How the Credit Suisse chaos rippled across markets
STORY: The plunge in shares of Credit Suisse gripped world markets on Wednesday and renewed fears that a full-blown worldwide banking crisis might be brewing, prompting a radical move by Switzerland's central bank, which pledged financial support for the troubled bank “if necessary."
Reuters U.S. Finance Editor Lananh Nguyen breaks down how we got here.
"Credit Suisse's problems have been longstanding. So it's had a series of scandals over the last few years, including management drama on top of large trading losses because of its dealings with a big family office. And since the fall, it's been really trying to turn the ship around by launching a strategic review. It's laid off thousands of employees. So those are Credit Suisse specific problems. Layer on top of that, the fact that three U.S. banks have failed in the last week, that has really shaken the confidence of investors about the banking sector as a whole, focusing on the US but now spreading to Switzerland. On top of that, we see that a famous Saudi investor that had been underpinning and backstopping some of Credit Suisse's investments has now said it does not want to add to that stake. So in some ways, investors have seen that as a kind of a mark of a lack of further confidence in contributing capital to the Credit Suisse. So all of those things added together have really hurt Credit Suisse' share price today. At one point, it was down 30%. And it's also prompted regulators and government officials in Switzerland to say that they are looking at it and they're going to take action if needed."
As Credit Suisse reeled, there was massive volatility elsewhere, as bank stocks, yields on U.S. Treasuries and euro zone bonds as well as oil prices all plunged.
"The reason why we see so much happening in markets today as a result of concerns about Credit Suisse probably originates from the fact that it is a globally systemically important bank. Systemically important in regulator speak means that this is a really big bank. It has a lot of interconnections across the economy that includes stock markets, bond markets, you know, sovereign bonds from many different countries. And so it just shows how large these institutions are and how important they are in the global economy. So any time there's a knock to confidence, it will knock confidence across the board, across the global economy, not just in one narrow spot."
Credit Suisse would be the first major systemically important bank to receive such a lifeline from a central bank since the 2008 financial crisis.
But Nguyen says it's hard to know if the broader crisis of confidence will be contained.
"The real question for markets and investors is whether this is the beginning of a broader financial crisis. Right now, what we're hearing as that these problems are affecting individual companies, whether it's Credit Suisse or last week Silicon Valley Bank. The question is whether this knock to confidence is also going to start a self-fulfilling downward negative spiral that then leads to a full-blown financial crisis and panic."