The major Swiss bank Credit Suisse fell over 30 percent on the stock market on Wednesday. After the main Saudi shareholder refused to contribute more financial support in the morning, things went down steeply for the big bank. On Wednesday afternoon, the share price was at a historic low.
Several other European banks also fell sharply during the day. Both BNP Paribas and Société Générale weakened by more than 10 per cent, NTB reports.
The unrest on Wednesday comes in the wake of the collapse of US Silicon Valley Bank (SVB) on Friday last week.
Stock falls spread
Kjetil Staalesen is a special adviser at LO and regular economics columnist in Dagsavisen. He believes the fall of the European banks is much more important than the complete crash of the Silicon Valley bank.
– It is not the same degree of crisis that it disappears. But Credit Suisse is a huge bank, there is nothing to wonder about, says Staalesen to Dagsavisen.
He says that share falls tend to spread in the same industry.
– People get scared. Fear and greed rule most things. So when a bank fails, people think there is no smoke without fire. Whatever they have now done wrong, it is something the others have done too, he says.
– Then investors think, I want out!
– Can this fall be compared to previous financial crises?
– I cannot tell you what is wrong with these banks. You may get reactions that are wrong. If DNB falls, it is not certain that there is something wrong with DNB. But if it isn’t, then the stock will probably come back up, then.
– Will it have major consequences?
– Banks are the lifeblood of the economy. So everyone should be worried if things go badly for the banks. It is never good news for working people or the country, if the banks go bankrupt. They have an amazing ability to drag others along and ease the losses onto the innocent, says Staalesen.
[ Sveitsisk storbank stuper: Drar med seg flere europeiske banker ]
Can count on the state to intervene
He says that bank customers’ money is well covered in Norway and the Nordics, through the Bank Guarantee Fund. The banks themselves do not have the same guarantee, but they are still happy to be rescued if things go really badly.
– The banks do not have an explicit guarantee, but an implicit one. We don’t let banks go bankrupt, but we go to great lengths to save them.
Thus, it is also lucrative to invest in banks, because the investors can trust that the state intervenes, as has been done in both Norway and the USA in the past.
– The state fixes the beef?
– No state will say that in advance. Then you have an explicit guarantee. You can’t give that, then you have to nationalize the banks.
– Good idea!
– Yes, you can say that. But no state will promise to do so. During the banking crisis, we nationalized the banks, but during the financial crisis they got reasonable loans.
[ Regjeringen vil halvere prisen på FOT-flyrutene i utkant-Norge. Det synes MDG er helt topp ]
Think you can trust the capitalists
– But what happens when such large banks fall so sharply? Are we standing on the edge of the cliff here now?
– It would be completely irresponsible of me to claim that we are or are not. But any company’s share price reflects the sum of knowledge and expectations about the shares. And the market is right. So when a share falls 20 percent in one day, someone has gained new knowledge since yesterday. You don’t have to wonder about that.
– You can say a lot of strange things about capitalists, but when they spend so much money you can trust them. The fact that people are selling now means that they are afraid that it will fall further. But for every seller there is a buyer who says that “I think this is a cheap share”.
– Who in Norway should be most nervous now?
– It’s not a good thing to say. It may well be that there are Norwegian companies that use Credit Suisse as their bank. And perhaps the Oil Fund?
– Credit Suisse does experience that depositors are queuing up to withdraw their money. That’s the worst thing banks know. Then the bank and the bank’s ability to make money shrink. If enough money disappears, the bank will fail. Of course the shareholders are nervous.