Credit Suisse, the 166-year-old institution that was once an emblem of Swiss pride, is fighting for its life after investors, fearing that the bank would run out of money, dumped its stock and sent the price of insuring its debt against a default skyrocketing.
After the close of trading in Europe, Switzerland’s central bank, the Swiss National Bank, said that it would step in and provide support to Credit Suisse “if necessary.”
The immediate catalyst for a perilous drop on the bank’s stock on Wednesday was a comment by Ammar Al Khudairy, the chairman of the Saudi National Bank, the bank’s largest shareholder. In a televised interview, Mr. Al Khudairy said that the state-owned bank would not put more money into Credit Suisse. He later clarified that his bank would not go above the 9.9 percent it already owned because of regulatory issues.
That did not stop investors from abandoning Credit Suisse shares hurriedly.
The kneejerk reaction was further evidence of just how panicked investors are about the stability of the global financial system following the collapse of Silicon Valley Bank last week. The bank’s rapid demise woke up investors and depositors to potential risks that could threated other banks, both in the United States and globally, and has catalyzed a broad-based sell-off in bank stocks and financial markets.
But the troubles of Credit Suisse — whose colonnaded headquarters in Zurich are more than 5,800 miles from Silicon Valley Bank’s base in California — are separate and largely of its own making. It did not help that on Tuesday, the Swiss bank said it had identified “material weaknesses” related to its financial reporting.
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The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
Shares in Credit Suisse tumbled 24 percent on Wednesday on the SIX Swiss Exchange, hitting 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 spiked to their highest levels on record.
Unlike Silicon Valley Bank, Credit Suisse is considered a global systemically important financial institution, with $569 billion in assets as of year end and vastly stricter capital requirements. There is no sign of a gaping hole on the bank’s balance sheet and it has tens of billions of dollars in cash stored at central banks across the world that it can draw upon, said Johann Scholtz, a research analyst at Morningstar.
But the costs to fund its operations have jumped significantly higher.
By the end of the trading day in Europe, it became clear that Credit Suisse’s higher costs of overnight funding, based on the price of its credit-default swaps, meant it needed to move quickly.
“We’ve gone past the point where they can do nothing,” Mr. Scholtz said before the Swiss authorities issued their statement.
Credit Suisse has been battered by years of financial missteps, including huge trading losses and scandals that have cost it two chief executives over three years. The firm has embarked on a sweeping turnaround plan, which includes spinning out its Wall Street investment bank, even as investors have questioned whether ongoing losses and client departures have endangered that effort.
After European markets closed on Wednesday, Switzerland’s central 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. Still, they noted that Credit Suisse’s stock and debt prices had fallen — and that the Swiss National Bank would backstop the bank if needed.
The firm’s shares had already been battered on Tuesday by its disclosure about problems in its financial reporting controls. That discovery came after queries by the Securities and Exchange Commission, which forced the company to delay publication of its annual report.
The renewed worries about Credit Suisse weighed heavily on global banks, as investors worried about their exposure to the Swiss firm. Shares of European lenders like BNP Paribas and Société Générale of France fell by double digits, while American counterparts including JPMorgan Chase and Citigroup were also down.
Joe Rennison contributed reporting.
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