Credit Suisse Slump Renews Fears of “Global Banking Crisis”

Shares in Credit Suisse have plunged and dragged down other major European lenders as fears about deeper problems in the world banking system have spread in the wake of bank failures in the United States.

Credit Suisse shares lost more than a quarter of their value on Wednesday, hitting a record low after the Swiss bank’s biggest shareholder, the Saudi National Bank, told news outlets that it would not inject more money into the bank, which was beset by problems long before the US banks collapsed.

The turmoil caused an automatic suspension in trading of Credit Suisse shares on the Swiss market and sent stock in other European banks tumbling, some by double digits.

That fanned new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the US.

Credit Suisse stock lost about 30 percent of its value, dropping to about 1.60 Swiss francs ($1.73) per share, before clawing back to a 24 percent loss at 1.70 francs ($1.83) in late afternoon trading on the SIX stock exchange. At its lowest, the price was down more than 85 percent from February 2021.

The Swiss central bank said on Wednesday evening that capital and liquidity levels at Credit Suisse were adequate but stressed it was ready to make liquidity available to the institution if needed.

“Credit Suisse meets capital and liquidity requirements for systemically important banks. In case of need, the SNB will put liquidity at Credit Suisse’s disposal,” the Swiss National Bank and Swiss financial regulator Finma said in a joint statement. 

Meanwhile, stocks on Wall Street fell again as worries grew about the strength of banks on both sides of the Atlantic.

Oil prices also plunged more than $5 a barrel to their lowest in more than a year as unease over the Swiss bank spooked world markets and offset hopes of a recovery in Chinese oil demand.

The S&P 500 was 1.8 percent lower in afternoon trading, and the Dow Jones Industrial Average was down 620 points, or 1.9 percent, at 31,539 as of 1:11pm in New York (17:11 GMT) after earlier being down as many as 725 points. The Nasdaq composite was 1.1 percent lower.

Speaking at a financial conference on Wednesday in the Saudi capital, Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying “we already took the medicine” to reduce risks.

When asked if he would rule out government assistance in the future, he said: “That’s not a topic. … We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”

The turbulence came a day ahead of a meeting by the European Central Bank. President Christine Lagarde said last week, before the US failures, that the bank would “very likely” increase its benchmark rates by half a percentage point to press its fight against inflation. Markets were watching closely to see if the bank carries through despite the latest turmoil.

A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.

The US Treasury said it is monitoring the Swiss bank’s crisis and is in touch with global counterparts about it.

According to William Lee, chief economist at the Milken Institute in the US, the Saudi decision is indicative of deeper troubles at Credit Suisse.

“The Saudis think Credit Suisse may have more troubles than was surmised, and their decision has put an emphasis on investors having to investigate the soundness of large global banks,” he told our reporters.

 

 

 

 

Arab Observer