Coronavirus and oil crash: the financial world panics

Faced with the major health crisis which is shaking the world, the fall of the markets is vertiginous. We recorded a 23% drop in Paris and Frankfurt compared to the highest since the beginning of the year, more than 17% drop in the United States. The weak link is those companies which have benefited in recent years from easy financing conditions to accumulate a lot of debt. However, with the cessation of activity caused by the virus, they are taken by the throat.

Stock market crash and oil crash, the financial world is giving in to the panic of the virus. The crisis is global.

We have rarely experienced such a rout indeed. On Wall Street, we even had to activate the circuit breakers, that is to say suspend the stock market for 15 minutes to avoid a total collapse. It hadn't happened in almost a quarter of a century. The fall in the markets is dizzying with a 23% drop in Paris and Frankfurt compared to the highest since the beginning of the year, more than 17% fall in the United States. Bank stocks in particular are on the mat. Societe Generale has plummeted more than 40% since mid-February and BNP Paribas by 37%. Should we panic? Banks, in fact, are stronger, better capitalized, better regulated than during the great financial crisis of 2008. It is not on this side that there is the most concern to have.

Where can the danger come from?

The weak link is those companies which have benefited in recent years from easy financing conditions to accumulate a lot of debt. However, with the cessation of activity caused by the virus, they are taken by the throat. They will not find funding. The subprime crisis of 2008 was part, you remember, of these overly indebted individuals who could no longer meet their maturities and therefore who were defaulting on their property debt. And it had a snowball effect. This time, the risk is that there will be a snowball effect coming from overly indebted companies that are no longer able to finance themselves. Do you want a glimmer of hope in this landscape? The epidemic is waning as it seems to be the case in China. And that after three months of economy at a standstill, the activity will resume by summer. But three months will be very long for all those who are already on the verge of suffocation.