Global investors were just starting to get their bearings following the collapse of two banks in the United States, but now they have something more to worry about as one of Europe’s major banks is in trouble. Yoko Fukushima has the details.
The Central Bank of Switzerland is extending major funding to credit Swiss, the country’s second-largest bank, has calmed immediate concerns about its finances, but it’s got traders worried about the stability of the global financial system. Credit Suisse announced on Wednesday that it would borrow up to 50 billion Swiss francs from the Swiss National Bank, or about 54 billion dollars.
It says it’s taking this decisive action to strengthen its liquidity. The director, the direct trigger, seemed to be the Saudi National Bank saying, it would provide no more money. The Saudi Bank agreed last year to invest 1.6 billion dollars to help turn the firm around it’s 10 stake made it.
Critic swiss’s largest investor, shares of Credit Suisse were dumped, falling as much as 30 percent to a record low the stock exchange had to halt trading of the shares at one point. This was authorities pledge the liquidity Lifeline, following the melt down, an unprecedented move the financial regulator and the Central Bank released a joint statement saying.
Credit Swiss meets the capital and liquidity requirements imposed on systemically important Banks stock indexes and Europes lumped on Wednesday, the 30 in London was down almost four percent. The Dax in Frankfurt fell more than three percent banking stocks weighed heavily on the indexes and the negative sediments spilled into Asia as well investors were worried about how the financial systemin the US and Europe will impact the many Traders avoided taking risks.
The Nikki and Tokyo slipped a tenth of a percent and the Hansen and Hong Kong lost 1.7 percent. The critics’ turmoil affected the currency market, and the yen strengthened against the dollar. Some bought as they saw the Japanese currency as a safe-haven asset.
Swiss has a history of problems, from trading losses to repeated executive shake-ups. The latest slide in its shares was nothing new in early 2021; the bank’s involvement with collapsed green cells Capital left its risk management and compliance in doubt, the bank lost billions when the private fund defaulted in the same year, there were several changes in management over the years, and traders were not convinced of the bank’s business.
As Bank Economist Caraca Mandiska says, there’s no clear reason behind the latest turmoil, as Credit Suisse’s finances were sound based on recent stress tests. He says there’s a low probability of this leading to a financial crisis, but it cannot be rolled out. Investors that sold Credit Suisse were watching what was happening across the Atlantic; they thought banks in Europe may have problems.
This vague concern led to the trouble at Credit Suisse. I don’t think we need to worry about the spreading, but financial crises tend to happen through a domino effect. For instance, if investors find out a major financial institution has big exposure to credit, they may think that bank could collapse, and so on.
Here’s how some of the European indexes started trading on Thursday, and it seems traders will relieve the Swiss Central Bank. It stepped in to help the troubled bank’s credit Swiss stocks are coming back, the tax in Germany is up about three tenths of a percent and footsie, and Britain has gained about seven tenths of a percent from Wednesday.
Now the biggest focus for investors is the monetary policy meetings of the European Central Bank and the U.S. Federal Reserve. The ECB meeting is coming up later in the day. It has already said it would raise interest rates by half a percentage point, but Karakama says it might have to rethink that.
It may be difficult for the ECB to raise rates by 0.5 percentage points because Credit Suisse is a major European bank. It will be difficult to cancel the rate kite. since board members have already announced the 0.5 percentage point hike. Europeans like to choose something in the middle, so they will most likely decide to raise rates by a quarter percentage point.
As for the FED, he says many economists expect no rate hike at its meeting next week to calm markets after the Silicon Valley Bank fallout, but he says there are other scenarios: before the Silicon Valley Bank collapse, there was talk the FED may raise its key rate by 0.5 percentage points, the inflation situation has not changed, and there may be other events ahead of its meeting.
I’d say there’s a 50/50 chance of a 0.25 percentage point hike and a 50/50 chance the FED will do nothing. The monitoring authorities are in a tricky position, and for sure with markets on edge, their decisions could sit off another round of nervous selling in the financial sector.
