PARIS: Credit Suisse lost almost a quarter of its value on Wednesday (Mar 15), dropping to a new record low after its largest investor said it could not provide the Swiss bank with more financial assistance.
“We cannot, because we would go above 10 per cent. It’s a regulatory issue,” Saudi National Bank chairman Ammar Al Khudairy said on Wednesday.
The Saudi lender acquired a stake of almost 10 per cent last year after taking part in Credit Suisse’s capital raising and committed to investing up to 1.5 billion Swiss francs (US$1.5 billion).
Broader equity markets fell sharply, reversing earlier gains, as Credit Suisse’s drop by as much as 25 per cent re-ignited some of the jitters among investors about the resilience of the global banking system after the collapse of Silicon Valley Bank.
Rapid rises in interest rates have made it harder for some businesses to pay back or service the loans they took from banks, increasing the chances of losses for lenders who are also worried about a recession.
However, European Central Bank policymakers are still leaning towards a half-percentage point rate hike on Thursday, a source told Reuters, as they expect inflation will remain too high in coming years.
Investors had begun to doubt the ECB’s commitment to another big rate hike as Silicon Valley Bank’s collapse sent shockwaves across markets.
But the source said the euro zone’s central bank was unlikely to ditch its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
Speaking at a Morgan Stanley conference on Wednesday, Ralph Hamers, chief executive of Swiss rival UBS said the lender has benefited from recent market turmoil and seen money inflows.
“In the last couple of days as you might expect we’ve seen inflows,” Hamers said. “It is clearly a flight to safety from that perspective, but I think three days don’t make a trend.”
Credit Suisse on Tuesday published its annual report for 2022 saying the bank had identified “material weaknesses” in controls over financial reporting and not yet stemmed customer outflows.
Switzerland’s second-biggest bank is seeking to recover from a string of scandals that have undermined the confidence of investors and clients, including its exposure to the implosions of US asset manager Archegos and UK firm Greensill in 2021.
Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs (US$120 billion), including in the wealth management sector – one of the activities on which the bank intends to refocus as part of a major restructuring plan.
The bank booked a net loss of 7.3 billion Swiss francs (US$7.8 billion) for the 2022 financial year.
The shares fell below the 2-Swiss franc mark for the first time in Zurich as they headed for a seventh straight daily decline.
The cost of insuring the company’s bonds against default shot up. Five-year credit default swaps on Credit Suisse debt widened to 574 basis points from 549 bps at last close, according to data from S&P Global Market Intelligence, marking a new record high.Earlier this week, Credit Suisse CEO Ulrich Koerner told a conference that the bank’s liquidity coverage ratio averaged 150 per cent in the first quarter of this year – well above regulatory requirements.
Bruised US bank stocks had regained some ground on Tuesday, aided by news that private equity and buyout firms were looking to scoop up some of SVB’s assets, leaving investors hopeful that efforts to shore up confidence would avert a wider crisis.
Apollo Global Management, Blackstone and Carlyle Group were among those reported to have expressed interest in a book of loans held by SVB.
Separately, SVB Financial Group said on Tuesday that Goldman Sachs was the acquirer of a bond portfolio on which it booked a US$1.8 billion loss, a transaction that set in motion the failure of SVB.
In Britain, HSBC’s top bosses have called on employees at SVB’s rescued UK arm to assure clients “their deposits are safe and loans are supported” as the process of integration following its takeover begins, a memo from the bank showed.
Meanwhile, Charles Schwab chief executive Walt Bettinger said on Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.
The firm had seen an influx of US$4 billion in assets to its parent company on Friday as clients moved assets to Schwab from other firms, Bettinger told Reuters.
SVB’s shutdown on Mar 10 – followed two days later by the collapse of Signature Bank – forced President Joe Biden to rush out assurances that the US financial system is safe and prompted emergency measures giving banks access to more funding.
In an attempt to avert a similar crisis down the line, the US Federal Reserve is also considering tougher rules and oversight for midsize banks similar in size to SVB.
Adding to the Fed’s conundrum, US inflation data showed few signs of easing in persistent price pressures within the world’s largest economy.
“A mixed set of signals leave the Fed more cautious about its next steps and focused on limiting financial contagion,” said Lombard Odier’s chief investment officer Stéphane Monier.