‘Ominous twist’ as bank teeters on the brink

Trading in Credit Suisse – the world’s seventh largest investment bank – was suspended several times as stock plummeted, sparking a worrying ripple effect that saw shares in other European banks fall too.

Stocks in the Swiss bank fell to 1.68 Swiss francs – the lowest price in its history.

Credit Suisse Chairman Axel Lehmann told Bloomberg on Wednesday that the bank would not need “state assistance” to stay afloat as it had “already taken the medicine”, referring to changes made after the it reported an $8 billion loss for 2022.

A troubling cascade of plunging shares also saw stocks in France’s Société Générale and UBS fall by more than 10 per cent.

Germany’s Deutsche Bank also saw its shares fall in value by 6.4 per cent. Shares in Swiss bank UBS plummeted by 6.2 per cent and Spanish bank Santander’s share price dropped 5 per cent. In the UK, Barclays bank shares fell by 6.5 per cent.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, warned the banking crisis was taking “another ominous twist”.

“The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits,” she said.

“Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable.

“A game of whack a mole seems to be emerging, and problems are popping up elsewhere in the world.”

Investors are rapidly losing confidence in Credit Suisse after the chairman of its largest shareholder – Saudi National Bank – said it would not plough further funds into the ailing financial institution.

Saudi National Bank owns 9.9 per cent of Credit Suisse and its chairman Ammar Al Khudairy said it could not increase its funding as it is not allowed to own more than 10 per cent of the bank under regulatory rules.

It comes after Credit Suisse admitted to a “material weakness” in its reporting procedures for the 2021 and 2022 fiscal years.

The investment bank lost $8 billion in 2022. It said its inability to design and maintain effective risk assessments in its financial statements is a cause for concern, and the bank is now making changes.

“The news couldn’t have come at a worse time when the banking sector is already under pressure,” Raffi Boyadjian, lead investment analyst at XM, said.

This news follows the recent collapse of Silicon Valley Bank (SVB) and Signature Bank in the US, which has left Swiss financial regulator FINMA closely monitoring the situation for potential contagion risks.

Credit Suisse CEO Ulrich Koerner earlier insisted the collapse of SVB would not affect his bank, saying all had been “calm” since it went under.

“It’s a very different situation, we are following materially different and higher standards when it comes to capital funding, liquidity and so on,” Mr Koerner told Bloomberg.

Chairman Mr Lehmann has however waived his own $1.6 million bonus because of the bank’s “poor financial performance”.

Carlo Franchini, head of institutional clients at Banca Ifigest in Milan, said he believed Credit Suisse was too big to be allowed to fail.

“Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse,” he told Reuters.

“This is dragging lower the whole banking sector in Europe. The shares accelerated losses after the Saudis (commented).

“I believe Credit Suisse’s crisis can be solved and the bank will not be let to go belly up.”.