By Liam Cosgrove
Credit Suisse’s shares fell to a fresh record low for the fifth consecutive day on March 15, following news that its largest investor, Saudi National Bank (SNB), ruled out increasing its stake in the Swiss bank because of regulatory restrictions.
Swiss-listed Credit Suisse shares ended the session down 24 percent; the bank’s U.S.-traded American depositary receipts fell 14 percent. Other U.S.-based bank stocks took hits as well, with JPMorgan closing down almost 5 percent and Wells Fargo and Goldman Sachs closing down about 3 percent. Bank of America fell less than 1 percent.
Trading of Credit Suisse shares was suspended multiple times on the Swiss exchange as the stock dropped below 2 Swiss francs and below $2 on the New York Stock Exchange for the first time on each exchange. Credit Suisse’s plummeting share price also contributed to a broader rout among European lenders, with Société Générale, Banco de Sabadell, and Commerzbank among the hardest hit.
In an environment of dry liquidity, investors are shaken to hear that Saudi money may be cut off.
Last year, SNB took a 9.9 percent stake in Credit Suisse to support a strategic overhaul to improve investment banking performance and address risk factors. In an interview with Reuters on March 15, the Middle Eastern bank revealed that it wanted to increase its equity stake in Credit Suisse but couldn’t due to legal barriers.
“We cannot because we would go above 10 percent. It’s a regulatory issue,” SNB Chairman Ammar Al Khudairy said. He added that SNB was satisfied with the Swiss bank’s prospects and its financial turnaround plan, despite recent scandals.
“We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank,” he said. “I don’t think they will need extra money; if you look at their ratios, they’re fine.”
“They operate under a strong regulatory regime in Switzerland and in other countries.”
Credit Suisse CEO Ulrich Koerner has stated that the bank meets all regulatory requirements and its liquidity basis is “very, very strong,” he said in an interview with CAN on March 15.
Swiss Bailouts for Suisse?
Investors remain concerned about the impact of the bank’s recent disclosure that it identified “material weaknesses” in its financial reporting processes for 2021 and 2022.
According to some hedge fund managers, the troubles at Credit Suisse were a long time coming, and the SNB development didn’t come as a surprise.
“I think this a complete non-event,” Harris Kupperman, founder of Praetorian Capital Management, told The Epoch Times. “Everyone has been expecting this for a decade.”
The bank is reportedly seeking government assistance from the Swiss Financial Market Supervisory Authority and the Swiss National Bank (Switzerland’s central bank), according to the Financial Times. The central bank, in a statement on March 15, said it stands ready to assist Credit Suisse as it monitors the volatility hitting the global financial system.
“It is looking inevitable that the Swiss National Bank will have to intervene and provide a lifeline,” Opimas analyst Octavio Marenzi told the Financial Times. “The Swiss National Bank and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial center.”
Earlier this week, U.S. regulators opted to protect all deposits at the failed Silicon Valley Bank and Signature Bank. The move appears to have temporarily arrested a widespread panic, but Kupperman was unhappy with the decision, saying it rewards incompetence.
He said, “People should live and die by their own bad decisions.”