Major European banks saw billions wiped off their share prices today as fears over the safety of their balance sheets swept the market.
At one point, five big European banks saw trading temporarily halted following big falls in their share prices as the fallout from the collapse of Silicon Valley Bank continued to spread.
The price and volume of shares fell so quickly that automatic safeguards kicked in at stock exchanges, halting people from buying and selling any more.
Credit Suisse, Société Générale, BNP Paribas, Santander, Monte dei Paschi and UniCredit were among the banks whose shares were hit in the massive selling spree. Spanish bank Banco Sabadell dropped 9 per cent and Germany’s Commerzbank fell nearly 10 per cent while Deutsche Bank shares were down 8.4 per cent.
Trading restarted, but it was an ominous start to the day for a sector reeling from the collapse of SVB bank earlier in the week.
Major European stock markets, including London’s FTSE 100, fell as market fears quickly spread ahead of Chancellor Jeremy Hunt’s Budget speech in the House of Commons.
Shares in Credit Suisse plunged 27 per cent at one point, triggered by the publication of the bank’s annual report yesterday, which detailed flaws in financial reporting controls and the announcement by Saudi National Bank, its main investor, ruling out any more funds for the troubled bank.
Asked whether they would inject fresh capital into the troubled bank, Ammar Al Khudairy, chairman of the Saudi National Bank, said: “The answer is absolutely not, for many reasons.
“I’ll cite the simplest reason, which is regulatory and statutory. We now own 9.8 per cent of the bank – if we go above 10 per cent all kinds of new rules kick in, whether be it by our regulator or the European regulator or the Swiss regulator. We’re not inclined to get into a new regulatory regime.”
Credit Suisse’s annual report flagged up “material weaknesses” in its financial reporting controls, another blow for the once mighty institution that has recently found itself bedevilled by scandals.
The bank’s chairman, Axel Lehmann, had earlier said that Swiss government assistance “isn’t a topic” for the lender as it seeks to shore up confidence among clients, shareholders and regulators.
The Swiss National Bank declined to comment on Credit Suisse, which is Switzerland’s second-largest bank.
The banking sector’s wider problems began last week with the collapse of SVB, the US’s 16th-largest bank. The company, which specialised in lending to technology companies – was shut down by US regulators in what was the largest failure of a US bank since 2008. SVB’s UK arm was snapped up for £1 by HSBC.
After the SVB collapse, New York-based Signature Bank also went bust, with US regulators guaranteeing all deposits at both.
Joe Biden and Rishi Sunak both spoke out to reassure customers that banks were safe as fears grew that even healthy operators in the market may face a rush of customers trying to withdraw their deposits.
“Markets are very sensitive to the negative news flow after the surprise of seeing a US bank disappear from one day to the other,” said François Lavier, at Lazard Frères Gestion. “In a context where market sentiment is already weakened, not much is needed to weaken it even further,” he told Bloomberg.
Market fears also spread to the United States where shares in regional and large banks fell ahead of US markets opening. PacWest Bancorp was down 12 per cent. Big banks including JP Morgan Chase, Citigroup and Bank of America were also hit and were down by between 2-4 per cent.
Larry Fink, boss of investment group BlackRock, warned that the US regional banking sector remains at risk, and predicted further high inflation and rate increases.
He described the financial situation as the “price of easy money” and said in an annual letter to shareholders that he expected more US Federal Reserve interest rate increases.
He said that after the regional banking crisis, “liquidity mismatches” could follow because low rates have driven some asset owners to raise their exposure to higher-yielding investments that are not easy to sell.
Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.
This story is being updated.