Credit Suisse troubles erupt into full-blown crisis as banks seek protection

THE long-brewing troubles at Credit Suisse Group exploded into a full-blown crisis on Wednesday (Mar 15) as its stock and bonds cratered and some of the world’s biggest banks raced to shield their finances from the potential fallout.

The stock fell as much as 31 per cent, hitting new record lows, and prices on its benchmark bonds sank to levels that indicate the Swiss lender is in deep financial stress — something rarely, if ever seen at a major global bank since the throes of the 2008 crisis. Meanwhile, banks that trade with Credit Suisse snapped up contracts, known as credit-default swaps, that will compensate them if the crisis deepens.

At least one bank, BNP Paribas, went a step further and informed clients it will no longer accept requests to take over their derivatives contracts when Credit Suisse is the counterparty, according to people familiar with the matter. This adds to the steps that many banks in the US had been taking over the course of months to slowly reduce their exposure to the lender.

As the day went on and the crisis convulsed global financial markets, authorities in Switzerland sought to stem the damage, releasing a statement in their evening pledging to provide Credit Suisse with emergency financing if needed.

“The trading levels have become somewhat a crisis in confidence in Credit Suisse,” said Mark Heppenstall, president of Penn Mutual Asset Management. “People are looking for any way possible to get protection.”

Wednesday’s panic was sparked by a statement from Credit Suisse’s biggest shareholder, the Saudi National Bank. When the bank’s chairman, Ammar Al Khudairy, was asked if he was willing to inject more cash into Credit Suisse, he responded “absolutely not”. That was nothing new, really — the bank has maintained that position for a while now — but it was enough to unnerve investors already on edge after three regional US banks failed in a span of days.

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In the aftermath, the lender’s dollar bonds plunge as much as 40 cents on the dollar, by far the worst performing globally. Quotes for one-year credit default swaps surged above levels on longer durations as lenders tried to give themselves a near-term shield from their exposure, according to people with knowledge of the matter.

While Credit Suisse’s American depositary receipts pared losses after the announcement by Swiss authorities, they were still down 14 per cent at the close of regular trading in New York. The pain bled into the rest of the banking sector, with Morgan Stanley and Citigroup each tumbling more than 5 per cent, while JPMorgan Chase & Co, Goldman Sachs Group and Wells Fargo & Co all sank more than 3 per cent.

All of which underscores just how high angst now is — both surrounding the fate of Credit Suisse and, more broadly, a global economy that’s been shaken by central bankers trying to rapidly quell an inflation outbreak. Recession fears sent the price of oil tumbling below US$70 a barrel for the first time since 2021 in the US.

Amid the tumult, broader concern about the outlook for the global banking system began to seep into dollar funding markets.

Rates on overnight repurchase agreements moved higher for a period, pointing to stronger demand and general jitteriness. And a number of other market indicators, including the gap between forward-rate agreements and overnight index swaps, also indicated heightened tension.

Unlike the regional banks that fell in the US, “Credit Suisse is a global systemically important banking institution,” said Scott Kimball, managing director of fixed income at Loop Capital Asset Management, which has a position in the lender’s bonds. “The persistent problems at Credit Suisse carry bigger problems for the credit markets,” he added. “They can’t seem to get the ship right.” BLOOMBERG