Not only has the stock market financial storm in Europe not abated, but the reassurance provided by the European Central Bank (ECB) keeping interest rate hikes on track and the Swiss regulator supporting battered Credit Suisse has it's undone in a matter of hours. Yesterday's extraordinary meeting of the ECB's supervisory board to "exchange views and provide members with an update on recent developments in the banking sector" failed to dampen spirits. And that, according to sources cited by Reuters, at the ECB meeting, a contagion effect on the banking sector of the euro area from the crisis of Credit Suisse and some banks in the United States was ruled out.
Since the problems began on Friday last week, the Ibex has lost 7.5%, after falling 1.92% yesterday. In Friday's session, Santander, the leading Spanish bank, lost 4.7% on the stock market, and BBVA, 3.5%. "The problems are coming from the United States and have no basis in Spanish banking values", reflected Antonio Castelo, an analyst at iBroker. Until mid-morning, the Ibex was in gains, but quickly turned around and ended up extending the losses that started last week with the rescue of Silicon Valley Bank and were amplified this week with the crises of Credit Suisse and First Republic.
Some analysts believe that the ECB will slow down its rate hike strategy and leave them at 3.5% for now. A leading indicator showing this possible change in trend is that the Euribor yesterday remained practically flat at 3.38%, the lowest level since January. It is surprising that the Euribor (reference index that reflects the price at which banks lend money) is below the official interest rates, 3.5%. Financial sources explained that "it makes sense to think that the ECB wants to put some calm in the economy in the coming months despite the fact that inflation continues to soar". According to Luis Benguerel, analyst and independent manager, the ECB usually "moves" the markets little. "Only when he makes unexpected decisions", he added.
Yesterday, the Credit Suisse series closed with another day of declines. The bank's shares fell 8.1%, showing that the support it received from the Swiss National Bank was not enough to calm financial markets and restore investor confidence. Speculations about the future of the entity multiplied yesterday with the idea of a division into several units.
While perhaps the biggest shake-up for European banks (in their share prices, actually) was the bailout of First Republic Bank, which they provided with $30 billion to shore up their liquidity and avoid a catastrophe scenario, following the recent bankruptcy of two financial institutions.
“Spanish banks will continue to be volatile, but it should not last long. Their balance sheets are very robust", added Jaume Puig, general manager of GVC Gaesco Gestión. "The theory that yesterday's declines in Spanish banks are a consequence of support for the First Republic is more of an excuse than something else." Puig believes that yesterday's falls are due to the "quarterly expiration of futures". Castelo also believes that these maturities and the desire of some investors to get rid of positions in order to have liquidity at the weekend have been able to push the quotations down.
In addition to Santander and BBVA, the rest of the Spanish banks also closed in the red: CaixaBank fell by 2.1%, and Sabadell, by 3.1%. Sources from one of the main Spanish banks bet that the instability will not last more than two or three more days.
The other major European stock markets did not escape losses: Frankfurt lost 1.3%, and Milan, 1.6%. European banks also declined, Deutsche Bank by 4.9% and Unicredit by 3.6%. In contrast, on the other side of the Atlantic, where much of the bank mistrust has originated, the evolution of the markets was a little better. The Dow Jones fell by 1.19%, but the weekly balance was practically flat, with a loss of -0.15%, with an almost flat evolution. Next week will be key to know if the storm becomes a hurricane.