Credit Suisse's Request For Public Support From Swiss National Bank Leads To Sell-Off In Bank Stocks

Credit Suisse requested public support from Swiss National Bank as its shares plunged by 30 per cent, leading to a sell-off in bank stocks in the US and Europe.

Credit Suisse's shares hit a low of SFr1.56 on Wednesday (15 March) and talks were underway for a reassuring statement regarding its financial health. The discussions involved three people familiar with the matter.

Credit Suisse requested a similar response from Swiss regulator Finma, but neither party had decided to intervene publicly yet, according to two sources.

Credit Suisse's stock experienced significant drops after the failure of Silicon Valley Bank and the Saudi National Bank (SNB) chair's decision to not offer additional financial aid. The Saudi National Bank purchased a 10 per cent stake in Credit Suisse in 2020.

In the last few years, the bank has faced multiple upheavals, including the collapse of Archegos Capital, resulting in its biggest trading loss ever and the shutdown of $10 billion of investment funds connected to Greensill, which caused considerable damage.

On Wednesday (15 March), the shares of the bank dropped by 24 per cent, leading to a market cap below SFr7 billion ($7.6 billion) despite raising SFr4 billion of capital several months ago.

Shares have decreased 39 per cent this year and 85 per cent in the last two years.

Opimas analyst Octavio Marenzi stated that it appears likely that the Swiss National Bank will need to intervene and offer assistance. This is due to the fact that if Credit Suisse fails or deposit holders incur losses, it could irreparably damage Switzerland's status as a financial hub.

Both the Swiss government and the National Bank understand this potential consequence.

The European Central Bank (ECB) requested EU banks to reveal their relation with the Swiss lender, according to an insider who informed the Financial Times.

The ECB considered making a public statement to calm the situation but decided against it due to concerns of worsening market panic, as of Wednesday (15 March) afternoon.

US Treasury is keeping an eye on the situation and communicating with international partners, according to a spokesperson.

Credit Suisse's troubles sparked further bank stock declines in Europe and the US, adding to the earlier turmoil over Silicon Valley Bank's collapse.

Meanwhile, Deutsche Bank, Barclays, and ING — all lost around 9-10 per cent. As a result, the Stoxx 600 index fell by 2.9 per cent.

This bearish trend extended to Wall Street where the S&P 500 also took a hit, dropping 1.7 per cent at the beginning of trading, led by banks.

Citigroup fell by 2.9 per cent and JPMorgan by 7 per cent, while US regional lenders, previously hit by sell-offs, suffered greater losses.

Europe's banks are struggling as Credit Suisse reminds investors of their large bond holdings that have been impacted by increased interest rates. This comes amid a 16 per cent decline in Stoxx 600 banks this month following SVB's collapse.

Syz Bank's chief investment officer, Charles-Henry Monchau, stated that Credit Suisse is a unique situation. However, European banks were obligated to invest in negative-yielding bonds due to regulatory pressure, resulting in substantial unrealised losses.

Credit Suisse's five-year credit default swaps widened to 1,145 basis points (bp) on Wednesday (15 March), indicating bearishness among investors, from 350 bp at the month's beginning.

Bloomberg TV's interview with SNB chair Ammar Alkhudairy raised the question of whether Saudi National Bank would provide additional funding to Credit Suisse if required.

Alkhudairy responded with a clear "absolutely not" due to various reasons apart from regulatory and statutory compliance.

Having over 10 per cent ownership of Credit Suisse would result in more regulatory obligations, according to the speaker. He expressed satisfaction with the bank's restructuring strategy and claimed that it did not require extra funds, during a media interaction.

At a finance conference in Saudi Arabia, Credit Suisse chair Axel Lehmann stated that the Swiss government's financial assistance is not a matter for the lender.

The bank's spokesperson stated the strong capital ratios and balance sheet despite years of scandals and losses. The bank underwent a radical restructuring, which they deemed as medicine taken already.

The chief executive officer, Ulrich Körner, announced that customers were still withdrawing money from the bank, but at a reduced rate compared to the previous year when Credit Suisse experienced SFr111 billion in outflows.

PwC, the auditor of Credit Suisse, found significant flaws in its financial reporting controls causing delay in releasing the annual report. The US Securities and Exchange Commission demanded more clarification on the matter.