European bank shares suffer big falls on fears of contagion from Silicon Valley Bank collapse

SVB Bank

The actions of European banks received a harsh punishment this Monday, pending the opening of Wall Street, as a result of the collapse of Silicon Valley Bank (SVB) in the United States. Credit Suisse led the declines with a slump of 14%, after several quarters of poor results, but entities considered more solid also felt the blow.

On Sunday, the Treasury Department in conjunction with the US Federal Reserve decided to guarantee all the deposits of SVB and another bank, Signature of New York, which was closed. A strong injection was also decided on in First Republic Bank, another entity infected by the financial crisis, which for now remains standing.

The entry of the United States Government on the scene seeks to guarantee that a domino effect is not generated in the market that generates a series of bank failures that generates a systemic crisis like the one that occurred in 2008 with the subprime mortgage crisis. But investors still want to see how events unfold before getting invested in financial institutions.

hares of Credit Suisse slumped more than 14% on Monday, hitting a new record low, as markets worried about European banks following the bankruptcy of US lender SVB. Germany’s Commerzbank plunged 11.3%, France’s Societe Generale and Spain’s Sabadell fell 6.2% and 9.4%, respectively. Another Spanish, Santander lost 7.4% and the Dutch ING 8.3%.

Credit Suisse has lost 81% of its value since it was rocked by the bankruptcy of British financial firm Greensill in March 2021, the first in a series of scandals that have weakened the Zurich-based bank.

Those shocks forced Credit Suisse to launch a major restructuring effort, but the bank never regained its value on the stock market. Credit Suisse has lost 81% of its value since it was rocked by the bankruptcy of British financial firm Greensill in March 2021

Under the weight of those restructuring costs, the bank in early February reported a net loss of 7.3 billion Swiss francs ($7.76 billion) in fiscal 2022.

This occurred in the context of massive withdrawal of funds by its clients, including in the wealth management sector, one of the activities on which the bank intends to refocus.

European bank stocks fell 5.7%, on track for their worst drop in two days since the Russia-Ukraine war broke out early last year.

European stocks fell on Monday and were heading for their worst day in almost three months, as the region’s bank stocks continued to plunge even after authorities intervened to curb the fallout from the sudden failure of Silicon Valley Bank (SVB).

The pan-European STOXX 600 index fell 2.4%, posting its biggest percentage decline since December 2022. Banks, automakers and insurers were the main bears.

Concerns were raised about the resilience of the sector’s balance sheet in the face of the collapse of SVB. However, the European Central Bank (ECB) is not scheduled to hold an emergency meeting of its banking supervisory board on Monday, a senior source told Reuters.

Meanwhile, investors now see a nearly 90% chance that the Fed will raise interest rates by 25 basis points (bps) next week, a sharp reversal from the 50bp hike they had previously priced in after the solid economic data.