On Wednesday, the financial sector experienced a significant downturn as Credit Suisse, a Swiss Bank with extensive U.S. and global operations, saw its shares fall by nearly 25%.
This caused the Dow Jones Industrial Average to drop by 1.9%, while the Nasdaq Composite lost 1.5% and the S&P 500 dropped 1.8%. The decline reduced the S&P 500's year-to-date gain to under 1%.
The financial sector has been under pressure recently due to the collapse of regional banks such as Silicon Valley Bank and Signature Bank, which were both affected by poor management and eight interest rate hikes by the Federal Reserve in the past year.
Credit Suisse's shares hit an all-time low after Saudi National Bank, its largest investor, said it could not provide any more funding, and the bank admitted to “certain material weaknesses” in its financial reporting controls for 2021 and 2022.
This has refocused attention on the troubled bank, and U.S. big banks like Citigroup, Wells Fargo, Goldman Sachs, and Bank of America all saw declines in their shares as well. The Financial Select Sector SPDR Fund (XLF) lost 2.7%, and the SPDR S&P Regional Banking ETF (KRE) was down 4.7%, with First Republic Bank and PacWest Bancorp both experiencing losses of over 10%.
Experts are warning that there could be a large credit extension contraction in the banking industry as banks shift their focus from lending to firming up their balance sheets.
Exane analysts predict that the Swiss National Bank and financial regulator Finma may provide a bailout for Credit Suisse, possibly in collaboration with other banks.
But Credit Suisse has been struggling to regain the trust of investors and clients following a series of scandals, and recently published its 2022 annual report, which identified material weaknesses in financial reporting controls and customer outflows.
In my opinion, the recession is here. Bailouts in Europe won't be swift enough to halt the downward spiral we currently find ourselves in thanks to the inherent risks baked into the imperfect fractional reserve fiat banking system. And it will spill over to the U.S. Protect yourself now.
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