London’s stocks have worst day since start of Covid as banking crisis fears grow

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Fears that the economy could be on the edge of another “2008-style crisis” caused shares in top European banks to slide and dragged London’s FTSE 100 to its lowest level this year.

Panic gripped global markets as shares of beleaguered bank Credit Suisse plunged by nearly a quarter to hit a new record low.

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Investors were shaken by the collapse of Silicon Valley Bank (SVB) in the US over the weekend, raising concerns about the viability of the Swiss banking giant “too big to fail”.

Concerns have grown over another 2008-like financial crisis

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“If the bank fails, it could have huge implications for other European banks that have exposure to the troubled Swiss lender,” said Fawad Razakzada, market analyst at CityIndex and Forex.

“Anxieties have intensified over another 2008-style financial crisis,” he warned.

London’s FTSE 100 fell 3.8% on Wednesday as nervous investors sold their shares.

The 293-point fall was the worst day for the FTSE since the early days of the Covid-19 pandemic.

It closed at 7,344 points, more than erasing the gains made by the index since the beginning of the year.

This was a huge drop from last year’s mini-budget and a day on which Russia launched a 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 nearly 9%. Standard Chartered was also down more than 7%, and HSBC fell 5%.

Credit Suisse’s problems once again raise the question of whether this is the beginning of a global crisis or just another ‘silly’ case

The stock markets of Europe and America were also trading with a heavy fall.

The failure of the SVB sparked fears about the health of the banking sector, and the extent to which lenders may continue to face higher interest rates.

On Tuesday, credit rating giant Moody’s raised its outlook for the US banking sector to “negative” from “stable” to reflect a “sharp deterioration in the operating environment”.

And as the world’s biggest economy, the issues in the US raised fears of a contagion in Britain.

Meanwhile, confidence in the banking sector deteriorated following a series of problems for Credit Suisse.

On Tuesday, it told investors that “material weaknesses” were found in its financial reporting, meaning it failed to identify certain risks.

This prompted one of its top investors, the Saudi National Bank, to confirm that it cannot increase its stake in the lender.

It is a difficult time for the international bank, which posted a massive group net loss of 7.3 billion Swiss francs (£6.5 billion) over the past year.

Neil Wilson, chief market analyst at Finalto, warned that Credit Suisse is “too big to fail” and noted investor concerns that the bank could be “the next step to collapse” following the failure of SVB.

Andrew Cunningham, an economist at Capital Economics, acknowledged that “at this stage, a huge amount is unclear” regarding the viability of the lender.

He added: “The problems at Credit Suisse once again raise the question of whether this is the start of a global crisis or just another ‘silly’ case.

“Credit Suisse was widely seen as the weakest link among Europe’s big banks, but it is not the only bank that has struggled with weak profitability in recent years.”

He added that its problems were “well known so not a complete shock to investors or policymakers”.

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