and a run on deposits. Since its collapse, speculation has been rife about the exposure elsewhere in the sector. The problems mean further big rate rises from major central banks now look less likely.
Then, the ratings agency Moody’s cut its outlook on the US banking sector to “negative”, adding to the sense of unease.
Credit Suisse shares have fallen by more than 12% in the past week after US regulators raised questions about its accounts. Yesterday, the bank acknowledged “material weakness” in its financial reporting. Its shares are down more than 80% in the last year.
Looking at the wider mood toward financial stocks, Russ Mould, investment director at stockbroker AJ Bell, said: “It’s clear that investors remain nervous about what might be lurking in the shadows,” adding:
“There are few people willing to put their neck on the line and load up on cut-price banking shares.”
The losses on the FTSE 100 were broad as well as deep. Only seven of its constituent stocks were not falling in late-morning trade, with the companies bucking the trend sharing defensive properties, from water utility Severn Trent to drugmaker AstraZeneca.
