The health of the banking sector depends largely on confidence. And when it falters, the stampede into the markets begins. The ten main European banks have lost this week more than 50,000 million euros in market capitalization, the equivalent of the value on the stock market of all Banco Santander. Shaken by the bankruptcy of Silicon Valley Bank and the subsequent Credit Suisse crisis, the big banks of the Old Continent have left behind in recent days all the progress they had made since the beginning of the year: the Eurostoxx Banks index, which brings together the financial institutions with the greatest weight in the euro area, depreciated by more than 2.7% this Friday. This week it has left 13.4%.
The red numbers are widespread in the sector: Santander’s share has depreciated by more than 10% in a week, generating a loss in market capitalization of more than 7,000 million, while for BBVA the hit is around 6,000 million . And the list continues throughout Europe: the French BNP share has gone from being worth 60 euros last Friday to less than 52 at the end of this week. This means that its capitalization has suffered a mouthful of 10,000 million. That of ING has depreciated almost 20% —it was paid at the close of the European Stock Markets at 10.47 euros—, so the Dutch bank is worth 6,000 million less this Friday than it was worth last week.
The week has been a roller coaster of emotions for banks: last Friday Silicon Valley Bank, a hitherto unknown bank, fell, setting off all the financial alarms and dragging the banks on the stock market. On Sunday, Washington breathed air into the sector when it announced that it would cover all the deposits of the ousted entity, but the markets were slow to assimilate the message, and on Monday they suffered the hangover of the bankruptcy with losses. On Wednesday, when it seemed that the waters were calming down, another bank —European and, above all, systemic— decided to shake up analysts’ week: the Saudi National Bank, Credit Suisse’s largest shareholder, announced that it was not going to put another franc in on the table to grow in your capital; shares of the second largest Swiss bank plummeted more than 24% and the entire sector collapsed.
On Thursday, already faltering, the entity announced a billion-dollar loan from the Swiss National Bank to instill liquidity. In addition, the European Central Bank (ECB) decided to continue on its path of raising interest rates, and tried to convey a message of security to the markets through its president: “The ECB has all the necessary monetary policy instruments to provide support of liquidity to the financial system of the euro area if necessary”. The Swiss bank rose 18.8% on the stock market and transmitted a certain calm to Eurostoxx Banks, which only left 1%.
The week, however, still had a lot to offer: although since Wednesday all economic agents have moved to try to transfer confidence to European banks, the mood in the sector has been unstable. The problem is that trust cannot be bought. Or at least not cheap. The signals have been mixed, financial sources point out. While Lagarde was trying to calm things down, the Reuters agency published that the entity’s vice president, the Spanish Luis de Guindos, had warned the euro zone ministers that several entities in their countries could be at risk and, analysts point out, investors have not taken it well.
This Friday, a new sign of distrust for some fearful markets: the surprise meeting of the ECB to deal with the financial earthquake was perceived as another sign of instability, despite the fact that it sent a new message of calm. Credit Suisse, meanwhile, to its own: after it was announced that both the entity in trouble and UBS, the largest Swiss bank, announced that it rejects any type of merger, its price plunged again on Friday (-8 %).
“Credit Suisse has generated a major crisis of confidence in the European financial sector, and getting out of there is very difficult,” says Nuria Álvarez, investment analyst at Renta4 bank. “You can be a very solvent bank, you can have your homework done in terms of risk and capital management, but if the market becomes suspicious, it’s hard to convince them that you’re not the one with a problem.” In addition, the analyst points out, no bank has the capacity to support a massive outflow of deposits: “If a bank had to keep the equivalent of deposits it has in a piggy bank, it would not be efficient.” In the end, their business is to take that money and lend it out, but if the market is wary and customers rush to get it, the game is over.
With a systemic bank —those that are considered essential to maintain the stability of the financial sector— on the verge of disaster, the market will closely follow the path that the European Central Bank takes from now on: “Its work has become much more complicated ”, defends Álvarez, “if they continue to raise rates, the market may interpret that you are going to deteriorate the crisis, if it does not raise them, inflation may remain strong and that will also harm banks, which benefit from increases in their margins” .
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