Bank Stocks Ride Interest Rate Hike...Will They Be Held Back by 'CS Crisis' Concerns?

Global Investment Bank Credit Suisse (CS) Faces Financial Difficulties
Expectations Rise for Bank Stocks' Earnings Improvement Amid Interest Rate Hikes
However, Past Financial Crises Suggest Overseas Risks Will Influence Stock Prices

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] As the Bank of Korea has implemented a 'big step' (a 50bp base rate hike) for the second consecutive time, expectations have grown that domestic banks' corporate values will rise due to improved earnings. However, with the recent spread of crisis rumors surrounding the global investment bank Credit Suisse (CS), there are calls for caution when investing in bank stocks.

According to the Korea Exchange on the 13th, the KRX Bank Index fell 4.71% over the past month. Compared to the KOSPI index's 7.31% drop during the same period, it is evaluated that the banking sector has relatively held up well amid the sharp decline that began last month.

In particular, considering that Kakao Bank plunged 28.57% in one month, significantly dragging down the index, the returns of traditional bank stocks were much better. On the contrary, Hana Financial Group rose 0.95% during this period, and Woori Financial Group remained flat (0%). Shinhan Financial Group (-0.79%) and KB Financial Group (-7.57%) declined, but the losses were limited. Most securities firms forecast that these banks' third-quarter earnings this year will meet expectations.

However, it is pointed out that the CS crisis, which has recently spread, could affect bank stock prices. Ulrich K?rner, CEO of CS, sent a memo to employees to alleviate concerns about financial risks that recently surfaced, but this has instead amplified market worries. CS continues to face negative factors such as a $5.5 billion loss from Archegos Capital trades, a $1.7 billion loss from Greensill Capital's bankruptcy, and a 2020 conviction for money laundering.

CS recorded a loss of 1.87 billion Swiss francs (2.5 trillion KRW) in the first half of this year, and a loss of 390 million Swiss francs is expected in the third quarter. Researcher Koo Kyung-hoe of SK Securities said, "The bigger problem than the losses themselves is that the company has entered a vicious cycle of declining profits and scale," adding, "Considering past financial crises and the Eurozone debt crisis, it is necessary to recognize that when forecasting financial stocks, domestic factors alone should not be considered. If overseas risks expand, domestic financial stock prices can be influenced by foreign factors rather than earnings."

This content was produced with the assistance of AI translation services.