The solution that Switzerland devised for Credit Suisse last weekend cannot completely remove the uncertainty in the markets. Are Belgian banks also at risk? And should you fear for your savings and investments?
Has the acquisition of Credit Suisse by UBS been able to appease the markets?
Not quite. Last weekend it became clear that the Swiss bank Credit Suisse had to be taken over after it had run into problems due to various scandals. At the insistence of the Swiss government and regulator, competitor UBS took over the bank on Sunday evening.
The intention to appease the financial markets in this way has only half succeeded. “Although that mainly has to do with the solution that has been devised,” says Koen De Leus, economist at BNP Paribas. As part of the takeover, the Swiss central bank has decided to write off nearly 16 billion Swiss francs in so-called AT1 bonds issued by Credit Suisse. So they are worth nothing. While shareholders of the bank still had nothing left over from the takeover by UBS.
“That is strange, because in principle, shareholders are affected first in such a situation and only then bondholders,” says De Leus. That’s always been the case. “That that order was reversed is strange.” Banks thus received the message that the bonds they were just using as an extra capital buffer entail more risks than they had thought.
Investors mainly asked themselves the question: which banks have still issued AT1 bonds? In total, European and British banks are said to have issued around 250 billion euros in such bonds. As a result, many bank shares suffered losses when the stock markets opened. As the day progressed, they made up for that loss. The Bel20 even closed with a slightly positive result.
What if I have bank shares?
That they did not see a large direct exposure of the Belgian banks to Credit Suisse: that was the message that both Minister of Finance Vincent Van Peteghem (CD&V) and the governor of the National Bank of Belgium Pierre Wunsch gave last weekend, respectively at VRT and The time.
Also today, the National Bank emphasizes that “Belgian banks have ample buffers of liquidity and capital available to withstand any financial storms – more than the average in the Eurozone”.
“I would also like to emphasize that in Belgium we do not see such a history of calamities at any bank as at Credit Suisse,” says Tom Simonts, economist at KBC. “My own bank KBC, for example, is a completely different kind of bank than Credit Suisse. We work much less with high client assets and are more connected to local, Belgian SMEs. In short, we are more robust.” Although Simonts says he speaks with two words for the entire European banking sector due to the general uncertainty in the markets.
Do I need to quickly withdraw my money from my savings account?
That is not a good idea anyway because it can cause a liquidity problem. In addition, savings accounts have been more protected since the 2008 financial crisis. Per person, per bank there is a so-called deposit guarantee of 100,000 euros. That means that up to that amount each of us is protected for money in savings accounts.
Stricter rules for banks were also introduced after the crisis to make them more robust. “European banks should not only hold more capital against the investments they make or loans they issue, they should also hold higher quality capital,” says Kristien Smedts, professor of banking and finance (KU Leuven).
One of the problems that surfaced in 2008 was that many banks invested in the long term with money they sought in the short term. Actually exactly what the American Silicon Valley Bank did and went under. “That was possible because the rules on this were relaxed in the United States a few years ago. But in principle such a situation is not possible in Europe.”
And will those savings pay off in the long run?
The hope is that calm will gradually return to the stock markets. Because the tension was already felt last week when the European Central Bank (ECB) had to announce whether it would continue with a new rate hike. Such an announcement is already under pressure anyway, which was even more the case due to the hassle surrounding Credit Suisse. The same goes for the US central bank, the Federal Reserve, later this month. It is generally expected that it will continue to do so and will continue to raise interest rates.
What does that mean for mortgage interest and interest on savings accounts? No one wants to say it in black and white, but the feeling is that the latter will certainly not rise any further. It is difficult for banks to “just give everything back to people with a savings account if it is now clearly important for banks to keep enough money because you have risks in the financial system,” says an insider.
According to Ivan Van de Cloot, chief economist of think tank Itinera, the immediate risks for the banking system in the short term are not too bad. “If I look further into the future, I fear that a long-drawn-out and protracted crisis, such as in the United States in the 1980s,” he says. “Then a third of US regional banks got into trouble. This is like that crisis. Just like then, we have a combination of governments that have large budget deficits, but on the other hand have to fight inflation.”
