A key risk gauge is surging for Credit Suisse — and other European banks too: Here are the worst impacted
Risk indicators such as the rates on credit default swaps are rising for the European banking sector following the failure of Silicon Valley Bank last week. CDS — a type of financial derivative — rise in value as the risk of default increases. The contracts, which are traded, allow some investors to hedge against a fall in share or bond prices, while others might seek to profit in a declining market. Swiss lender Credit Suisse Group saw the largest jump at more than 5.43 percentage points to 7.81% on its 1-year CDS rate since the start of the month. CDS rates for Credit Suisse are likely to jump higher again after the bank's largest investor, Saudi National Bank, reportedly said it could not provide the Swiss bank with any further financial assistance due to regularity restrictions. Shares of the bank tumbled to an all-time low on Wednesday for a second consecutive day after those comments. "If you look at the share price and the credit default swaps, then it is obvious that there is a loss of confidence and credibility," Beat Wittmann, managing partner and chairman of Porta Advisors told CNBC's "Squawk Box Europe" on Thursday in Zurich. The table below shows banks in the STOXX Europe 600 Banks Index that have credit default swaps on their bonds: The jump in investors' perception of default rose after that SVB's collapse last week, the second largest bank failure in U.S. history, which has sparked "widespread concern" of contagion taking root while interest rates remain high. "I think inevitably, there's going to be that transatlantic contagion going into the European banking system because in Europe they're raising rates as well," said Julian Howard, investment director at GAM Investments. "The idea that you raise rates, and then eventually something breaks, is probably a commonality between the U.S. and Europe," added Howard, who oversees about $1.2 billion of assets at the Swiss asset manager. CDS rates above one percentage point are an extremely rare event seen only during market stress, such as the height of the euro zone debt crisis in 2012. No other European bank had rates above this level. CDS rates were at about 0.6% for Germany's largest lender Deutsche Bank , the second highest currently, which saw a nine basis point jump in CDS rates since the beginning of March.
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