Banks fail in the US and Credit Suisse shares plunge
New Zealand is unlikely to be significantly impacted by the fallout from international banking troubles, although it might see some share market weakness, according to commentators.
Following bank failures in the US, shares in the Swiss bank Credit Suisse plunged and dragged down other major European lenders, spurring fears about the world banking system to spread to Europe.
At one point, Credit Suisse shares got slashed by more than a quarter of their value to hit a record low, after its biggest shareholder, Saudi National Bank, told news outlets that it would not put more money into the Swiss lender, which was already besieged by troubles long before the US banks collapsed, Stuff and AP reported.
Greg Smith (pictured above), head of retail at Devon Funds Management, said authorities were expected to get involved and take measures to bolster confidence, much as the US did when Silicon Valley Bank collapsed over the weekend.
“As for New Zealand, our banks are unquestionably strong,” Smith said. “There will be some concerns about counter-party risk and contagion, but our banks get 70% of their funding domestically from deposits. Only about 30% is from offshore so even if credit markets were to wobble a bit or tighten up [the impact would be limited].
David Tripe, banking expert at Massey University, said any impact would be through international bonds, and to a lesser extent, equity markets.
John Berry, chief executive of Pathfinder, said that while it was “clearly bad” for global markets and the global financial system, there does not seem to be any direct impact for New Zealand and its banks.
“The Swiss regulator has confirmed they will provide liquidity to Credit Suisse if needed,” Berry said.
Tina Teng, markets analyst for Asia-Pacific at CMC Markets, believed the NZX would likely follow the decline on Wall Street and the EU markets as sentiment soured.
“Typically dragging on the local banking and energy stocks, which we can already see a broad selloff in these sectors,” Teng said.
Axel Lehmann, Credit Suisse chairman, defended the bank at a financial conference in the Saudi capital of Riyadh on Wednesday, saying “we already took the medicine” to mitigate risks.
Asked if he would rule out government assistance in the future, Lehmann said that’s “not a topic.”
“We are regulated,” he said. “We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”
Swiss National Bank, Switzerland’s central bank, said it would back Credit Suisse if needed but did not specify in what form the support would come, whether it would be in cash, loans, or other assistance. The regulators believed the bank currently had enough money to meet its obligations.
Credit Suisse recently reported finding “material” control lapses in its financial reporting for the past two years, fanning new doubts about the bank’s ability to weather the storm.
Rather than the midsize US banks that collapsed, Andrew Kenningham, chief Europe economist for Capital Economics, said it was Credit Suisse that posed “a much bigger concern for the global economy,” as it has multiple subsidiaries outside Switzerland and handles trading for hedge funds.
“Credit Suisse is not just a Swiss problem but a global one,” Kenningham said.
He noted, however, that the bank’s problems “do not come as a complete shock to either investors or policymakers” as they were well known.
The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note.
He noted that while Credit Suisse was widely regarded as the “weakest link” among Europe’s big banks, it was “not the only bank which has struggled with weak profitability in recent years,” Stuff and AP reported.
Have a thought about this story? Include it in the comments below.
