Credit Suisse stocks plummet, fueling further concerns about banking
- March 16, 2023
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Credit Suisse shares fell to an all-time low on Wednesday, stoking renewed jitters about the health of the broader banking sector following the collapse of two US banks.
The Swiss bank plunged as low as $1.88 a share on Wednesday afternoon – down 25% from the previous day’s close – after Credit Suisse’s main shareholder, the Saudi National Bank, announced an increase in its stake in the bank due to restrictions imposed by the Regulators had ruled out various jurisdictions that oversee its investments.
“If we go upstairs [a] 10% [stake]any new rules will come into effect, be it from our regulator or the Swiss regulator or the European regulator,” the head of the Saudi National Bank, Ammar Al Khudairy, told Bloomberg TV on Wednesday. “We are not inclined to get involved in a new regulatory regime.”
On Wednesday, the Swiss National Bank announced it would support Credit Suisse if needed, but stressed that the bank “meets the capital and liquidity requirements imposed on systemically important banks,” giving Credit Suisse shares a boost in after-hours trading awarded.
Credit Suisse later announced in a statement that it would “exercise its option” to borrow up to 50 billion Swiss francs (about $53.6 billion) from the Swiss National Bank to “preventively bolster its liquidity.” .
A former senior Federal Reserve official expressed confidence in Switzerland’s ability to deal with the fallout.
“The Swiss have enough firepower and resources to arrange something so this doesn’t become a systemic event,” the official said.
“Key Weaknesses” in Financial Reports
The day before, Credit Suisse unsettled investors by revealing that it had discovered “material weaknesses” in its 2021 and 2022 financial reports.
“[Credit Suisse] The group’s internal control over financial reporting was not effective as it failed to develop and maintain an effective risk assessment process to identify and analyze the risk of material misstatement in its financial statements,” the bank said in its annual report published on Tuesday.
Federal authorities are investigating the collapse of the Silicon Valley bank 04:16
Concerns about the accuracy of Credit Suisse’s financial reporting and its relationship with investors came under scrutiny after the Greensill Capital and Archegos Capital Management meltdown that hit the bank in 2021 and caused it to lose billions of dollars.
Credit Suisse posted net losses of $8 billion in 2022, its largest annual losses ever, the bank’s records show. Credit Suisse’s wealth management unit also saw net asset outflows of about $133 billion for 2022 as clients shifted their businesses elsewhere, SEC filings show.
“Much Bigger Concern”
Those financial woes, along with the recent collapses of tech-focused Silicon Valley Bank (SVB) and Signature Bank, likely increased the market’s reaction to comments made by the bank’s top investor on Wednesday, said Andrew Kenningham, chief European economist at Capital Economics.
“Credit Suisse has apparently been a slow-moving car wreck for years, but of course today’s news is happening in the maelstrom of SVB,” he told investors in a report.
Kenningham described Credit Suisse’s struggles as “a much bigger concern for the global economy” than the health of regional US banks like SVB. The Swiss company, which has a much larger balance sheet than SVB, is classified as a “global systemically important bank” by financial regulators and has strong ties to financial firms, including subsidiaries in the US
“[T]”Credit Suisse’s woes once again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” he wrote, the only bank to have struggled with weak profitability in recent years.”
As the sell-off in Credit Suisse shares fueled concerns about the global banking system, broader markets have also declined. The S&P 500 fell 0.7% on Wednesday, while the KBW Bank Index, which measures the performance of 24 national and regional banks, fell 3.5%.
CBS News’ Richard Escobedo contributed to this report.