March 29, 2023

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The SNB says it will support Credit Suisse if needed

Credit Suisse, the 166-year-old once a symbol of Swiss pride, is fighting for its life after investors, fearing the bank will run out of money, dump its shares and send the price of insurance on its debt against default rising.

After trading closed in Europe, the Swiss central bank, the Swiss National Bank, said it would step in and provide support to Credit Suisse “if necessary.”

The immediate catalyst for a serious decline in the bank’s stock on Wednesday was a comment from Ammar Al-Khudairi, chairman of the board of directors of the National Bank of Saudi Arabia, the bank’s largest shareholder. In a televised interview, Al-Khudairi said that the state-owned bank would not invest more money in Credit Suisse. He later clarified that his bank would not move beyond the 9.9 percent it already owns due to regulatory issues.

This did not prevent investors from hastily dumping Credit Suisse shares.

The swift reaction was further evidence of how panicked investors are about the stability of the global financial system in the wake of last week’s Silicon Valley bank collapse. The rapid collapse of the bank awakened investors and depositors to the potential risks that could threaten other banks, both in the United States and globally, and spurred a massive sell-off of bank stocks and financial markets.

But the problems of Credit Suisse – which is headquartered in Zurich more than 5,800 miles from the bank’s Silicon Valley base in California – is largely separate and of its own making. That was not helped by the Swiss bank’s announcement on Tuesday that it had identified “material weaknesses” in its financial reporting.

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Shares in Credit Suisse fell 24 percent Wednesday on the SIX Swiss exchange, hitting a record low, and its bond price fell sharply as well. The cost of financial contracts that insure against default by a bank has risen to an all-time high.

Unlike Silicon Valley’s bank, Credit Suisse is a global financial institution of systemic importance, with assets of $569 billion by the end of the year and considerably stricter capital requirements. There is no sign of a huge hole in the bank’s balance sheet, said Johann Schultz, a research analyst at Morningstar, and it has tens of billions of dollars in cash stored in central banks around the world that could be tapped.

But the costs of financing its operations have jumped much higher.

By the end of the trading day in Europe, it became clear that Credit Suisse’s higher costs for overnight financing, based on the price of credit default swaps, meant it needed to act quickly.

“We’re past the point where they can’t do anything,” Mr. Schultz said before the Swiss authorities issued their statement.

Credit Suisse has suffered years of financial missteps, including huge business losses and scandals that cost it two chief executives over three years. The company has embarked on a comprehensive turnaround plan, which includes consolidating the Wall Street investment bank, even as investors questioned whether continued losses and customer departures had jeopardized the effort.

After European markets closed on Wednesday, the Swiss Central Bank and Finma, the country’s financial regulator, issued a release Joint statement Certification of the financial condition of Credit Suisse.

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The two said the company “meets the higher capital and liquidity requirements applicable to systemically important banks” and was not directly exposed to banking disruptions in the United States. However, they noted that Credit Suisse’s stock and debt prices had fallen – and that the SNB would support the bank if needed.

The company’s shares had already taken a hit on Tuesday due to its disclosure of problems with financial reporting controls. The discovery came after inquiries from the Securities and Exchange Commission, which forced the company to delay publishing its annual report.

Renewed concerns about Credit Suisse hit global banks hard, as investors worried about their exposure to the Swiss company. Shares of European lenders such as BNP Paribas and Societe Generale in France fell by double digits, while shares of their American counterparts including JPMorgan Chase and Citigroup fell.

Joe Rennison Contribute to the preparation of reports.