Credit Suisse sheds 30% after key backer says no more cash injections
CREDIT Suisse lost 30 per cent 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,” said Saudi National Bank chairman Ammar Al Khudairy on Wednesday.
The Saudi lender acquired a stake of almost 10 per cent last year after it took part in Credit Suisse’s capital raising and committed to investing up to 1.5 billion Swiss francs (S$2.19 billion).
Broader equity markets fell sharply, reversing earlier gains, as Credit Suisse’s drop re-ignited some of the jitters among investors about the resilience of the global banking system after the collapse of Silicon Valley Bank.
The firm’s bonds fell to levels that signal deep financial distress, with securities due in 2026 dropping 17.75 US cents to 70 US cents on the dollar in New York. That puts their yield at about 20 percentage points above US Treasuries, according to Trace.
“Markets are very sensitive to the negative news flow after the surprise of seeing a US bank disappear from one day to the other,” said Francois Lavier, head of financial debt strategies at Lazard Freres Gestion. “In a context where market sentiment is already weakened, not much is needed to weaken it even further.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The panic selling in Credit Suisse spread around the world, hitting European banks and dragging US stock markets lower. Two-year yields on German yields fell 50 basis points to below 2.5 per cent in a flight to safety.
Societe Generale and BNP Paribas fell more than 10 per cent. The combined market value lost among European banks was more than US$60 billion on Wednesday.
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. Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs.
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% in the first quarter of this year - well above regulatory requirements. REUTERS, BLOOMBERG
Share with us your feedback on BT's products and services
