Shares of Credit Suisse bank plummet more than 28% today, deepening their historical lows, due to doubts about the entity’s ability to raise more capital to cover its financial problems. The fall of the firm, about which doubts have weighed for months, has dragged the sector in Europe against the background of the collapse of the American Silicon Valley Bank. The Ibex falls more than 4.3% and the decreases are significant throughout Europe, with banks leading the losses. The trigger has been the refusal of the president of the first shareholder of the Swiss bank, the Saudi SNB, to contribute more capital in case Credit Suisse needed it. The Saudi firm argues that it has already reached the regulatory limit of 10% of the shareholding that it cannot exceed, but the market reading is easier: the Saudis do not want to put more money.
The doubts of the market are not limited to the price that has gone from seven to two Swiss francs in one year. Credit Suisse bond default insurance, known by its acronym in English (creddit default swap, CDS) have once again set new highs, at 800 points. This means that the market demands more and more money to provide coverage in the event that the entity does not pay its debts, which implies that it sees this scenario as increasingly probable. Credit Suisse’s CDS are at levels similar to those of Greek banks in the midst of the euro crisis.
The strong devaluation of the Swiss bank’s titles has caused the share price to be suspended at mid-morning, until purchase and sale orders can be rebalanced. In the financial sector as a whole, the losses are significant: the French BNP Paribas and Société Générale lose more than 11%, and the Germans Commerzbank and Deutsche Bank fall around 9%. The shares of Unicredit and Monte dei Paschi have also seen their listing suspended. According to Bloomberg, 60,000 million euros in valuation of European banks have evaporated. Within the Ibex, Sabadell and Bankinter are the most penalized in the sector with cuts close to 8%. Santander, BBVA and CaixaBank also suffer corrections of around 5%.
SNB Chief Executive Ammar Al Khudairy explained today in an interview with Reuters that the stake in Credit Suisse is “an opportunistic investment” and that the bank has to show that it is changing course, for the investment to start paying off. The manager assures that “they are happy with the transformation plan presented” and considers that it is “a very solid bank”. His words, far from calming the markets, have unleashed a selling fever.
Credit Suisse is in the process of restructuring to get out of its financial crisis. Three months ago it carried out a capital increase of 2.2 billion Swiss francs (2,220 million euros) to try to strengthen its solvency. It was the second in two weeks. However, this arrival of fresh money, subscribed in part by the Saudis, did not finish calming the nerves. So far this year, shares of the second largest Swiss banking group have plunged nearly 30%.
Credit Suisse’s troubles have been brewing for more than a decade. The Swiss giant was transformed in the early 2000s from a firm focused on private banking, into a financial conglomerate with a presence around the world. Its business model is complex and interconnected, with investment banking, private banking, asset management and corporate banking divisions. In banking, trust is crucial, but even more so when dealing with large corporations and wealthy clients.
Last year, to try to address the situation, the bank changed its CEO. Ulrich Körner presented a strategic plan that included the sale of part of Credit Suisse’s assets and a simplification of its structure. The program was completed with two capital increases, which were fully covered, and in which Saudi Arabia participated, which became the largest shareholder.
Credit Suisse’s problems predate and are very different from those suffered by the recently bankrupt Silicon Valley Bank (SVB) in the United States, but they reflect the great concern that remains with everything related to the banking sector. The cases are very different, but the destructive potential of Credit Suisse is much greater than that of SVB. The Swiss bank has assets of 538 billion francs (538 billion euros), more than double that of Silicon Valley Bank.
Víctor Alvargonzález, financial advisor and founder of Nextep, explains that “with the brutal rise in interest rates, the chain has become extremely tense, and this ends up causing it to break at the weakest links, as happened with SVB and it seems that it is happening with Credit Suisse. The investor misses a more determined and coordinated intervention by the central banks, especially the Swiss.
The president of the Credit Suisse group, Axel Lehmann, has assured this morning that the possibility of receiving public aid “is out of the debate”, while the entity tries to recover the confidence of clients and investors. In his opinion, comparing the situation of the Swiss bank with that of SVB is not very accurate, because they operate in businesses with very different regulations.
Credit Suisse lost 7,293 million Swiss francs (7,381 million euros) last year. It was the worst result for the Swiss bank since the 2008 financial crisis. In 2021 it already had red numbers of 1,650 million francs (1,670 million euros).
Among the main factors behind these lousy accounts is its exposure to risk firms that collapsed in previous years, such as the US hedge fund Archegos or the Anglo-Australian financial services firm Greensill. For these two cases, it had to provision 4,400 million Swiss francs (3,800 million euros).
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