For yet another week, panic continues to grip the markets, which have once again been dragged down by the bankruptcy of entities such as the US Silicon Valley Bank or the Swiss Credit Suisse. As a consequence of these insolvencies, the ‘ domino effect’ continues to spread in world markets, hitting German banks squarely.
The Deutsche Bank collapsed by 8.53% on Friday ‘dragging’ the rest of the European markets. The Spanish Ibex 35 has fallen 1.98%, while the FTSE Italy All-Share lost 2.16%, in a ‘special’ day of the ‘Euro summit’ where Christine Lagarde and Los Veintisiete have not changed their plans, but rather They have continued with messages of strength as already expected. “Our banking sector is resilient, with strong capital and liquidity positions,” the EU leaders concluded without presenting much news.
Delicate situation
Despite the continuous attempts of the different entities to call for calm, the figures do not lie. The days go by and the commotion of the banks does not stop, giving rise to a scenario of uncertainty where the bankruptcy of the SVB, Credit Suisse, and even Lehman Brothers continues in the retina of many.
In a desperate attempt to ‘save’ itself, Silicon Valley Bank also starred in a black episode for the United States, showing the failure of its financial strategy. In this way, the regional banking entity, after several days’ notice, was finally declared bankrupt, in what represents the largest fall of an entity since the financial crisis of 2008.
As a consequence of this resounding fall, a ‘domino effect’ was unleashed, first affecting the American continent. The next hit was First Republic Bank, which needed a $30 billion injection from big banks to stay afloat. Despite a relative comeback for the entity, they still cannot claim victory due to the volatility of the bank.
As a consequence of this banking ‘dance’, Europe, finally, and given the ECB’s refusal, was seriously hit. Credit Suisse, one of the largest banks in Switzerland had to be eventually taken over by the other Swiss giant, UBS. This paid 3,000 million euros, 60% of what the entity was worth a week ago in a rescue measure that entailed a large penalty for shareholders. Its share price was paid at 0.76 francs, well below 1.86 a week ago or 4.64 six months ago.
Despite this maneuver, the entity justified its movement by pointing out the complexity of the situation that ‘loomed over’ them. “Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available result,” said Credit Suisse Chairman of the Board Axel P. Lehmann.
The Fed and the ECB stand firm
In a situation of such uncertainty, the intervention of the main banking entities seems key for the future of the markets. As a consequence, the European Central Bank and the United States Federal Reserve have ‘get to work’.
Despite the delicate situation, where the echo of Lehman Brothers still resounds in 2008, both entities have decided not to lift their foot from the accelerator, continuing with their initial strategy to alleviate inflation, which in Europe aims to slow down to 2%.
For this reason, last Thursday, March 16, the Lagarde European Central Bank decided to continue with its roadmap to contain inflation and raised interest rates by 0.5% more. In this way, the entity continues with its plan that aims to try to alleviate the increase in prices, which last month registered 8.5% in the Eurozone.
Despite the financial instability, the entity stated that it had sufficient liquidity to respond to possible shocks. “The ECB has all the necessary monetary policy instruments to provide liquidity support to the euro area financial system if necessary,” said the ECB chief.
For its part, the strategy of the United States Federal Reserve decided to continue with its interest plan despite the uncertainty and financial instability generated by the falls of Silicon Valley Bank and Signature Bank, a decision questioned by many.
Thus, on Wednesday, March 22, the Fed underpinned the ninth consecutive rate hike following a strategy very similar to that of the old continent. In this way, a new increase of 0.25% was carried out, thus leaving the rates between 4.75% and 5%. Even so, and despite having decided to continue with the increases, the United States did not show as much ‘robustness’ as Europe.
Jerome Powell, Chairman of the Federal Reserve, said last Wednesday that the situation will not lead to a financial crisis, describing the banking system as “healthy, resilient, with strong capital and liquidity.” Despite his insistence, he also qualified that this measure could be effective in containing the current banking ups and downs, although it might not be the most appropriate to contain inflation.
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How is Spain?
Given the situation of fear and doubts, the Spanish Stock Market continues registering red numbers at the close of the day. This Friday was no different either and closed with a new fall of 1.98%, being dragged by Deutsche Bank. In this way, the Ibex 35 fell 177.5 points (1.98%), staying at 8,792.5 points, leaving the gains that yesterday were close to 3% at only 0.8%, leaving the annual rise at 6.85 %.
In this way, the day closed with new falls led by Bankinter, with a decrease of 5.38%, followed by BBVA (-4.43%), Banco Sabadell (-4.28%), Unicaja Banco (-4 06%), Banco Santander (-3%) and CaixaBank (-2.95%).
Due to the context of doubts, and the numbers that continue without notably improving, the First Vice President of the Government and Minister of Economic Affairs, Nadia Calviño, wanted to recall this Friday the “strength” of Spanish banks in an extremely volatile environment, thus following the dynamics shown by the European Central Bank and the US Federal Reserve.