It looks as though Credit Suisse is likely to be the next casualty in the banking crisis triggered by the collapse of California-headquartered Silicon Valley Bank earlier this week.
Trading was temporarily halted on several bank stocks this morning due heavy losses and central banks and governments have been trying to limit the contagion from SVB’s decline by pausing planned interest rate hikes. It was the relationship between interest rates and government bonds that led to the collapse of SVB. Rising rates negatively impacted the price of bonds, which SVB was heavily invested in, causing a rapid decline in the value of their portfolio. This spooked investors, leading to a run on the bank.
Fears of the issue becoming global are starting to crystallise: shares in Credit Suisse dropped 26% to a record low this morning after its largest investor confirmed it would not be able to pump much-needed capital into the beleaguered bank due to regulatory restrictions.
Ammar Al Khudairy, Chairman of Saudi National Bank, which currently has a 9.9% stake in Credit Suisse, said the firm could “absolutely not” increase its investment as it would take it over the regulatory limit of 10%.
Credit Suisse chairman, Axel Lehmann, said earlier this week that it was not looking into government assistance. Speaking at the Financial Sector Conference in Saudi Arabia, Lehmann said the bank’s situation is not comparable to that of SVB, because it operates under different regulatory obligations. “We have strong capital ratios, a strong balance sheet. We already took the medicine,” he said.
Nonetheless, the Swiss lender’s plummeting share price has triggered a global selloff in banking shares, impacting some of the world’s largest banks, including JPMorgan, Wells Fargo and Citigroup. Approximately 90% of S&P 500 listed companies were down today (Wednesday).
CEO Ulrich Koerner told Bloomberg on Tuesday that the bank was in a good financial position, with a 150% liquidity coverage ratio. However, the bank confirmed later that day plans to borrow up to US$54bn from the Swiss central bank to improve liquidity.
