London stock market suffers heavy losses as banking crisis fears intensify
Fears that the economy might be on the edge of another “2008-style crisis” caused shares in top European banks to plunge and dragged London's FTSE 100 down to its lowest level this year.
Troubled bank Credit Suisse saw its share price drop by as much as a quarter to a new record low, causing its shares to be temporarily suspended on the Swiss market.
Investors were shaken by the collapse of Silicon Valley Bank (SVB) in the US over the weekend, sparking concerns about the viability of the “too big to fail” Credit Suisse.
“If the bank fails, this could have major implications for other European banks that have exposure to the beleaguered Swiss lender”, said Fawad Razaqzada, a market analyst for City Index and Forex.
“Concerns over another 2008-style financial crisis have intensified,” he warned.
London's top tier index declined by than 3.7% on Wednesday amid the nerves among investors.
It fell to lows of around 7,350, not seen since December last year.
It also marked a bigger decline than in the aftermath of September's mini-budget, which one analyst described as the “worst day ever seen in the markets”.
Insurance giant Prudential sunk to the bottom of the index with losses of more than 10%, while British bank Barclays declined by about 8%. Standard Chartered was also down by more than 6%, and HSBC slid by about 5%.
France's biggest stock exchange also tumbled more than 3% and Germany's by more than 2.5%, while markets in the US started trading firmly on the backfoot.
The failure of SVB prompted fears about the health of the banking sector, and how far lenders could continue to withstand higher interest rates.
On Tuesday, credit ratings giant Moody's downgraded its outlook for the US banking sector to “negative” from “stable” to reflect the “rapid deterioration in the operating environment”.
And as the world's largest economy, issues in the US sparked fears of contagion over in the UK.
Meanwhile, confidence in the banking sector worsened following a number of problems for Credit Suisse.
On Tuesday, it told investors it had found “material weaknesses” in its financial reporting, meaning it failed to identify certain risks.
It prompted one of its top investors, Saudi National Bank, to confirm that it could not increase its stake in the lender.
It follows a difficult time for the international bank, which recorded a heavy group net loss of 7.3 billion Swiss francs (£6.5 billion) over last year.
Neil Wilson, chief market analyst at Finalto, warned that Credit Suisse is “too big to fail” and noted concerns from investors that the bank could be “the next shoe to drop” following SVB's failure.
Andrew Kenningham, an economist at Capital Economics, admitted that “at this stage, a huge amount is unclear” regarding the viability of the lender.
He said: “The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic' case.
“Credit Suisse was widely seen as the weakest link among Europe's large banks, but it is not the only bank which has struggled with weak profitability in recent years.”
He added that its problems were “well known so do not come as a complete shock to either investors or policymakers”.