Credit Suisse Crash and Debt Increase: Is the Market Approaching Its Lehman Moment?
The market may be nearing its Lehman moment yet again, according to Art Cashin, the director of floor operations at UBS. Panic has spread overseas to Credit Suisse, which saw its stock plunge 30% in a day after a top shareholder said it could not provide further financial support due to a regulatory limit. Cashin said certain market participants may be trying to “agitate things as much as possible” for their own financial gain.
The European Central Bank is seen scaling back rate hikes at its meeting on Thursday and Goldman Sachs analysts lowered their 2023 GDP forecast on March 15 citing a pullback in lending from small- and medium-sized banks. JPMorgan Chase & Co. predicted that the US economy could suffer a decrease in its gross domestic product by 0.5-1% due to the decreased lending activity that has occurred since the recent banking-sector issues.
The amount of debt Americans are carrying has soared. Credit card balances increased by $61 billion to a record high of $986 billion in the last quarter of 2022 and the percentage of credit card holders carrying debt from month to month has increased to 46%, up from 39% a year ago. Auto loan balances have risen and delinquencies have been steadily rising from their pandemic lows.
Further spooking markets on March 16, First Republic Bank, which was downgraded by both S&P Global Ratings and Fitch Ratings on March 15, is exploring strategic options — including a sale.
The confidence crisis in Credit Suisse Group AG, a significant contributor to the worldwide financial system, is intensifying, and the potential of a bank-lending crisis that could cause economies to enter a recession is growing. The risk is that the turmoil in the banking sector can tighten the credit squeeze already set in motion by interest-rate increases and lenders will now be far more concerned with shoring up their own finances than providing the loans that enable economies to grow.
0. “The market is on the verge of a Lehman-style event as the financial world thrashes in the wake of global banki” Business Insider India, 17 Mar. 2023, https://www.businessinsider.in/stock-market/news/the-market-is-on-the-verge-of-a-lehman-style-event-as-the-financial-world-thrashes-in-the-wake-of-global-banking-turmoil-veteran-trader-art-cashin-says/articleshow/98741749.cms
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2. “Recession Fears Soar as Credit Suisse Woes Threaten Loan Crunch” Yahoo News, 16 Mar. 2023, https://news.yahoo.com/recession-fears-soar-credit-suisse-062207564.html
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