Support for Credit Suisse and the ECB calms the financial storm

Maybe yesterday's rebound is the beginning of the end of the strange financial storm that has been troubling the markets for a week.

Oliver Thansan
Oliver Thansan
17 March 2023 Friday 00:52
9 Reads
Support for Credit Suisse and the ECB calms the financial storm

Maybe yesterday's rebound is the beginning of the end of the strange financial storm that has been troubling the markets for a week. Both the Ibex and the rest of the European and American markets rose yesterday after the 54,000 million dollars that the Central Bank of Switzerland put in to guarantee the solvency of Credit Suisse and that the ECB comply with its rate hike.

Even so, the European markets have not yet recovered the levels of Thursday of last week before the rescue of the American Silicon Valley Bank. The Dow Jones closed last night with a rise of 1.17%. The Ibex rebounded by 1.50% and the German Dax by 1.57%. Despite rising by 19%, Credit Suisse continues to suffer from a very poor share price. As can be seen in the attached graph, the markets are gradually on their way to recovering the levels of last week.

It remains to be resolved, however, the instability that plagues banking stocks that still show no signs that the storm has passed for everyone. In Spain, for example, two of the four big banks (Santander and BBVA) rebounded solidly yesterday (2.6% and 3.4% respectively), but the other two (CaixaBank and Banco Sabadell) fell a little more ( -1.3% and -0.5%). In Europe BNP rebounded 1.31% and Deutsche Bank fell 1.3%.

"Comparing the situation with that of Lehman Brothers makes no sense. There is no deposit or liability war", says Jaume Puig, general manager of GVC Gaesco Gestión. "The problem is volatility and that in Europe there is always a much more extreme reaction", he adds. Luis Benguerel, an independent analyst, goes further: "These are speculative movements by investors looking for gains from volatility." These are times of panic when non-professional investors are the ones who end up losing money.

The proof is that the markets barely reacted to the official announcement at noon yesterday. Only the Ibex was in the red a few minutes after the decision, but quickly returned to gains. After the ECB's decision, all eyes are now on next week, when the Federal Reserve will decide whether to raise rates again or decide to take a break, until the turbulent waters in the banking sector calm down. A slowdown in American monetary policy could influence the ECB's strategy and above all project doubts, which could be very negative for the European stock markets.

Credit Suisse acknowledged in a statement that the SNB loan was a "decisive action to preemptively strengthen its liquidity", something vital for a bank that last year, surrounded by multiple crises, saw them run away from the capital entity worth 124,000 euros. Credit Suisse's problems are no less than this week. The entity chained together two years of million-dollar losses: in 2021 they were 1,600 million and in 2022 they almost quintupled, up to 7,400 million. In addition, in the last 11 years he has paid fines worth 11,000 million.