Dhe more than 20 percent price drop in Credit Suisse repeatedly led to a trading freeze in the major bank’s shares on the SIX Swiss Exchange on Wednesday. A suspension of stock exchange trading was not requested. A SIX spokesman said this on request: “That is not the case.” Trading is automatically stopped by the stock exchange if a requested price deviates by more than 1.5 percent from the last listed price. The break can be up to five minutes. The measure is intended to prevent a so-called flash crash.
The titles of the crisis-plagued Credit Suisse fell below two francs for the first time in the morning. At times, the listing fell by 23.8 percent to a record low of 1.707 francs. At the same time, hedging against payment defaults on bank bonds became more expensive again. Five-year credit default swaps (CDS) for debt securities rose to a record high of 574 basis points, data from S&P Market Intelligence showed. This means that an investor would have to pay €574,000 to insure €10 million of bonds.
The Swiss National Bank (SNB) has declined to comment on the situation of the major bank after Credit Suisse’s share price crash. The largest shareholder, the Saudi National Bank, had stated that it could not provide Credit Suisse with any further money because a stake of more than 10 percent was not possible for regulatory reasons.
Deutsche Bank under pressure
As a result of the slide in the Credit Suisse share price, the stock market values of other major banks also fell significantly, especially since they had already come under pressure in the past few days due to the turbulence surrounding the insolvency of the American Silicon Valley Bank (SVB). The titles of Deutsche Bank and Commerzbank temporarily lost around 8 and 10 percent respectively. The German standard value index Dax fell by up to 3.5 percent to 14,703 points. The index was later down 2.5 percent. The European counterpart, the Euro Stoxx 50, lost up to 3.9 percent to 4018 points. “The issues are not over yet,” said a trader with a view to the fear of the consequences of the collapse of the American Silicon Valley Bank. The European banking index lost more than six percent.
The rapid rise in interest rates has made it more difficult for some companies to repay or service loans taken out by banks, increasing the risk of losses for lenders who are also worried about a recession. In addition, the bond holdings on the balance sheets have lost value due to the sharp rise in interest rates by the central banks, so that the institutions make losses if they sell the paper before maturity.
After the collapse of the SVB and another US bank last week, regulators and financial managers around the world scramble to allay fears of contagion. Above all, concerns about smaller institutes persisted.
At the same time, concerns about interest rates put the stock markets under pressure again. According to an insider, the monetary watchdogs of the ECB are likely to stick to the planned large interest rate hike of half a percentage point on Thursday, despite the recent turbulence in the banking sector. Because the ECB expects that inflation will remain too high in the coming years, said an insider.
In view of the shock waves after the bankruptcy of the SVB, doubts arose about the determination of the ECB to raise interest rates again. “It cannot be assumed that the ECB will be thrown off course by the US bank failures,” said Thomas Altmann, portfolio manager at asset manager QC Partners.