Shares of Credit Suisse crashed more than 20 per cent on Wednesday to a new record low after its biggest backer appeared to rule out providing any more funding for the embattled Swiss lender.
Stocks were also back to falling on Wall Street overnight as worries worsen about the strength of banks on both sides of the Atlantic.
The S&P 500 was 1.5 per cent lower in morning trading, while markets in Europe fell more sharply as shares in the Swiss bank tumbled. The Dow Jones Industrial Average was down 482 points, or 1.5 per cent, at 31,672 as of 10.15am Eastern time (1.15am AEDT), while the Nasdaq composite was 1.2 per cent lower.
Wall Street’s harsh spotlight has intensified across the banking industry recently on worries about what may crack next following the second- and third-largest bank failures in US history last week.
Stocks of US banks tumbled again on Wednesday after enjoying a brief, one-day respite on Tuesday.
Larger banks weren’t hit as hard but still fell. JPMorgan Chase slid 3.6 per cent.
Much of the damage is seen as the result of the Federal Reserve’s fastest barrage of hikes to interest rates in decades.
The Fed has pulled its key overnight rate to a range of 4.50 per cent to 4.75 per cent, up from virtually zero at the start of last year, in hopes of driving down painfully high inflation.
The Reserve Bank of Australia has also been making steep hikes but the target cash rate remains below that in the US.
‘The answer is absolutely not, for many reasons’
Across the Atlantic, Credit Suisse has been fighting troubles for years, including losses it took from the 2021 collapse of investment firm Archegos Capital.
In an interview with Bloomberg, the chairman of the Saudi National Bank said it would not increase its stake in Credit Suisse.
“The answer is absolutely not, for many reasons. I’ll cite the simplest reason, which is regulatory and statutory,” Ammar Al Khudairy told Bloomberg.
“We now own 9.8 per cent of the bank — if we go above 10 per cent all kinds of new rules kick in, whether be it by our regulator or the European regulator or the Swiss regulator.
“We’re not inclined to get into a new regulatory regime.”
He made similar comments to Reuters on the sidelines of a conference in Saudi Arabia.
Once a big player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance failures over the past few years that have damaged its reputation and profit, and cost several top executives their jobs.
In October, the lender embarked on a “radical” restructuring plan that entails cutting 9000 full-time jobs, spinning off its investment bank and focusing on wealth management.
The Saudi National Bank — which describes itself as the kingdom’s biggest bank — committed $US1.5 billion ($2.25 billion) of the $US4 billion ($6 billion) in new capital Credit Suisse raised to fund its overhaul.
Al Khudairy said that he was pleased with the restructuring, adding that he didn’t think the Swiss lender would need extra money.
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“We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank,” Al Khudairy said in the interview with Reuters.
“I don’t think they will need extra money; if you look at their ratios, they’re fine. And they operate under a strong regulatory regime in Switzerland and in other countries,” Al Khudairy said.
Credit Suisse declined to comment.
Markets flash warning signs
The bank’s shares were trading down nearly 22 per cent in Zurich on Wednesday, and the cost of buying insurance against the risk of a Credit Suisse default hit a new record high, according to S&P Global Market Intelligence.
The crash spilled over into other European banking shares, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8 per cent and 10 per cent.
Customers withdrew billions from Credit Suisse last year, contributing to the bank’s biggest annual loss since the global financial crisis in 2008. And the blows keep coming for Switzerland’s second biggest bank.
On Tuesday, it acknowledged “material weakness” in its financial reporting and scrapped bonuses for top executives.
Credit Suisse said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to financial statements.
The board concluded that the “material weakness could result in misstatements of account balances or disclosures that would result in a material misstatement to the annual financial statements of Credit Suisse”, the annual report said. Credit Suisse is urgently developing a “remediation plan” to strengthen controls.
Speaking to Bloomberg TV on Tuesday, Credit Suisse CEO Ulrich Körner said the bank saw “material good inflows” of money on Monday, even as markets were spooked by the collapse of Silicon Valley Bank and Signature Bank in the United States.
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Outflows from the bank had “significantly moderated” after customers withdrew 111 billion francs ($18.2 billion) in the three months to December, Körner added. In its annual report, the bank said outflows had not yet reversed by the end of last year.
Körner said the collapse of SVB was “somewhat of an isolated problem.”
Credit Suisse follows “materially different and higher standards when it comes to capital funding, liquidity and so on”, he added.
