Efforts by regulators and financial executives to ease contagion fears sparked by last week’s collapse of Silicon Valley Bank (SVB) had bought some brief stability to markets, but turmoil once more appeared to be taking over.
Saudi National Bank cannot give more money to Credit Suisse as it cannot go above 10% ownership due to a regulatory issue, SNB’s chairman Ammar Al Khudairy told Reuters.
European banks shares slid over 6%, European stocks were down 2.5% and U.S. stock futures pointed to a weak start for Wall Street shares.
MARKET REACTION:
STOCKS: Credit Suisse share trading was halted after heavy losses, last down over 20%, ING Group (NYSE:ING), ABN AMRO (AS:ABNd) were down over 6%. The euro zone volatility index shot up to its highest level since OctoberBONDS: U.S. and European bond yields fell sharply as investors flocked to safe-haven assets. German 2-year bond yields were down 30 basis points at 2.61%
FOREX: The euro fell over 1% to $1.0605, the dollar index was up 0.7%.
COMMENTS:
ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON:
“The Credit Suisse share price is falling and government bonds are rallying on the back of that. Still very much driven by the perceived health of the banking sector, but this time in Europe.”
CARLO FRANCHINI, HEAD OF INSTITUTIONAL CLIENTS, BANCA IFIGEST, MILAN
“Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse.”
“This is dragging lower the whole banking sector in Europe. The shares accelerated losses after the Saudis said they’re not willing to support the bank any further.
“I believe Credit Suisse’s crisis can be solved and the bank will not … go belly up. Once some calm returns to the markets, the problem will be who can take it over.”
KASPAR HENSE, SENIOR PORTFOLIO MANAGER, BLUEBAY ASSET MANAGEMENT, LONDON
“So the market is quite confused here on the stability of the bank (Credit Suisse) in general, and certainly doesn’t help if today the Saudis are coming out and saying that they will not increase the buffer, and so we think it will be dependent on the Swiss regulator to step in.
“But in general, the balance sheet is in a much better position, with the European banks all highly regulated. That means they have substantial buffer beyond the equity portion on the senior and subordinated debt.
That should, to some extent prevent an attack, but it didn’t. So, it is important that the European regulator makes clear that the underlying systemic risk, not only for deposits, but in the overall European banking market, is rather low.”
RICHARD MCGUIRE, HEAD OF RATES STRATEGY, RABOBANK, LONDON
“We’re back off to the races, the markets are spooked by the Credit Suisse headline that the Saudi National Bank would not increase its stake.
“That’s caused the Credit Suisse share price to fall, and the German curve has bull steepened – short end rates have fallen faster than long end – as the market reassesses yet again the outlook for ECB policy.
“Credit Suisse is not new news, maybe it has come as a surprise to some, but the Saudi National Bank, was at the 10% limit before, they are at the 10% limit now, what has changed is the context. We think neither the Fed or ECB will be blown off track, inflation targeting is first and foremost. For today Credit Suisse is the dish of the day but we don’t think this will be a longer lasting trend (for bond markets).”
SALMAN AHMED, GLOBAL HEAD OF MARCO AND STRATEGIC ASSET ALLOCATION, FIDELITY INTERNATIONAL, LONDON
“Key central banks have all the tools now necessary to stem contagion. There was a lot of progress made after the 2008-2009 crisis. So there’s a variety of tools — we’ve seen that in the eurozone, we’ve seen that with the Fed, the Bank of Japan, obviously, can deploy a lot more liquidity there.
“So we are less concerned about widespread 2008-2009 systemic at risk. Overall, the banking sector is in much better shape. You may have these idiosyncratic issues which create wobbles. But I think the larger question remains, are we in that territory where financial instability is as important as inflation and growth? That’s the bigger question so we’re not out of the woods from that perspective.”
“I am less concerned about sustained contagion. For a few days, things can happen, but sustained contagion? We have the tools now.
“More pressure would likely bring more tool deployment.”
Source: Economy - investing.com
