Credit Suisse shares drop by more than 30% after European banking sell-off

Fears about Credit Suisse’s financial health have fueled another plunge in European bank shares, amid fears that the Zurich-based lender could be next to fall prey to the virus of Silicon Valley Bank’s collapse.

Credit Suisse shares fell by 30% to record lows after investors feared that the chairman of Saudi National Bank (the largest shareholder of the Swiss lender) would not be able to provide additional financial support. Ammar al-Khudairy stated that “we cannot” because we would exceed 10 percent. It’s a regulatory issue.

Investors’ already fragile confidence in Switzerland’s second-biggest bank, which has a significant presence in the UK, was rattled by this. Record-breaking costs were also incurred to insure Credit Suisse’s bonds against default.

Credit Suisse employs more than 5,000 people in London. Its largest business is its investment banking operations. Credit Suisse International, the main British subsidiary, had $62 billion in risk-weighted assets, a measure used to calculate capital a company must have — as of June 2013.

In recent years, the Swiss group has suffered a number of setbacks and scandals. The group’s investor sentiment was further eroded on Tuesday when it announced that had identified “material weakness” in its internal financial reporting controls.

Credit Suisse Chairman Axel Lehmann tried to downplay market concerns about the bank’s viability, saying that the Swiss government’s state aid “isn’t a topic for the lender.”

The bank asked Finma, the regulator of banking, and the Swiss National Bank to make a statement to alleviate market concerns.

Markets were not unaffected. Stoxx Europe 600 Banks Index, which includes British and European lenders, fell by 6.5%.

Since Friday’s collapse of SVB, a California-based bank, the index has been in decline. This has raised concerns about other banks’ potential risks. US regulators also closed Signature, an American lender, on Sunday.

SVB’s implosion resulted from its unhedged exposure bond investments. These had suffered huge losses due to the increase in interest rates worldwide. European banks, on the other hand, have mostly hedged their exposure to bond markets. However, investors remain cautious.

Barclays in London and Standard Chartered dropped nearly 7 percent and 5.8% respectively, while Societe Generale, BNP Paribas and Deutsche Bank fell more than 9% and 7 percent, respectively.

As midday approached, London’s top share index, the FTSE 100, was weighed down with financial stocks and dropped 176.34 point, or 2.3%, to 7,461.88, which is its lowest level since December.

Major European bourses also dropped, with the CAC 40 in France dropping more than 3%, Spain’s Ibex 35 blue chip index falling 3.5 percent, and the German DAX losing 2.5 percent.
Comments from Credit Suisse’s largest shareholder, Saudi National Bank (SNB), that owns less than 10% of the Zurich-based group, were the trigger for today’s sell-off.

Chairman of SNB Ammar Al Khudairy stated that it was not prepared to invest more money in Credit Suisse, as this would make the Saudi group subject to stricter regulations.

International investors are now more nervous than ever after the collapse of Signature Bank and Silicon Valley Bank, two American regional lenders.
The bank has been plagued by years of controversies, setbacks, and which have steadily undermined market confidence in it.

A corporate espionage scam broke out in 2019. It culminated in Tidjane Thiam being fired as the bank’s chief executive.

The twin collapses of Greensill (a London-based supply chain finance company) and Archegos (an investment firm) also hit the lender in 2021. Because it had $10 billion in funds that were linked to the failing firm, the bank became embroiled with the Greensill debacle. Credit Suisse suffered a $5.5 billion loss after Archegos, a large client of the Swiss bank.

The bank was also involved in other scandals, such as the “tuna-bond” scandal. This led to the American and British regulators imposing a $475 million fine on the lender in October 2021. Credit Suisse was also found guilty last year in Switzerland of failing prevent money laundering by Bulgarian drug traffickers. The bank appeals the decision.

Investors were even more rattled this week when the Swiss bank announced that it had discovered “material weakness” during its internal financial reporting controls.

Due to its poor investment banking arm, the group’s financial performance has been woeful. Last year, it suffered a SwFr7.29 million annual loss, its worst performance since 2008.
The UK branch of Silicon Valley Bank, which had PS6.7billion of deposits last week when UK regulators intervened, is a tiny speck compared to Credit Suisse’s British operations. With more than 5,000 employees at its Canary Wharf offices, the Zurich-based bank has a large presence in London. Its activities in London are mainly focused around investment banking.

Although it doesn’t break down its British business in its group annual reports, Credit Suisse International’s last report on its UK investment banking subsidiary Credit Suisse International showed that it had $62 Billion of risk-weighted assets at June last year.
The bank’s bosses insist that this is not true. Ulrich Korner, chief executive, stated that the bank’s capital and liquidity base are very strong. He said, “We fulfill and exceed basically all regulatory requirements.”

Chairman Axel Lehmann also denied speculation that the lender might need state aid. Despite this, today’s record-breaking cost to insure Credit Suisse’s bonds against default soared. To ease fears in the market about its financial health, the bank has asked Finma and Swiss National Bank to issue statements.

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