Swiss Banking Giant Credit Suisse Struggling To Survive

Swiss Banking Giant Credit Suisse Struggling To Survive

Credit Suisse, a 166-year-old institution that was once a symbol of Swiss pride, is struggling to survive as investors, fearing that the bank could run out of money, sold off its stock and sent the price of insuring its debt against a default soaring.

After European markets closed, the Swiss National Bank stated that it would step in and provide support to Credit Suisse “if necessary”.

The trigger for the significant drop in the bank’s stock on Wednesday was a statement by Ammar Al Khudairy, the chairman of the Saudi National Bank, the bank’s largest shareholder. During a televised interview, Mr. Al Khudairy stated that the state-owned bank would not provide additional funding to Credit Suisse. He later clarified that his bank would not exceed the 9.9 percent it already owned due to regulatory issues. Nevertheless, investors hastily abandoned Credit Suisse shares.

This knee-jerk reaction shows how nervous investors are about the stability of the global financial system following the recent collapse of Silicon Valley Bank. The bank’s sudden demise alerted investors and depositors to potential risks that could threaten other banks, both in the US and globally, sparking a broad-based sell-off in bank stocks and financial markets.

The problems facing Credit Suisse, whose headquarters are over 5,800 miles from Silicon Valley Bank’s base in California, are separate and mostly of its own making. On Tuesday, the Swiss bank announced that it had identified “material weaknesses” in its financial reporting. Credit Suisse’s shares fell 24 percent on Wednesday on the SIX Swiss Exchange, reaching 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 surged to their highest levels on record.

Unlike Silicon Valley Bank, Credit Suisse is considered a globally important financial institution with $569 billion in assets and much stricter capital requirements. There is no indication of a significant shortfall in the bank’s balance sheet, and it has tens of billions of dollars in cash stored at central banks worldwide that it can draw upon, according to Johann Scholtz, a research analyst at Morningstar.

However, the costs of funding its operations have risen significantly. By the close of the European trading day, it became apparent that Credit Suisse needed to act quickly due to the higher cost of its overnight funding, based on the price of its credit-default swaps.

“We’ve gone past the point where they can do nothing,” Mr. Scholtz stated before Swiss authorities issued their statement.

Credit Suisse has been hit by years of financial missteps, including significant trading losses and scandals that led to the departure of two chief executives in three years. The firm has implemented a comprehensive turnaround plan, which includes spinning out its Wall Street investment bank. Still, investors have questioned whether ongoing losses and client departures have jeopardized that effort.

After European markets closed on Wednesday, the Swiss National 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. Nonetheless, they noted that Credit Suisse’s stock and debt prices had fallen and that the Swiss National Bank would support the bank if necessary.

The renewed concerns about Credit Suisse weighed heavily on global banks as investors worried about their exposure to the Swiss firm. European lenders such as BNP Paribas and Société Générale of France experienced double-digit declines in their stock, while American counterparts.