European banking stocks fell on Wednesday, led by a dive in Credit Suisse shares after Switzerland’s largest shareholder said it would no longer provide capital.
In Europe, the Euro Stoxx Bank index dropped 6.4 percent, as Credit Suisse shares lost more than five times in value. Société Générale lost 9.6 percent, Bank of Ireland shed 9.2 percent and BNP Paribas dropped 8.8 percent.
Credit Suisse shares sank to a fresh low of SFr1.99 on Friday after the chairman of the Saudi National Bank, which bought 10 percent of the shares in Credit Suisse last year, ruled out giving the Swiss lender more financial assistance.
The spread on banks’ five-year credit default swaps – which reflect investors’ assessment of the likelihood of a debt default – widened to 565 basis points on Wednesday, from 350bp at the start of the month.
The sell-off in bank shares piled new pressure on the sector already reeling from the collapse of the Silicon Valley Bank, and dragged down the broad equity market in Europe.
The benchmark Stoxx 600 fell 1.8 percent, with the British bank-heavy FTSE 100 down 1.8 percent and France’s CAC 40 off 2.5 percent as investor jitters entered a third day.
Neil Birrell, chief investment officer at Premier Miton, said that investors who have been on the edge after the collapse of SVB are right to worry about Credit Suisse.
“These are not all isolated cases, the fear of infection is clear,” he said. “Credit Suisse has been a little shaky for a while, it’s not surprising that you have people running for the hills.”
The yield on two-year US Treasury notes, which closely tracks interest rate expectations and moves inversely to prices, gave a rise in initial yields to fall 0.1 percentage points to 4.1 percent. The yield on the 10-year note, which underpins the cost of global debt, also reversed direction to fall 0.08 percentage points to 3.55 percent.
The yield on German Bunds 10 years slid 0.2 percentage points, to 2.27 percent. The yield on two-year notes fell 0.3 percentage points to 2.61 percent.
Earlier in the day, equities in Asia had rebounded as traders bought financial stocks after heavy selling at the start of the week.
Japan’s Topix added 0.7 percent, South Korea’s Kospi added 1.2 percent and Australia’s S&P/ASX 200 gained 0.9 percent. Hong Kong’s Hang Seng index rose 1.5 percent. Japan’s Topix Banks index gained 3.3 percent after posting its biggest decline in three years on Tuesday.
US stocks rebounded on Tuesday as fears of contagion in the banking sector from SVB’s failure eased. Recent data also show that inflation has slowed down but is still high at 6 percent.
Futures that track the benchmark S&P 500 were flat, while the tech-heavy Nasdaq Composite rose 0.2 percent. The index closed on Tuesday up 1.6 percent and 2.1 percent.
The stubbornly high inflation data comes at a difficult time for the US Federal Reserve as it contends with the death of three banks and broader concerns about financial stability, increasing speculation that it will have to pause the rise of interest rates earlier than expected.
The European Central Bank meets on Thursday to decide on the next interest rate move. Investors price in 82 percent chance of rising 50 basis points, on the assumption that much of the chaos inflicted by SVB has not spread to the market across the Atlantic.
In currency markets, the dollar index, which measures the greenback against six peer currencies, rose 0.1 percent. Sterling was flat against the dollar, ahead of British chancellor Jeremy Hunt’s spring budget.
Oil prices gave up early, with Brent crude and West Texas Intermediate, the US benchmark, trading 0.1 percent lower.