Ajit Karn
Zurich: Wednesday, Credit Suisse shares plummeted to all-time lows after the Swiss bank’s largest shareholder announced it would not invest any more capital, as market fears over European lenders spiralled in on the Swiss bank.
Following Saudi National Bank chairman Ammar Al Khudairy’s statement that his institution would “definitely not” increase its stake, the share price of Switzerland’s second-largest bank plummeted.
His remarks came as European stock markets plummeted in response to renewed concerns about the financial industry.
This week, Credit Suisse’s market value had already taken a significant hit due to concerns of contagion from the failure of two US banks and its annual report citing “material weaknesses” in internal controls.
The value of the bank’s shares on the Swiss stock exchange plummeted by more than 30 percent to a record low of 1.55 Swiss francs.
The bank regained some ground by the end of the trading day, closing at 1.697 Swiss francs, 24.24 percent lower than its opening price.
Beyond Switzerland’s borders, fears about the bank were expanding.
The US Treasury is “monitoring” Credit Suisse’s difficulties and is “in contact with global counterparts,” according to a Treasury spokesperson.
In addition, French Prime Minister Elisabeth Borne urged the Swiss authorities to “resolve” the issue, adding that the French and Swiss finance ministers were scheduled to communicate within the next few hours.
“Unable to falter”
During the market turmoil, Credit Suisse’s chairman Axel Lehmann asserted at the Financial Sector Conference in Saudi Arabia that the bank did not require government aid, stating that it “is not a topic.”
“We have strong capital ratios and a strong balance sheet,” Lehmann stated, adding, “We’ve already taken the medication,” referring to the bank’s radical restructuring plan announced in October.
Credit Suisse is one of thirty banks around the world designated too large to fail, requiring it to set aside more capital to weather a crisis.
Concerning the share decline, the bank and financial authorities remained silent.
However, the Financial Times reported, citing three anonymous sources, that Credit Suisse had requested “a show of support” from Switzerland’s central bank and financial regulator.
Analysts warned of escalating concerns over the bank’s viability and its impact on the broader banking sector, as shares of other lenders declined on Wednesday following a rise the day before.
“Others may follow the lead of a major shareholder. Credit Suisse must now quickly develop a concrete plan to halt outflows “According to IG analyst Chris Beauchamp, AFP.
Neil Wilson, the principal market analyst at Finalto, concurred.
“If Credit Suisse were to experience significant existential difficulties, we would be in a world of hurt. It is truly impossible to fail.”
Regulatory function
In November, the Saudi National Bank became Credit Suisse’s largest shareholder as a result of a capital raise undertaken to fund a significant restructuring of the Zurich-based financial institution aimed at righting the ship.
However, Khudairy stated that the main commercial bank in the kingdom would not invest any additional capital.
“Certainly not, for a variety of reasons beyond the most basic, which is regulatory and statutory,” he told News Agency.
“We are now 9.8 percent owners of the bank. If we exceed 10 percent, a slew of new regulations take effect… and we have no intention of entering a new regulatory regime “stated the chairman.
In February 2021, Credit Suisse shares were valued at 12,78 Swiss francs per share, but the bank has since endured a barrage of issues that have eroded its market value.
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More than $5 billion were lost due to the collapse of the US fund Archegos.
Its asset management division was shaken by the collapse of the British financial firm Greensill, in which approximately $10 billion had been invested through four funds.
For the fiscal year ending in 2022, the bank incurred a net loss of 7,8 billion Swiss francs.
This occurred against the backdrop of significant withdrawals of client funds, including in the wealth management sector — one of the activities the bank intends to refocus on as part of a major restructuring plan.
