Fears that the economy might be on the edge of another “2008-style crisis” caused shares in top European banks to plunge and dragged London’s FTSE 100 down to its lowest level this year.
Jitters spread through global markets as troubled bank Credit Suisse saw its share price close down by nearly a quarter, hitting a new record low.
Investors were shaken by the collapse of Silicon Valley Bank (SVB) in the US over the weekend, sparking concerns about the viability of the “too big to fail” Swiss banking giant.
“Concerns over another 2008-style financial crisis have intensified,” he warned.
London’s FTSE 100 dropped by 3.8% on Wednesday as nervous investors sold their shares.
The 293-point drop was the worst single day for the FTSE since the early days of the Covid-19 pandemic.
It closed at 7,344 points, more than wiping out the gains that the index has made since the beginning of the year.
It was a bigger one-day decline than last year’s mini-budget and the day that Russia launched the full-scale invasion of Ukraine.
Insurance giant Prudential sank to the bottom of the index with losses of more than 12%, while British bank Barclays declined by about 9%. Standard Chartered was also down by more than 7%, and HSBC slid by 5%.
The failure of SVB prompted fears about the health of the banking sector, and how far lenders could continue to withstand higher interest rates.
On Tuesday, credit ratings giant Moody’s downgraded its outlook for the US banking sector to “negative” from “stable” to reflect the “rapid deterioration in the operating environment”.
And as the world’s largest economy, issues in the US sparked fears of contagion over in the UK.
Meanwhile, confidence in the banking sector worsened following a number of problems for Credit Suisse.
On Tuesday, it told investors it had found “material weaknesses” in its financial reporting, meaning it failed to identify certain risks.
It follows a difficult time for the international bank, which recorded a heavy group net loss of 7.3 billion Swiss francs (£6.5 billion) over last year.
Neil Wilson, chief market analyst at Finalto, warned that Credit Suisse is “too big to fail” and noted concerns from investors that the bank could be “the next shoe to drop” following SVB’s failure.
Andrew Kenningham, an economist at Capital Economics, admitted that “at this stage, a huge amount is unclear” regarding the viability of the lender.
He said: “The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case.
“Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”
He added that its problems were “well known so do not come as a complete shock to either investors or policymakers”.