Why are Baltic and European banks falling fast today?

 # Why are Baltic and European banks falling fast today?

The European banking sector is facing another day of turmoil as shares of Credit Suisse plummeted to a record low after its largest shareholder ruled out providing more financial assistance to the Swiss bank. The collapse of Credit Suisse dragged down other major European banks, such as BNP Paribas, BBVA, Deutsche Bank and Santander, which also suffered heavy losses on Wednesday.

## What happened to Credit Suisse?

Credit Suisse has been struggling with a series of scandals and losses in recent months that have eroded its capital position and reputation. In February, the bank reported its first annual loss since the 2008 financial crisis due to a $4.7 billion charge related to its involvement in the collapse of Archegos Capital Management, a US hedge fund that defaulted on margin calls. The bank also faced legal troubles over its role in the Greensill Capital saga, a UK-based supply chain finance firm that went bankrupt amid allegations of fraud.

On Tuesday, Credit Suisse published its annual report for 2022 and admitted that there were "material weaknesses" in its internal controls over financial reporting. The bank also warned that it could face further losses from litigation and regulatory investigations related to Archegos and Greensill.

The report triggered a negative reaction from investors and analysts who questioned the bank's ability to restore its profitability and credibility. The situation worsened on Wednesday when Ammar al Khudairy, the chairman of Saudi National Bank (SNB), which owns 6% of Credit Suisse's shares, said in an interview with Bloomberg that he was not willing to increase his stake or provide more financial support to the Swiss lender. SNB became Credit Suisse's largest shareholder last year after merging with Saudi British Bank (SABB), which had acquired a stake in Credit Suisse from Qatar Investment Authority in 2018.

## How did other European banks react?

The news from Credit Suisse sparked a sell-off in the European banking sector as investors feared that the troubles of one of Europe's largest banks could have spillover effects on other lenders. According to Reuters data, European banks lost more than $40 billion in market value on Wednesday.

Some of the worst-hit banks were those with exposure to Archegos or Greensill or both, such as BNP Paribas (-8.74%), BBVA (-7.22%), Deutsche Bank (-6.92%) and Santander (-6.76%) . Other banks that suffered significant losses included Société Générale (-9.83%), ING (-8.24%), Commerzbank (-7.96%), Barclays (-6.44%) and HSBC (-3.95%) .

The banking rout also affected some Baltic banks that trade on Nasdaq Baltic stock exchange. LHV Group, Estonia's largest domestic financial group, fell 0.5% on Wednesday . Coop Pank AS , another Estonian bank owned by local cooperatives , dropped 1.5% .

## What are the implications for the economy?

The turmoil in the banking sector comes at a time when Europe is trying to recover from the economic fallout of the Covid-19 pandemic and cope with rising inflation pressures . Banks play a crucial role in providing credit and liquidity to households and businesses , especially small and medium-sized enterprises (SMEs) , which are vital for economic growth and job creation .

If banks face higher funding costs , lower profitability or tighter capital requirements as a result of their losses or regulatory actions , they may reduce their lending activity or raise their interest rates , which could hamper the economic recovery . Moreover , if investors lose confidence in the banking system , they may withdraw their deposits or sell their bonds , which could trigger a liquidity crisis or even a systemic risk .

Therefore , it is important for policymakers and regulators to monitor closely the situation of individual banks as well as the overall health of the banking sector . They should also provide adequate support measures if needed , such as liquidity facilities.