More Bank Trouble? Credit Suisse Plummets 30% as Largest Shareholder Withdraws Support

Credit Suisse shares plummeted to another all-time low of just 1.65 CHF ($1.79) on Wednesday after its largest shareholder – Saudi National Bank (SNB) – said it would not be able to purchase more shares of the company.

The 30% drop has been coupled with widespread fear that Credit Suisse could be on the brink of default.

Another Bank Run?

Saudi National Bank is barred from investing more into the struggling bank due to regulatory constraints, SNB chairman Ammar Al Khudairy told Reuters on Wednesday. It currently holds a 9.88% stake in the firm, just 12 basis points below its 10% ownership limit. 

The news only adds to widespread industry fears pushing bank stocks down this week, following the collapse of Silicon Valley Bank (SVB) last Friday. After American bank stocks suffered on Monday, multiple European banks faced declines on Wednesday including France’s Societe Generale (-11%) and Germany’s Commerzbank (-8.5%).

Since last year, Credit Suisse has been battered by regulatory compliance failures and scandals, strategic overhauls, weak earnings releases, and macroeconomic pressures. In October, the bank’s five-year Credit Default Swaps began trading at 10-year highs, meaning investors were seeking protection against a potential default. 

CDS swaps skyrocketed to new highs again on Wednesday, with the market pricing in a 47% chance of default for the firm.

WTF? The markets are now pricing in a probability of default of 47% for Credit Suisse. What have I missed? pic.twitter.com/Q2MMo0T3LV

— Holger Zschaepitz (@Schuldensuehner) March 15, 2023

The bank’s stock had already fallen to new lows on Tuesday when Credit Suisse published its annual report, identifying “material weaknesses” in its financial reporting and disclosure controls, just one month after posting its worst annual loss since the 2008 financial crisis. 

Nevertheless, Al Khudairy of SNB told Reuters he was happy with Credit Suisse’s turnaround plan.

“I don’t think they will need extra money; if you look at their ratios, they’re fine,” he said. “ And they operate under a strong regulatory regime in Switzerland and in other countries.”

In an interview with CAN on Wednesday, Credit Suisse CEO Ulrich Koerner said the bank has a “very very strong,” capital and liquidity basis. SVB CEO made similar claims last week, telling clients to “stay calm” before the bank collapsed the next day.

The Magnitude of Credit Suisse

When discussions about a potential failure for Credit Suisse began last year, analysts likened the idea to a repeat of Lehman Brothers’ 2008 fallout. 

Greg Foss – a Bitcoin enthusiast and high-yield credit trader, risk manager, and analyst of 30 years – said that Credit Suisse is a “systemically important financial institution” and is currently in the midst of collapse.

“There’s a run on the bank,” he said during an interview on Tuesday. “The wealth division is losing assets in magnificent fashion… I’m not saying they’re insolvent, but I’ve seen enough banks in the situation that are insolvent.”

When SVB collapsed due to a bank run last week, the Federal Reserve stepped in by Sunday to bail out all of the bank’s depositors in order to stem market contagion. On Wednesday, the Financial Times reported that Credit Suisse was appealing to the Swiss Central Bank for vocal support in favor of its financial position. 

Custodia Bank CEO Caitlin Long said that Credit Suisse “swamps Switzerland in size” and that the bank will become “the fed’s problem” if it collapses.

1/ SAD TO SEE what’s happening at my old shop @CreditSuisse. It almost went under back in ’01 too (which is when John Mack pulled me out of insurance equity research to help him in Zurich w/ the restructuring). Another example of what goes wrong when balance sheet is debauched☹️ https://t.co/vKE1h0GQtD

— Caitlin Long 🔑⚡️🟠 (@CaitlinLong_) March 14, 2023