Another brutal session for the banking sector. If the focus for the past few days was on Silicon Valley Bank’s collapse, now Credit Suisse is firmly in the spotlight.
On Wednesday morning the chairman of Saudi National Bank told Bloomberg News it would not invest further in the Swiss lender, where former Bank of Ireland chief executive Francesca McDonagh is now a top executive.
“The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,” Ammar Al Khudairy said in response to a query on whether he would take a bigger stake in the bank.
Investors reacted to his comments with ferocity. Credit Suisse shares fell more than 28 per cent to a record low. After all, if a company’s biggest backer says they’re finished putting money in, why would anyone else? That had a knock-on impact on the wider banking sector, and Irish lenders were not immune. AIB and Bank of Ireland shed more than 5 per cent before recovering somewhat. Permanent TSB also dropped.
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Silicon Valley Bank: what is the cost of the collapse?
[ Martin Wolf: Banks are designed to fail – and they doOpens in new window ]
So, is this contagion after Silicon Valley Bank’s fall?
Its problems are different from SVB’s, but investors, nervous after SVB, are jumpy and inclined to sell at the drop of a hat. Credit Suisse has specific issues that mark it out from other European banks. Mired in losses and successive failed turnaround efforts, it has been the sick bank of Europe for a number of years. Al Khudairy’s comments were another concrete reason to offload shares in the bank.
Is there a wider read-through for Ireland’s banks? Probably not, although that must be caveated given the flux in markets right now. There is no indication that Credit Suisse has a liquidity problem. That would be fatal. It does, though, have a profitability problem.
If it came to it, it’s highly unlikely a bank such as Credit Suisse would be allowed to fail. Unlike SVB, the Swiss firm is unquestionably systemically important. SVB wasn’t like Lehman Brothers; Credit Suisse would be. Right now, such a scenario seems a long way off. But as we saw last week, when a bank spirals out of control the end can come very, very quickly.
[ Silicon Valley Bank shows there are few libertarians in a financial foxholeOpens in new window ]
