Europe midday: Rout in bank stocks as SNB rules out Credit Suisse rescue

European shares turned to a sea of red by midday as Credit Suisse shares plunged after its major investor ruled out any further financial support and trade in other large Continental bank shares were suspended.

The pan-European Stoxx 600 index was down 2.5% at 11.30 GMT, with the rout extending to all bourses. The plunge in bank shares follows the collapse of Silicon Valley Bank in the US over the weekend and now raises the risk that the European Central Bank may pause its next rate rise on Thursday in favour of financial stability.

Societe Generale, BNP Paribas, Monte dei Paschi and UniCredit were all suspended after sharp falls. Stocks elsewhere in the sector all plunged.

"Just when financial markets appeared to be calming down after the SVB saga, the sell-off in European bank shares has resumed this morning due to concerns about the viability of Credit Suisse," said Andrew Kenningham at Capital Economics.

"Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week. Admittedly, its problems were well known so do not come as a complete shock to either investors or policymakers."

"However, Credit Suisse has a much larger balance sheet than SVB (CHF530bn at end-2022) and is much more globally inter-connected, with multiple subsidiaries outside Switzerland including in the US. It is also a US primary broker. Credit Suisse is not just a Swiss problem but a global one."

The Saudi National Bank became Credit Suisse’s largest shareholder last year when it acquired a stake of nearly 10% and committed to investing up to CHF1.5bn.

However, on Wednesday SNB confirmed it would not increase its stake in the troubled bank, citing regulatory issues. The news hit the already under-pressure stock hard, and by 1130 GMT shares in Credit Suisse had lost 21% at CHF1.77, an all-time low, with trading having to be temporarily halted at various points.

The stock has now lost 75% of its value since March 2022 and 90% over the last five years. On Tuesday, the bank also confirmed “material weaknesses” had been identified in its internal controls over financial reporting, nor had it stemmed customer outflows.

Switzerland’s second largest lender, is trying to recover from a torrid few years, including being caught up in the Greensill and Archegos scandals. Customer confidence has been hit hard, leaving to a surge in outflows, and last month it posted its largest annual loss since the 2008 financial crisis as well as warning of further “substantial” losses to come.

Reporting by Frank Prenesti for Sharecast.com