Credit Suisse turmoil drives losses for UK bank stocks

Credit Suisse turmoil felt in UK bank shares

The regional banking crisis in the US leapt across the Atlantic last week to engulf venerable Swiss institution Credit Suisse.

Over the weekend discussions between Credit Suisse, UBS and the Swiss government ended with UBS taking over its Swiss peer, but with conditions that saw holders of the riskiest bonds wiped out. This move has likely prevented a much wider crisis in European banks, but the Monday open has been a volatile one, with equity markets suffering sharp initial losses.

Co-ordinated action from central banks saw dollar swap lines opened for the first time since March 2020 in order to provide liquidity to the financial system, but it looks as if this particular mechanism is not needed at the moment.

Outlook turns gloomier

However, bank stocks are essentially another way of looking at the outlook for the UK and the global economy. As a result of the past week, expectations for a recession have been brought back into 2023, having been pushed out into 2024 since the beginning of the year.

Crucially, talk of central banks having to cut rates before the end of the year has now returned too. Gloomier prospects for economic activity and for corporate and personal lending mean that banks could see activity slow while profit margins remain squeezed.

Lloyds share price – technical analysis

Lloyds has gone from its highest level in over three years to a four-month low. But while the shares briefly traded at 44p this morning, they have been able to hold the 200-day SMA so far.

If the shares can stabilise from here a bullish view may yet develop, but it would need a recovery above 48p and then above the 100-day SMA to provide a firm foundation.

Continued losses below 45p would bolster the short-term bearish view

Barclays share price – technical analysis

The losses have been more dramatic for Barclays. From 185p in January, the shares have nose-dived to 136p, and tested the 130p level that had been support last year. Gains that took four months to build have been wiped out in a month, in a classic ‘stairs up, lift down’ move.

The price is firmly below the 200-day MA, and will take time to carve out a low around current levels. The furious buying around 130p provides some hope that the losses can be stemmed.