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Swiss Authorities Say They Will Back Credit Suisse After Shares Plunge Swiss Central Bank Says It Will Backstop Ailing Credit Suisse if Necessary
(32 minutes later)
The Swiss National Bank, the country’s financial regulator, said on Wednesday that it would financially support Credit Suisse, if necessary, after the bank’s stock price plunged to a record low a day after it had warned of problems in its financial reports. Credit Suisse, the 166-year-old institution that was once an emblem of Swiss pride, is fighting for its life after investors, fearing that the bank would run out of money, dumped its stock and sent the price of insuring its debt against a default skyrocketing.
A decline of about 24 percent in Credit Suisse’s shares raised new worries about the banking industry on a day when broader European stock markets suffered sharp losses. The price of its bonds dropped as much as 47 percent and the cost of financial contracts that insure against a default by the bank spiked, according to Markit, a data provider. After the close of trading in Europe, Switzerland’s central bank, the Swiss National Bank, said that it would step in and provide support to Credit Suisse “if necessary.”
The bank’s largest shareholder, Saudi National Bank, earlier ruled out providing more money for Credit Suisse as it struggles with its latest turnaround plan.The turmoil in Europe came as investors were already anxious over the collapse of Silicon Valley Bank and Signature Bank in the United States last week. Though those banks are relatively small, their sudden shutdown has sent a shudder through financial markets as investors worry about spiraling risk in the system. The immediate catalyst for a perilous drop on the bank’s stock on Wednesday was a comment by Ammar Al Khudairy, the chairman of the Saudi National Bank, the bank’s largest shareholder. In a televised interview, Mr. Al Khudairy said that the state-owned bank would not put more money into Credit Suisse. He later clarified that his bank would not go above the 9.9 percent it already owned because of regulatory issues.
Credit Suisse’s troubles, however, are largely separate, and of its own making. The firm has suffered blow after blow in recent years, from big trading losses to spying scandals that led to ouster of a chief executive. That did not stop investors from abandoning Credit Suisse shares hurriedly.
“The problems of certain banks in the U.S.A. do not pose a direct risk of contagion for the Swiss financial markets,” the Swiss National Bank said in a joint statement with the Swiss Financial Market Supervisory Authority. The kneejerk reaction was further evidence of just how panicked investors are about the stability of the global financial system following the collapse of Silicon Valley Bank last week. The bank’s rapid demise woke up investors and depositors to potential risks that could threated other banks, both in the United States and globally, and has catalyzed a broad-based sell-off in bank stocks and financial markets.
Credit Suisse had hoped that a plan announced in October to restructure itself, a reorganization that called for spinning off its investment bank to concentrate on managing global elites’ wealth, would be enough to turn around its fortunes. But the troubles of Credit Suisse — whose colonnaded headquarters in Zurich are more than 5,800 miles from Silicon Valley Bank’s base in California — are separate and largely of its own making. It did not help that on Tuesday, the Swiss bank said it had identified “material weaknesses” related to its financial reporting.
But it instead has continued to beat back negative news, including the disclosure on Tuesday that it had found “material weakness” in its financial reporting controls. That discovery came after queries by the Securities and Exchange Commission, which forced the company to delay publication of its annual report. Shares in Credit Suisse tumbled 24 percent on Wednesday on the SIX Swiss Exchange, hitting a record low, and the price of its bonds dropped sharply as well. The cost of financial contracts that insure against a default by the bank spiked to their highest levels on record.
On Wednesday, the chairman of the state-owned Saudi National Bank — which, as part of the firm’s turnaround plan, agreed to invest up to $1.6 billion for a nearly 10 percent stake, making it the Credit Suisse’s largest shareholder — ruled out any more investments in the firm. Unlike Silicon Valley Bank, Credit Suisse is considered a global systemically important financial institution, with $569 billion in assets as of year end and vastly stricter capital requirements. There is no sign of a gaping hole on the bank’s balance sheet and it has tens of billions of dollars in cash stored at central banks across the world that it can draw upon, said Johann Scholtz, a research analyst at Morningstar.
But the reason the Saudi bank provided did not have to do with losing faith in Credit Suisse’s finances. But the costs to fund its operations have jumped significantly higher.
Asked on Bloomberg Television if Saudi National Bank would help finance additional turnaround efforts, the chairman, Ammar Al Khudairy, said, “The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory.” By the end of the trading day in Europe, it became clear that Credit Suisse’s higher costs of overnight funding, based on the price of its credit-default swaps, meant it needed to move quickly.
If Saudi National Bank were to raise its stake above 10 percent, it would be subject to additional Swiss regulations that Mr. Al Khudairy said he was not interested in becoming subject to. “We’ve gone past the point where they can do nothing,” Mr. Scholtz said before the Swiss authorities issued their statement.
Mr. Al Khudairy added that he was satisfied with Credit Suisse’s turnaround plan and believed the firm would not need additional capital, according to Reuters. Credit Suisse has been battered by years of financial missteps, including huge trading losses and scandals that have cost it two chief executives over three years. The firm has embarked on a sweeping turnaround plan, which includes spinning out its Wall Street investment bank, even as investors have questioned whether ongoing losses and client departures have endangered that effort.
After European markets closed on Wednesday, Switzerland’s central bank and Finma, the country’s financial regulator, issued a joint statement certifying Credit Suisse’s financial health.
The firm “meets the higher capital and liquidity requirements applicable to systemically important banks” and was not directly at risk from the banking turmoil in the United States, the two said. Still, they noted that Credit Suisse’s stock and debt prices had fallen — and that the Swiss National Bank would backstop the bank if needed.
The firm’s shares had already been battered on Tuesday by its disclosure about problems in its financial reporting controls. That discovery came after queries by the Securities and Exchange Commission, which forced the company to delay publication of its annual report.
The renewed worries about Credit Suisse weighed heavily on global banks, as investors worried about their exposure to the Swiss firm. Shares of European lenders like BNP Paribas and Société Générale of France fell by double digits, while American counterparts including JPMorgan Chase and Citigroup were also down.
Joe Rennison contributed reporting.