London’s FTSE 100 fell to its lowest level this year as bank shares plunged amid renewed worries about the health of the global financial system.
The sharp sell-off came shortly before Chancellor Jeremy Hunt unveiled his 2023 budget.
At one point, shares of five major European banks were temporarily suspended from trading after falling sharply as the effects of the collapse of the US Silicon Valley Bank (SVB) spread.
Here’s everything you need to know about the crash and what experts think might happen next.
Why did bank stocks crash?
Swiss bank Credit Suisse sparked panic after one of its main investors, the National Bank of Saudi Arabia, said it could not increase its stake in the ailing lender.
The Zurich-registered bank recorded a price drop of more than 25 percent before temporarily suspending trading.
This sent other major bank stocks plummeting, with Barclays down over 8% and European banks including Société Générale and BNP Paribas posting losses of around 10%.
Spain’s Banco de Sabadell shed 9 percent, Germany’s Commerzbank fell nearly 10 percent and Deutsche Bank shares fell 8.4 percent.
Natwest lost almost 5 percent and HSBC lost about 4 percent.
“This came right after a larger sell-off in the industry following the collapse of the Silicon Valley bank,” said Fawad Razaqzada, City Index and Forex market analyst.
“Fears of another 2008-style financial crisis have intensified.”
The collapse of the SVB raised concerns about the health of the banking sector and the impact of the relentless rate hike cycle.
While President Joe Biden tried to reassure Americans that the US financial system was healthy, the failure spooked global investors at a time when they were nervous about the health of small regional banks.
Credit Suisse added fuel to the fire after announcing on Tuesday that it found “material deficiencies” in its financial statements, meaning it failed to identify certain risks.
This is a challenging time for the international bank, which suffered a hefty consolidated loss of CHF7.3bn (£6.5bn) last year.
What will happen next?
Neil Wilson, chief market analyst at Finalto, warned that Credit Suisse was “too big to fail” and noted investor concerns that the bank “could be the next shoe to fall” after SVB’s failure.
Andrew Kenningham, an economist at Capital Economics, acknowledged that “a lot is unclear at this point” about the lender’s profitability.
He said: “Credit Suisse’s troubles again raise the question of whether this is the start of a global crisis or just another ‘idiosyncratic’ case.
“Credit Suisse is widely regarded as the weakest link among major European banks, but it is not the only bank that has struggled with poor profitability in recent years.”
In addition, the European Central Bank (ECB) is expected to raise rates again on Thursday, adding to the nervousness in the banking sector.
Suzanne Streeter, head of finance and markets at Hargreaves Lansdown, said: “Investors appeared to be shaken by fears that the ECB remains committed to significant rate hikes despite the challenges of tough and rapid monetary tightening that could resolve . on bond prices.
“The concern is that banks that incur large unrealized losses on their bond portfolios may not have sufficient buffers if deposits are withdrawn quickly.
“While the biggest players should be risk-free, the nervousness is palpable due to the thick layer of capital they sit on and the stable nature of their deposits.”
However, Ms. Streeter said the problems do not mean there is reason to worry about another financial crisis.
“The banking sector is going through a very difficult period – it is clear that there are still periods of volatility ahead, but this does not portend systemic risk,” she said.
Source: I News
I am Moises Cosgrove and I work for a news website as an author. I specialize in the market section, writing stories about the latest developments in the world of finance and economics. My articles are read by people from all walks of life, from investors to analysts, to everyday citizens looking for insight into how news will affect their finances.