In the Aftermath of the World Banking Crisis, Credit Suisse and European Bank Stocks Fall

Concerns about the world’s banking system spread in Europe on Wednesday (15/3) when Credit Suisse’s share price plunged. The decline in share prices of Swiss banks that are widely connected globally has also dragged down major lenders in Europe after the bankruptcy of two banks in America.

Credit Suisse shares lost more than a quarter of their value and touched a record low after the bank’s largest shareholder, Saudi National Bank, told media it would not invest more in Credit Suisse. This is because Credit Suisse was already in trouble long before the bankruptcy of Silicon Valley Bank and Signature Bank in America.

The turmoil resulted in automatic suspension of trading in Credit Suisse shares on the Swiss stock exchange. As a result, stocks of other European banks plummeted. Some have even gone down to double digits. This sparked new concerns about the health of financial institutions after the recent bankruptcy of Silicon Valley Bank and Signature Bank in America.

Credit Suisse Global Investment Bank Head Axel Lehmann poses for a photo taken in January 2022. (Photo: Credit Suisse via AP)

Speaking at a financial conference in Riyadh, the capital of Saudi Arabia on Wednesday (15/3), Director of Credit Suisse Axel Lehmann defended the bank’s performance.

Lehmann said, “we’re already taking medication” to reduce the risk.

When asked if he ruled out government assistance in the future, he replied “that’s not the topic…. We are rule bound. We have strong capital ratios, a very strong balance sheet. We are all involved (in maintaining bank performance). So that’s not the problem.”

Swiss central bank Ready to Take Action

Switzerland’s central bank late on Wednesday (15/3) announced it was ready to take action saying it would back Credit Suisse if needed. The statement did not specify whether the support in question was in the form of cash, or loans or other assistance. Currently regulators say they believe Credit Suisse has enough cash to meet its obligations.

The previous day Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal control over financial reporting at the end of last year. This raised doubts about the bank’s ability to weather the storm.

The value of Credit Suisse’s shares fell by about 30 percent to 1.5 Swiss francs per share or around Rp 24,896. Credit Suisse’s share price strengthened slightly, and finally closed at 1.7 Swiss francs or around Rp. 28,180 at the close of trading on the Swiss Stock Exchange or SIX Swiss Exchange, Wednesday (15/3) afternoon. Credit Suisse shares have hit rock bottom, plunging 85% in February 2021.

Customers queue at a Silicon Valley Bank branch in Wellesley, Massachusetts, March 13, 2023. (Photo: Brian Snyder/Reuters)

Following the joint announcement by the Swiss National Bank and the Swiss financial market regulator, stocks were improving on Wall Street. Credit Suisse shares have been in decline for a long time. The bank’s shares have experienced a downward trend in price for a long time. In 2007, Credit Suisse shares traded at a price of more than 80 Swiss francs or around Rp 1.33 million per share.

A number of bank shares also plummeted

With fears that there might be more hidden problems in the banking system, investors quickly started selling shares of banking issuers. France’s Societe Generale SA had weakened 12%, France’s BNP Paribas fell more than 10%, Germany’s Deutsche Bank corrected 8% and Britain’s Barclays Bank fell almost 8%. Trading at the two French banks was suspended temporarily.

This turmoil occurred the day before the meeting of the European Central Bank or the European Central Bank (ECB). Before the bankruptcy of two American banks last week, European Commission President Christine Lagarde said it would be “very likely” to raise interest rates by half a percentage point to tackle inflation. The market is now watching closely to see if the banks will stay afloat should new turmoil occur. [em/ft]