Credit Suisse has appealed to the Swiss National Bank for a public show of support after its shares cratered as much as 30 per cent, sparking a broader sell-off in European and US bank stocks.
The request for a reassuring statement about Credit Suisse’s financial health came after its shares sank as low as SFr1.56, having earlier been halted amid a heavy sell-off, according to three people with knowledge of the talks.
Credit Suisse also asked for a similar response from Finma, the Swiss regulator, two of the people said, but neither institution has yet decided to intervene publicly.
The steep share price declines came in the wake of the collapse of Silicon Valley Bank in the US and after the chair of the Saudi National Bank (SNB), which bought a 10 per cent stake in Credit Suisse last year, ruled out providing the Swiss lender with any more financial assistance.
Credit Suisse’s market cap slipped below SFr7bn ($7.6bn), with the bank having raised SFr4bn of capital just a few months ago. By Wednesday mid-afternoon the shares were 17 per cent down.
“It is looking inevitable that the Swiss National Bank will have to intervene and provide a lifeline,” said Octavio Marenzi, analyst at Opimas. “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 centre.”
Finma did not immediately respond to a request for comment; the Swiss National Bank and Credit Suisse declined to comment.
Separately, the European Central Bank has asked EU lenders to disclose their exposures to the Swiss lender, a person familiar with the matter told the Financial Times.
The ECB debated the pros and cons of making a public statement to try and calm the waters, but as of Wednesday afternoon it had decided against doing so for fear of only adding to market panic, the person added.
The latest woes at the troubled Swiss lender reignited a broader sell-off in bank stocks in Europe and the US, which were already reeling this week from the fallout following the collapse of Silicon Valley Bank.
BNP Paribas shares dropped 9 per cent and Société Générale fell 11 per cent. Deutsche Bank and Barclays lost 7 per cent, while ING fell 8 per cent. Wider equity markets were dragged lower, with the Europe-wide Stoxx 600 dropping 2.4 per cent. The selling spread to Wall Street as US markets opened, with the S&P 500 down 1.8 per cent in early trade led by banks.
Citigroup shares dropped 5 per cent and JPMorgan lost 4.6 per cent. US regional lenders at the centre of a sell-off earlier this week fell more sharply. First Republic Bank dropped 13 per cent, while PacWest was 14 per cent lower.
Banks on the Stoxx 600 have now lost 16 per cent over the past week in a rout sparked by SVB’s failure after the Californian lender was forced to take huge losses on its bond portfolio. Investors said Credit Suisse’s problems were a reminder that Europe’s banks also had large holdings of bonds that had been hammered by rising interest rates.
“Credit Suisse is an isolated case,” said Charles-Henry Monchau, chief investment officer at Syz Bank. “But banks in Europe, because of regulatory pressure, had to load up on negative-yielding bonds at the worst time and now they are facing major unrealised losses on the balance sheet and the market is questioning whether Europe could see the same issue as the US.”
Bond markets rallied as investors ramped up bets on interest rate cuts from the Federal Reserve later this year. Markets now expect, at most, one quarter-point interest rate rise from the US central bank by May, followed by up to 1.25 percentage points of cuts by December. Before SVB’s collapse, investors expected a half-point increase later this month, and for rates to stay high for the remainder of 2023.
Credit Suisse on Tuesday revealed that its auditor, PwC, had identified “material weaknesses” in its financial reporting controls, which had led to the delay of the publication of its annual report last week after the US Securities and Exchange Commission wanted further clarity on flaws.
The spreads on the bank’s five-year credit default swaps, which indicate investor bearishness, widened to 565 basis points on Wednesday, from 350bp at the start of the month.
Asked on Bloomberg TV whether Saudi National Bank would be open to providing capital to Credit Suisse if there was a call for additional funding, SNB chair Ammar Alkhudairy said: “The answer is absolutely not, for many reasons outside the simplest reason which is regulatory and statutory.”
He said owning more than 10 per cent of Credit Suisse would bring additional regulatory requirements. In comments to journalists at the event, he added that he was happy with the bank’s restructuring plan and did not feel it needed further capital.
In a separate interview at a finance conference in Saudi Arabia, Credit Suisse chair Axel Lehmann said on Wednesday that financial assistance from the Swiss government “isn’t a topic” for the lender.
“We have strong capital ratios, a strong balance sheet,” he said, adding that the bank was in the process of executing a radical restructuring aimed at arresting years of scandals and losses. “We already took the medicine.”
A day earlier, chief executive Ulrich Körner said customers were continuing to pull money from the bank, but at a much lower level than late last year, when Credit Suisse suffered SFr111bn of outflows.
Credit Suisse shares are down 35 per cent this year and 84 per cent over the past two years.
Additional reporting by Katie Martin, Martin Arnold and Sam Jones
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