Shares in Swiss bank Credit Suisse have plunged on the back of fears for the US banking after the collapse of Silicon Valley Bank (SVB) and Signature Bank. The bank’s shares dropped by up to 30% on Wednesday as a result of so-called “material weakness” disclosed about the bank’s accounting practices.
Investors fear that the banking giant could collapse if it is unable to handle the external shocks caused by the failure of the two US banks.
Worryingly, there are echoes of the banking collapse in 2008 in which banking giant Lehman Brothers folded under the burden of subprime mortgages. Though experts say that such a scenario is unlikely, this has done little to calm the concerns of shareholders and bank customers.
Credit Suisse assures that it has enough cash reserves to weather the dip and that asserts that its financial positions were not under threat.
Worse to come?
Across the market, share prices have plummeted amid concerns of a potential banking crisis. The UK FTSE 100 fell 6% in the last week to a three-month low and most European markets are down by at least 2.5% today.
Last week, SVB, the US’ 16th-largest bank, collapsed as a result of falling bond values and poor investment choices. The bank was shut down by the US regulator last Friday and the company’s UK subsidiary was purchased by HSCB for £1. All the banks’ deposits were guaranteed by US regulators.
Credit Suisse has been in a vulnerable position for years, beset by allegations of corruption and battered by a series of poor financial results in the last two years. The bank does not expect to be profitable until at least 2024.
Many of the bank's clients have already begun withdrawing their funds. According to the BBC, $120 billion left the bank’s accounts in the last three months of last year.
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If Credit Suisse fails, it could unleash widespread consequences for the global banking sector. The STOXX Europe banking index has already contracted by more than 6% as a result of growing concern.
On Tuesday, credit ratings agency Moody’s downgraded the US banking system’s credit outlook to “negative” due to a “rapid deterioration in the operating environment.”