European Companies and Treasurers on Alert Due to Banking Sector Issues

Large European companies and treasurers are closely monitoring the turmoil in the global banking sector, and analysts warn that it is still unclear to what extent their consequences could affect European banks.

The German association of treasurers has urged its members not to ‘underestimate the current situation,’ after Swiss bank Credit Suisse secured 50 billion francs from the central bank mid-week to restore liquidity and investor confidence.

The problems at the Swiss bank followed the collapse of the American Silicon Valley Bank (SVB) late last week due to a massive withdrawal of deposits that prompted the bank’s unsuccessful attempt to ‘cover’ unrealized losses on its portfolio of government bonds.

The German association warned on its website on Thursday that ‘the collapse of SVB is not without consequences for treasurers.’

The European Central Bank (ECB) stated at yesterday’s regular monetary policy meeting that European banks have strong capital positions, but today it convened an extraordinary supervisory board meeting to consider the impact of the turmoil on financial markets.

– The speed and scale of such crisis events in the capital market are always extraordinary – said Carsten Linker, head of risk management at the German association of treasurers, to Reuters.

We need to monitor their potential consequences or spread more closely, Linker said, alluding to the interconnectedness of markets that could cause problems in Europe in the short term.

The German shipping group Hapag-Lloyd announced that it is ‘carefully monitoring the situation,’ and the chemical giant BASF is also on alert.

– Globalization is wonderful, but it also opens channels for the spread of negative consequences. Moreover, we simply do not yet know to what extent the consequences could affect European banks – said Utz Greiner, a partner at the Vienna consulting firm Schwabe, Ley & Greiner.

– I would expect corporations to take precautionary measures – Greiner said, suggesting they shift cash deposits to money markets.

He also advised companies to rely on multiple banks and to arrange new credit lines, acknowledging that these two options would require several months.

He estimated that only 20 to 30 percent of German small businesses implement best practices in treasury operations during market turmoil.

The market turmoil caused by the collapse of SVB is likely to have only a moderate impact on the banking and capital markets in Germany, according to the German association of treasurers.

– Nevertheless, treasurers should not underestimate the current situation, even if it does not directly or indirectly affect them – they stated.