European bank stocks suffer sharp declines on contagion fears from Silicon Valley bank collapse

The gestures of european banks They were severely punished on Monday, pending the opening of Wall Street, following the collapse of Silicon Valley Bank (SVB) in the United States. Credit Suisse led the declines with a 14% drop, after several quarters of poor results, but entities deemed stronger also felt the blow.

On Sunday, the Treasury Department in conjunction with the US Federal Reserve decided to guarantee all deposits of SVB and another bank, Signature of New York, which was closed. A strong injection was also decided in First Republic Bank, another entity affected by the financial crisis, which for the moment remains standing.

The entry of the United States government aims to ensure that a domino effect is not generated in the market which generates a series of bank failures which generates a systemic crisis like the one that occurred in 2008 with the subprime crisis. But investors always want to see how events unfold before investing in financial institutions.

Shares of Credit Suisse fell more than 14% on Monday, hitting a new all-time high, as markets worried about European banks following the bankruptcy of US lender SVB. Germany’s Commerzbank fell 11.3%, France’s Societe Generale and Spain’s Sabadell 6.2% and 9.4%, respectively. Another Spaniard, Santander lost 7.4% and the Dutchman ING 8.3%.

Credit Suisse has lost 81% of its value since being rocked by the bankruptcy of British financial firm Greensill in March 2021, the first in a series of scandals that have plagued the Zurich bank.

These shocks forced Credit Suisse to launch a major restructuring effort, but the bank never regained its stock market value.

Under the weight of these restructuring costs, the bank announced in early February a net loss of 7.3 billion Swiss francs ($7.76 billion) in the 2022 financial year.

This happened in a context of massive withdrawal of funds by its customers, including in the wealth management sector, one of the activities on which the bank intends to refocus.

Shares of European banks fell 5.7%, on course for their worst two-day decline since the start of the Russian-Ukrainian war early last year.

European stocks fell on Monday and were heading for their worst day in nearly three months, as banking stocks in the region continued to plunge even after authorities intervened to curb the fallout from the sudden collapse of Silicon Valley. Bank (SVB). .

The pan-European STOXX 600 index fell 2.4%, posting its biggest percentage decline since December 2022. Banks, automakers and insurers were the main bearers.

Concerns have been raised about the resilience of the sector’s balance sheet in the face of the collapse of SVB. However, the European Central Bank (ECB) has no plans to hold an emergency meeting of its banking supervisory board on Monday, a senior source told Reuters.

Meanwhile, investors now see a nearly 90% chance that the Fed will raise interest rates by 25 basis points (bps) next week, a sharp reversal from the 50bp hike they had previously expected after strong economic data.

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