Credit Suisse shares plunge as bank fear widens

As investors continue to be on edge following the failure of Silicon Valley Bank, shares of the ailing Swiss banking giant Credit Suisse have fallen to a historic low. When Credit Suisse acknowledged “significant weakness” in its accounting procedures on Tuesday, its stock fell by as much as 30% at one point.

Investors are concerned about how the bank, which is struggling, would deal with the consequences of American bank collapses. The concerns spread to the stock markets, causing a severe decline in all major indices.

“The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” wrote Andrew Kenningham of Capital Economics.

The top executive of the bank stated that there was no reason to worry about the bank’s financial situation and that its cash reserves were “still very, very solid.”

But, concern over issues at such a significant global player put pressure on banking shares globally.

As the Stoxx Europe banking share index fell 7%, the prime ministers of France and Spain intervened to comfort investors.

Key indices fell across Europe as well. The FTSE 100 in London, the CAC 40 in France, and the DAX in Germany all experienced closing declines of over 3%. The IBEX 35 closed more than 4% down in Spain.

While shares in large and small banks were damaged, the three major exchanges in the US also declined.

Problems in the banking sector began in the US last week with the collapse of SVB, the country’s 16th-largest bank.

The bank was shut down by US regulators on Friday, marking the biggest failure of a US bank since 2008. The bank was known for lending to technology companies. The UK division of SVB was purchased by HSBC for £1.

Following the SVB failure, the New York-based Signature Bank similarly failed, with all deposits at both institutions being guaranteed by US regulators.

But, worries that other banks may experience similar problems have persisted, and this week’s trade in bank shares has been erratic.

SVB ran into issues when it had to sell US government bonds it had been holding in order to raise money.

But as the US Federal Reserve rose, the value of these bond holdings decreased during the past year.Many other central banks – including the Bank of England – have also been raising interest rates. As rates rise, the value of bond portfolios has declined.

The falls mean many banks could be sitting on significant potential losses. However, the change in value would not typically be a problem unless other pressures – like significant outflows of customer funds – force the firms to sell the holdings.

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