Fears the global economy could be hit by a new banking crisis wiped billions of pounds from the value of leading companies on Wednesday amid growing uncertainty about the future of struggling Credit Suisse.
Shocks spread across global markets as shares of the struggling Swiss lender plunged to a record low, pulling London’s FTSE 100 down 3.8 per cent. It closed at 7,344 points, which more than wiped out the gains the index has made since the beginning of the year. That was a bigger one-day drop than last year’s mini-budget and the day Russia launched its full-scale invasion of Ukraine.
The U.S. Treasury Department said it was monitoring Credit Suisse’s situation “and is in contact with global counterparts” after the company’s shares were suspended.
The bank reported a large net loss of £6.5bn last year and on Tuesday told investors it had found “significant weaknesses” in its own financial reporting, meaning it had failed to identify certain risks. One of its top investors, Saudi National Bank, said it was unable to deposit more cash.
“If the bank fails, it could have serious repercussions for other European banks that are exposed to the beleaguered Swiss lender,” said City Index and Forex analyst Fawad Razaqzada. “Concerns about another 2008-style financial crisis are mounting.”
Other markets also reacted nervously – the largest stock exchange in France also fell by more than 3% and Germany by more than 2.5%, while the markets in the US began to trade heavily behind.
Neil Wilson, chief market analyst at Finalto, warned that Credit Suisse was “too big to fail”, though the Swiss politician said late on Wednesday that there was “no discussion” of state aid.
The bank is trying to recover from a series of scandals that have undermined the trust of investors and customers.
Andrew Kenningham, an economist at Capital Economics, said: “The troubles at Credit Suisse once again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case.
“Credit Suisse has been widely seen as the weakest link among major European banks, but it is not the only bank that has struggled with poor profitability in recent years.”
Moody’s downgraded the outlook for the entire US banking sector to ‘negative’ from ‘stable’ to reflect ‘a rapid deterioration in operating conditions’.
As Credit Suisse’s stock plunged 20 percent to a record low, FT Alphaville contributor Bryce Elder calculated that the former giant is now worth less than most FTSE 100 companies, falling somewhere between Admiral car Insurance and household chain owner Kingfisher B&Q. .