Swiss bourse joins the pack as jitters prevail

Investors look closely at falling stock prices Ex-press

Worldwide stock markets, including the Swiss, continued to show losses on Friday as fears rose over risky mortgage loans in the United States.

The Swiss Market Index (SMI) of leading Swiss blue chips, which recorded a loss of 1.77 per cent on Thursday, was down 2.72 per cent at the end of trading to 8565.52 points.

The European Central Bank on Friday intervened for a second time within 24 hours to add liquidity to money markets, with the US Federal Reserve and Japan’s central bank also injecting money to head off a credit crisis.

Brokerage analyst Claude Zehnder at Zurich Cantonal Bank described the central banks’ intervention as a “wise move” that will calm the situation, which was “serious but not too serious”.

“The problem is still contained to part of the credit sector and we still think it will not be a general credit crunch, so in our opinion this crisis will not derail the whole US economy.

“We don’t see a recession coming in the next year but it will lower the [economic] growth rate for some more quarters. The rest of the world is still growing quite well,” he told swissinfo.

Zehnder said he believed the real economy of Switzerland would only be marginally affected by the current jitters.

Correction

“The [Swiss] stock market is linked to the rest of the world so the correction we are in now could last for some more days, but we don’t see a real bear market coming,” he commented.

A bear market is when there is widespread pessimism, with investors anticipating losses motivating them to sell stock.

Several financial institutions, including BNP Paribas, have admitted they suffered significant losses as a result of investments linked to the credit markets, but Swiss banks seem to be weathering the storm, although their stock prices have suffered.

Second-quarter net profit at Credit Suisse showed a solid SF3.2 billion ($2.68 billion) performance, while that at rival UBS is expected to be around 51 per cent up when it is announced next Tuesday.

However, Zehnder warns that the current situation will negatively affect both Swiss big banks.

Lower profit expectations

He expects lower expectations for profits in the future “not in the sense that they have big problems or losses, but [in that] their prospects have quite diminished.

“The whole mergers and acquisitions business will be much less profitable than over the past few years.”

He sees credit conditions becoming somewhat tougher for Swiss companies but no dramatic deterioration.

As for the performance of the Swiss franc at such a time, Zehnder noted that compared with other crises the currency had gained less in the current situation.

“We think part of the safe haven function of the Swiss franc has maybe gone. We still expect more upward movement of the Swiss franc but only in a moderate manner,” he said.

swissinfo, Robert Brookes

Key facts

The Swiss Market Index (SMI) of leading Swiss blue chip companies closed at 8,565.52 points, 2.72% down on Thursday’s close.
The SMI recorded a loss of 1.77 per cent on Thursday.
The Credit Suisse Group closed at SFr80.65, falling by 3.29% on Thursday’s close.
UBS shares ended at SFr65.35, falling by 2.75% on Thursday’s close.

Risky mortgages in the United States

Sub-prime lending, which is behind the current fears, generally refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history.

Sub-prime mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history and the financial situations often associated with sub-prime applicants.

The sub-prime mortgage crisis refers to the rash of sub-prime mortgage foreclosures that began in the US at the end of 2006 and has continued this year.

It has caused several major lenders, including New Century Financial Corporation, to shut down or file for bankruptcy, leading to the collapse of stock prices for many in the sub-prime mortgage industry.