European Banking Sector Set to Withstand Credit Suisse Fragility

Thursday 16 March 2023

Investment Talks

European Banking Sector Set to Withstand Credit Suisse Fragility

March 2023 | In our view, the European bank sell-off is mainly driven by profit-taking and a reassessment of recessionary risks, which is not supportive for the profitability of the sector. In the case of a further escalation in this crisis, we expect the majority of the counterparty exposures to be collateralized, so we do not expect material losses from a potential resolution or wind down. The sector is well-capitalized and liquid and we don't see any other specific instances that pose large risks to other banking stocks. It will be important to monitor liquidity and deposit flows for the sector over the coming periods.

01 | Credit Suisse's share price plunged further this week and the cost of insuring the bank's bonds against a default has reached distressed levels. Yet the European banking sector is solid, with measures having been put in place after the great financial crisis to limit contagion risk.

02 | The failure of Silicon Valley Bank and other regional banks in the US, which led to the turbulence now affecting Credit Suisse, can largely be attributed to the sharp increase in rates and the inversion of the yield curve.

03 | We reiterate the need to keep a cautious stance on risk assets at this stage as the vulnerabilities built up in this fast-hiking cycle are starting to materialize. Government bonds have demonstrated their role as a diversifier in this crisis.

Credit Suisse and European Banks

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of March 16, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.

Other news

07/22/2024 Investment Talks

Biden's exit from the presidential race opens a phase of uncertainty

Market reaction to Biden's announcement has been muted at the time of writing, with a fall in the US dollar in early trading on Monday (July 22nd), a marginal movement in 10-year US Treasuries, and an upward trend in equity futures. In terms of the implications on markets, the election outcome is still highly uncertain. It is too early to define a potential "Harris trade," but even to have a specific trading strategy for a potential Trump 2.0 administration, as there is ideological uncertainty regarding its goals and policies. There are also significant ideological clashes that the Trump administration would need to address, such as the approach towards China, inflation, tariffs, fiscal expansion and the desire for a weaker dollar.

07/15/2024 Investment Talks

US High Yield Market Outlook & Positioning

Second-quarter returns were positive but uncompelling as not offering a premium to cash. Several of the economic indicators we monitor are indicating softer growth may lie ahead. Although we identify multiple positive factors for high yield, valuations are challenging. With spreads tight and the economy likely to slow, we are positioning portfolios defensively in anticipation of spread widening.

06/03/2024 Investment Talks

Capturing the Momentum of a Narrowing Earnings Gap

Since early 2023, a handful of the market's top stocks, including the Magnificent Seven, have surged in earnings and valuation, and have dominated returns. Underneath the surface of today's concentrated, crowded market, sharp earnings recoveries may soon play out and structural changes may occur in many industries, creating new winning and losing stocks. Separating the potential winners from the rest of the market will be key to portfolio success over the next year, and beyond. With so much uncertainty and variability across industries and companies, we believe active management is essential to capturing the momentum of a changing market.

See more news