Following a week of tumult in the US banking space, shares of European financials are breaking down as the probability of a Credit Suisse default surges. With $760 billion in assets, the Swiss bank is vastly larger and carries wider international exposure than the recently defunct Silicon Valley Bank and Signature Bank. Credit Suisse experienced significant outflows of client money in Q4 and had previously been forced to dip into liquidity buffers.
Risks to the EU’s banking system are on the rise just one day before the European Central Bank’s Governing Council is scheduled to make a decision on whether or not they will hike rates again. Core inflation in the Eurozone has yet to reverse course, touching another all-time high in February, and ECB policymakers had previously targeted a 50bps raise this month. While that hike remains likely, the central bank’s policy outlook may now be impacted by emerging uncertainty.
Related ETFs: iShares MSCI Europe Financials ETF (EUFN), iShares MSCI Eurozone ETF (EZU)
The US financial sector has been slammed throughout the past week, largely due to fallout emanating from the collapse of Silicon Valley Bank (SVB) and subsequent shuttering of Signature Bank. MRP discussed some of the issues behind SVB’s sudden insolvency in Monday’s Intelligence Briefing, and it appears that aftershocks from the bank’s meltdown are now cropping up across the Atlantic in Europe.
Shares of European banks had already been languishing this week, but several key banks, including Credit Suisse, BNP Paribas, Societe Generale, and others slid even more precipitously during Wednesday’s European trading session. The STOXX Europe 600 Banks Index was down by just about -7.0% this morning, compounding a -14.4% drop in value since the start of the month. This rout has wiped out nearly all of the index’s gains for the year to date.
Credit Suisse, which has faced several bouts of turbulence over the past few years, was down more than -28.5% at the US open, pushing the Swiss bank’s shares toward new all-time lows. Panic kicked off this morning as the bank’s largest shareholder…
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