When its shares plunged as much as 30%, causing a larger sell-off in European and US bank markets, Credit Suisse has requested public backing from the Swiss National Bank.
According to three persons with knowledge of the discussions, the desire for a comforting statement regarding Credit Suisse’s financial health came after its shares dropped as low as SFr1.56 on Wednesday after having previously been suspended during a sharp sell-off.
According to two of the persons, Credit Suisse requested a similar reaction from Finma, the Swiss regulator, but neither organization had yet made the decision to openly intervene.
The sharp share price drops followed the failure of Silicon Valley Bank in the US and the head of the Saudi National Bank, which last year purchased a 10% interest in Credit Suisse, saying that it would not be giving the Swiss lender any more financial support.
Number of Scandals
A number of scandals have rocked the bank in recent years, including the greatest trading loss in its 167-year history due to Archegos Capital’s bankruptcy and the disastrous closure of $10 billion in investment funds connected to the defunct Greensill financing company.
The bank just raised SFr4 billion in capital, and on Wednesday, its shares finished down 24% as its market valuation fell below SFr7 billion ($7.6 billion).The share price has decreased by 39% this year and by 85% over the last two years.
According to Opimas analyst Octavio Marenzi, it is certain that the Swiss National Bank will need to step in and throw a lifeline. The demise of Credit Suisse or even any losses to depositors would damage Switzerland’s reputation as a financial centre, which is something that both the Swiss government and the Swiss National Bank are fully aware of.
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A request for comment from Finma was not immediately answered, and neither the Swiss National Bank nor Credit Suisse provided any.
Separately, a source with knowledge of the situation told the Financial Times that the European Central Bank has requested EU lenders to reveal their exposures to the Swiss firm.
According to the source, the ECB contemplated issuing a statement to the public in an effort to calm the seas, but as of Wednesday afternoon, it had opted against doing so for fear of escalating the panic in the markets.
“Treasury is watching this issue and has been in communication with worldwide peers,” a US Treasury spokeswoman said on Wednesday.
A wider sell-off in bank equities in Europe and the US, which were already in trouble this week due to Silicon Valley Bank’s bankruptcy, was sparked by Credit Suisse’s problems.
Shares of BNP Paribas sank 10%, while those of Société Générale plunged 12%. ING plummeted 10%, while Barclays and Deutsche Bank both lost 9%. Global equity markets were driven down, with the Stoxx 600 index in Europe falling 2.9%. The selling moved to Wall Street, where banks led an early 1.7% decline in the S&P 500.
Shares of Citigroup fell 2.9%, while those of JPMorgan fell 7.0%. The US regional lenders at the centre of this week’s sell-off fell even harder.
As a result of the demise of SVB, banks on the Stoxx 600 have already dropped 16% this month.
Investors said that Credit Suisse‘s issues served as a reminder of the huge bond holdings that European banks likewise possessed that had been severely damaged by increasing interest rates.
Charles-Henry Monchau, chief investment officer of Syz Bank, claimed that the situation involving Credit Suisse was unique. But, due to regulatory pressure, banks in Europe were forced to buy a lot of negative-yielding bonds at the worst possible moment, and as a result, they are now dealing with significant unrealized losses.
On Wednesday, the spreads on Credit Suisse’s five-year credit default swaps, a sign of investor pessimism, increased to 1145 basis points from 350bp at the beginning of the month.
Ammar Alkhudairy, chair of the Saudi National Bank, was asked on Bloomberg TV if the bank would be willing to provide money to Credit Suisse in the event of a financing need. He responded: “The answer is certainly not, for numerous reasons outside of the simplest reason which is legal and statutory.”
He said that owning more than 10% of Credit Suisse would result in new regulations. He added that he was pleased with the bank’s restructuring strategy and did not believe it required more capital in remarks to media present at the occasion.
The cost of insuring Credit Suisse’s debt increases
Axel Lehmann, chairman of Credit Suisse, stated on Wednesday that the company “doesn’t think about” receiving financial support from the Swiss government in a separate interview at a banking conference in Saudi Arabia.
He stated, “We have solid capital ratios, a robust balance sheet, and the bank is currently implementing a fundamental restructure designed to stop years of scandals and losses. We have already taken the medication.
Customers were still withdrawing funds from the bank, but at a far lower rate than in late 2017, when Credit Suisse had SFr111bn in withdrawals, according to chief executive Ulrich Körner.
Additionally, Credit Suisse disclosed on Tuesday that PwC, its auditor, had found “material weaknesses” in its financial reporting controls. As a result, the US Securities and Exchange Commission delayed the publication of Credit Suisse’s annual report last week in order to get more information on the issues.
Sam Jones, Martin Arnold, Katie Martin, and James Politi contributed more reporting.