UBS is taking over its rival Credit Suisse, which has slid deep into crisis. Bantleon Chief Economist Daniel Hartmann nevertheless sees no end to the banking crisis and warns of significant setbacks on the stock market. The Swiss Market Index (SMI) has lost almost 6% in the last four weeks.
At least two major European banks are internally examining scenarios of possible contagion to the banking sector from the crisis of confidence at the big bank Credit Suisse. Its impact and the collapse of two U.S. banks could spread further into the financial system in the coming week, two executives with knowledge of the deliberations told Reuters news agency on Sunday. This argues against the nervousness of the past weeks with the takeover of Credit Suisse by UBS to settle again.
And the omens for the stock markets were already negative beforehand for Daniel Hartmann, chief economist at Bantleon: “We drew a negative stock market outlook even before the current banking crisis because we assume that the global economy will slide into recession in 2023,” he stated. The reason is the interest rate shock initiated by the Fed and other central banks last year, which is unparalleled in magnitude.
The U.S. Federal Reserve Fed will announce on Wednesday and the Swiss National Bank SNB on Thursday whether interest rates will be raised further. At last week’s meeting, the European Central Bank already decided on a further increase in the key interest rate. As most observers expected, it raised the key interest rate by 0.50 percentage points to 3.50%.
For Hartmann, the sharp rise in interest rates is causing distress for those whose business model was based on recent years’ zero interest rate environment. The banks are suffering from the inverse interest rate structure. The takeover of Credit Suisse by UBS would eliminate a serious risk – Credit Suisse‘s imbalance. But the banks’ earnings problems remain.
“On the liability side, banks are pressured to raise their deposit rates. On the asset side, banks are struggling with declining new lending business, a securities portfolio earning low-interest rates and declining credit quality,” Hartmann says. Therefore, the banking crisis will likely continue smoldering – both in the USA and Europe.