“We will not comment on the meeting, nor on BlackRock’s offer.” The answer is practically identical on the other side of the telephones of the press offices -open on Saturday- of Credit Suisse, a bank that is coming from a sudden fall that led it to ask for a rescue of 50,000 euros, and of UBS, the Swiss bank that should be the savior of the company with a purchase already endorsed by regulators. Nothing is known about the meeting that each management leadership must hold, separately, during this weekend to address a purchase in which the North American investment fund manager, BlackRock, has meddled, which the Financial Times has reported will make a rival offer higher than that of UBS to take over part or all of the bank. Six days after the Silicon Valley bankruptcy and four days after the fall of Credit Suisse, all institutions and banks insist on denying the risks of contagion, and yet the entire world is still watching what happens to this historic bank. Swiss. Because?
Let us first recap what has happened in these turbulent days. On Friday, March 10, Silicon Valley Bank had to be intervened by financial regulators in what became the second largest bankruptcy in the country’s history. Faced with the withdrawal of deposits from the startups it financed, the bank tried to solve a liquidity problem by selling government bonds, but at a price below the market that accumulated in the form of debt in a dizzying manner. And the bank failed.
He fear of the domino effect, which in 2008 started from the bankruptcy of Lehman Brothers and led to a global financial crisis, immediately ran to all corners of the planet. How can these infections occur? Firstly, due to the exposure of other banks to the failing bank. And there, fear works exactly like a domino piece: even if most banks are not exposed to Silicon Valley Bank, they may be to the bank that is exposed and is at risk of failing afterwards. That is why, immediately, the president of the United States, Joe Biden, came out to defend the soundness of his banking system and to guarantee that everyone would receive the money he had in this bank.
The European stock markets woke up the following Monday with sudden falls. Many Spanish investors, for example, took advantage of the crisis to withdraw their investments in Spanish banks, causing a sharp fall in the markets.. The experts, the banks and the European institutions insisted on denying any risk of contagion from the bankruptcy of Silicon Valley Bank and alluded to three reasons. The first, that a bank like Silicon Valley Bank, so niche and dependent on startups despite its large size, did not exist in Spain. The second is that the lessons of 2008 have helped European banks to diversify their investments and minimize their direct exposure to other banks that could drag them down. And the third, the strength of a banking system with highly trusted actors.
but it existed at least one of those European banks that didn’t exactly enjoy a great reputation: Credit Suisse, which chains scandals linked to bribery, fraud, corruption and a very lax supervision system that has even allowed drug traffickers to launder their money in the Swiss bank. So, on Wednesday, the route of contagion from Silicon Valley Bank to Europe was another: that of trust. In a banking crisis like Silicon Valley Bank’s, the banks that will suffer the most, if they are not exposed to the source of the turmoil, are those with the least credibility. And so it happened with Credit Suisse, which saw its investors massively withdraw their shares in the bank, which fell 30% in one day and once again dragged down the European stock markets, which on Tuesday seemed to have already overcome the rebound effect arising from Silicon Valley Bank.
A small but real risk
Again, the messages of calm followed one another between the European governments and the European Central Bank, which requested information from banks to find out their level of exposure to Credit Suisse. Accepting claims that there is not a large exposure among European banks in the aftermath of the 2008 crisis, still there are two risks of contagion in Europe, but now from much closer. EADA professor and finance expert Rafael Sambola details them: “On the one hand are the capital markets, which offer a risk similar to that of someone yelling “fire”, because the markets cannot bear uncertainty.” “This
And for the other that the weaker or less reputable banks have a liquidity problem and this implies bank rushes to withdraw cash in an accelerated way, as happened with Silicon Valley Bank”. But even in this case, “the European Central Bank has shown that it will be able to act immediately and that it is better prepared than in 2008”, emphasizes Sambola, confident of the “stress tests that the banks live to see what could happen in a situation like this”.
With the Parallel meetings of the tops of UBS and Credit Suisse to discuss the purchase of the first over the second this weekend, the horizons that open now for the Swiss bank are three. The purchase of UBS, which has already received the approval of Russian regulators, the purchase of BlackRock or some other entity that enters the equation and, finally, Credit Suisse selling its part of risk funds and keeping the rest of the bank without sale or merger. “For Switzerland and the Swiss authorities, the purchase of UBS may seem the best, although it may create some risk that, together, both banks accumulate too much market,” says Sambola.
The Swiss economic agency AWP stated that Both the Swiss National Bank (SNB) and the Securities Market Regulatory Commission (Finma) admit that the purchase of Credit Suisse by UBS is the only solution to avoid the collapse of the bank, according to EFE. Curiously, UBS has in the past had to be bailed out by the Swiss authorities due to its exposure to subprime mortgages that caused the 2008 financial crisis, something that rival Credit Suisse, however, did not.
Whatever happens this weekend, the rapid intervention of the authorities and the strengthening of European banks and their control systems continue to multiply messages of calm from analysts and authorities. But, in the financial world, “there is always a small risk”, remember Sambola. No matter how prepared the banks are or how many bailouts are carried out, No one can know or control what the population will do with their money.either the one you have in the bank or invested in the stock market.
Y if everyone decides to withdraw it at the same time, the banking system can indeed collapse. That, in any case, “it is almost impossible for that to happen if everything works as it should, with the controls that exist and with messages of calm,” Sambola concludes.
