European banks continue to bleed to death from the open crisis at Credit Suisse. After deciding to keep its focus on fighting inflation, the European Central Bank (ECB) held an urgent meeting this Friday to analyze the vulnerabilities of banks in the euro zone’s financial system. At its morning meeting, the Supervisory Board came to the conclusion that the crises in the USA and Switzerland were not contagious, according to sources familiar with the meeting. The message launched by Frankfurt hardly relieved the markets for a few hours. The main stock markets of the old continent closed with heavy losses, mainly driven by the banks, which accumulate weekly numbers in the red, which generally fluctuate between 15% and 20%.
Last Thursday, the ECB tried to inject maximum calm into the markets in order to calm them down. He maintained his schedule and raised interest rates by another half point. From then on, he decided not to show all his cards: he reserved his next moves, announcing that these would depend on the evolution of the financial situation. He also said he was “ready” to use the liquidity and tools to trade if needed. Markets have taken the appearance of Monetary Authority chief Christine Lagarde well and have returned to green.
In Switzerland, too, the situation seemed to be easing after the country’s national bank rescued Credit Suisse with a liquidity injection of up to 50 billion euros. But the rejection by both sides of a Swiss authorities-sponsored merger between UBS and the ailing company caused markets to tremble again, according to Bloomberg. Shortly before, the ECB’s supervisory board, chaired by Andrea Enria, had met for an extraordinary meeting, as a Eurobank spokesman confirmed. “The Board of Directors meets to exchange views and to update members on current events in the banking sector,” he said.
It was not the first meeting of this body. The Council had already met earlier in the week, when a cold drop of sweat ran down the spines of top ECB officials as they saw their banks’ share prices plummet. In fact, this core – which also includes ECB Executive Committee Director Frank Elderson or Bank of Spain member Margarita Delgado – always meets in a situation of financial turmoil. After Thursday’s press conference, it was time for a quick update on Friday.
According to Portal and confirmed by sources familiar with the meeting, the committee concluded that the eurozone banking system had not been tainted by the collapse of US firms Silicon Valley Bank, Signature Bank and First Republic Bank and the Credit Suisse crisis. The monetary watchdogs paid particular attention to the latter company, as it is located in a financial powerhouse on the outskirts of the eurozone. However, bank exposure was found to be minimal and it was concluded that the financial system is still healthy with adequate liquidity.
Weekly falls between 15 and 20%
So the message was the same that Lagarde and her Vice President Luis de Guindos had propagated the previous day: European banking is “solid” and “resilient”. “The capital is much larger than it was ten or fifteen years before the global financial crisis. European banks’ liquidity position is solid,” Guindos said on Thursday, adding, “There is something I think is relevant, and that is: the increase in interest rates, well, it’s positive in terms of European banks’ margins.” .
Frankfurt managed to calm the markets by Friday afternoon. From then on, the major stock markets turned in the wake of information about the rejection of the merger, which was intended to resolve the crisis in one of their main sectors. Credit Suisse’s red, which fell 8%, spread to major European markets, where banks in particular were punished. In the last five days, financial institutions have accumulated losses of between 13% and 20%: from Deutsche Bank to Unicredit, BNP Paribas or Société Générale. According to Portal, at least four companies have already taken action to restrict business with Credit Suisse, including Société Générale and Deutsche Bank.
Spanish banks also closed this Friday with heavy losses: Banco Santander, 4.65%; BBVA, 3.49%; Sabadell, 3.14%; Bankinter, 2.52%; CaixaBank, 2.12% and Unicaja, 1.74%.
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