During the Thursday trading session, shares of most European banks turned higher and were in the green. This comes after Credit Suisse secured a deal to get fresh liquidity from the Swiss authorities.
Now that Credit Suisse has secured a lifeline, this will prevent the famous investment bank from defaulting on its obligations. More importantly, this will prevent the already deteriorated public trust in the banking sector from turning even worse.
After the good news, the Euro Stoxx Banks index was trading 1% higher, mainly due to the gains from SAN, CBKG, and the CRDI. The bank stocks mentioned here are all big names from Spain, Germany, and Italy.
Earlier, we had seen a downtrend in pretty much all the banking stocks after the news of Credit Suisse. Now, it appears that the authorities have managed to avert a full-blown crisis in the banking sector.
The force which prevented the strategy was the Swiss National Bank. As per the reports, a 50 billion CHF support line was offered to Credit Suisse. They also highlighted how the group qualified for liquidity by meeting all the standards and other tests.
It was also clarified that Credit Suisse had no contagion risk at all from the US banking system. If we look at the USA, around 3 small banks have already gone down.
That's why there was fear that the same could happen in Switzerland as well and would lead to more defaults & meltdowns.
After the statement from SNB, the stock of Credit Suisse gained a 40% upside and became the top component in the Stoxx 600 index.
But this also raises the question of why Credit Suisse got into trouble in the first place. After all, an investment bank and a famous lender should be profitable and shouldn't have to rely on external loans.
That's why it would be interesting to see what type of changes will happen at Credit Suisse to avert such a situation from happening again in the future.