Understand why Credit Suisse caused the global stock market to plummet.

247 - The Swiss bank Credit Suisse was informed that its main shareholder, Saudi National Bank, will not support the institution with an increase in its stake in the capital. Credit Suisse shares fell almost 25% on Wednesday, raising market fears about a widespread international banking crisis. Last Friday (10), the collapse of the US bank Silicon Valley Bank (SVB) was announced. Two days later, another US bank, Signature Bank, based in New York, was declared bankrupt. Stock exchanges in London (England), Frankfurt (Germany), Paris (France), Milan (Italy) and Madrid (Spain) fell by more than 2%.

According to sources in the financial sector, SVB's collapse was a consequence of a run on funds at the institution. The bank had liquidated positions in federal funds at a loss. 

Banks protect their clients' deposits up to US$250. Most of SVB's clients had larger amounts because the bank specialized in startups and small businesses. With the uncertainty surrounding what might happen to these clients, they migrated to larger banks.

In the case of Signature, the problem is related to losses due to the fall in cryptocurrency prices last year.

Credit Suisse

In addition to Credit Suisse, European competitors also saw their shares plummet this morning, by more than 10%. According to... G1 portalAnalysts believe that the international movement should not have direct effects on Brazilian banks.

Credit Suisse reported on Tuesday (14) that customer churn in the fourth quarter cost the bank 110 billion Swiss francs (US$120 billion). Since March 2021, the bank's shares have depreciated by 80,41%, according to data from SIX Swiss Exchange, Switzerland's main stock exchange.

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According to Luis Novaes, an analyst at Terra Investimentos, Credit Suisse is one of the five largest banks in Europe, and its insolvency could have major impacts on the financial system.

"Although SVB is also a large bank, its exposure was concentrated in one sector and its losses are mainly due to mark-to-market valuation of government bonds. Credit Suisse is a much larger bank and its losses are more complex, raising doubts about the Swiss government's ability to 'save' it from this situation," said Novaes of Terra Investimentos.

"Given that its closure would trigger a series of events that would cause significant damage to the financial system and the global economy, there has been a significant increase in apprehension among investors," he added.

According to analysts, another concern would arise from the potential effects of the Swiss bank's collapse in a context where major economies have been raising interest rates to try to curb inflation. When interest rates rise, credit becomes more expensive, people have less money to spend, and, as a consequence, prices stop rising.

Marco Caruso, chief economist at Banco Original, stated that the European Central Bank "is also facing persistent inflation, and the issue is that, while on one hand there is a scenario that pressures central bankers to raise interest rates, on the other hand there is financial instability that calls for a rate cut."

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"So, I imagine the ECB should do something very similar to what the Fed has been doing, ensuring that any eventual difficulties that may arise, such as a possible bank run and an increase in withdrawal requests, will be guaranteed by the central bank itself. This is what we call a lender of last resort: at the limit of the situation, the central bank steps in and honors the deposits," he added, reiterating that a private solution, such as a possible capital injection, is not ruled out.

Brazilian banks

Chief economist at Banco Original, Marco Caruso, said that "our financial system (Brazil) is very robust, with a much lower degree of leverage for banks." "Here, then, the problem is more indirect, more in the sense of affecting asset prices, with a stronger dollar, falling commodities, and a declining stock market," he said.

Jennie Li, equity strategist at XP Investimentos, said that "yesterday [Tuesday] we saw a recovery in the shares of regional American banks, which had a very sharp drop on Monday." "Today, this banking sector is under pressure again."

But the analyst noted that Credit Suisse's actions were a cause for concern among investors globally. "There's a fear that it could generate contagion to other sectors or even to the major American banks," she stated. "In our opinion, when we look at the sector's indicators, the banks continue to show quite healthy levels. The perception is that SVB and Credit Suisse are specific events. But even so, the market is once again concerned about this," said Li.