Switzerland’s central bank said Wednesday that it was ready to provide financial assistance to Credit Suisse after the country’s second largest lender’s shares fell by up to 30%.
The Swiss National Bank (SNB) said in a joint statement with the Swiss financial market regulator FINMA that Credit Suisse (CS) met the “strict capital and liquidity requirements” imposed on banks of importance to the wider financial system.
“If necessary, the SNB will provide liquidity to CS,” they said.
Investors dumped shares in the embattled Swiss bank earlier in the day, sending them plummeting to a new record low after its biggest backer appeared to rule out providing any additional funding.
The Swiss authorities stated in their statement that the problems of “certain banks in the United States do not pose a direct risk of contagion for the Swiss financial markets.”
“There are no indications of a direct risk of contagion for Swiss institutions as a result of the current turmoil in the US banking market,” according to the statement.
Saudi backers are ‘unwilling’ to increase funding.
Following a capital increase last fall, the Saudi National Bank’s chairman said earlier Wednesday that the bank would not increase its stake in Credit Suisse.
“For many reasons, the answer is absolutely not,” Ammar Al Khudairy told Bloomberg on the sidelines of a conference in Saudi Arabia. “I’ll start with the most basic reason, which is regulatory and statutory. We now own 9.8% of the bank; if we go above 10%, all kinds of new rules apply, whether from our regulator, the European regulator, or the Swiss regulator,” he explained. “We have no desire to enter a new regulatory regime.”
Credit Suisse, once a major Wall Street player, has suffered a string of missteps and compliance failures in recent years, damaging its reputation with clients and investors and costing several top executives their jobs.
Customers withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year, with the majority of the withdrawals occurring in the fourth quarter, and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion), its largest since the global financial crisis in 2008.
In October, the lender announced a “radical” restructuring plan that includes laying off 9,000 full-time employees, spinning off its investment bank, and concentrating on wealth management.
Al Khudairy expressed satisfaction with the restructuring, adding that he did not believe the Swiss lender would require additional funds. Others are skeptical.
According to Johann Scholtz, a European banking analyst at Morningstar, Credit Suisse may not have enough capital to absorb losses in 2023 due to rising funding costs.
“We believe Credit Suisse needs another rights [share] issue to stem client outflows and ease the concerns of wholesale funding providers,” he said on Wednesday. “We believe the alternative would be a break-up… with the healthy businesses — the Swiss bank, asset management, and wealth management, as well as possibly some parts of the investment banking business — sold off or separately listed.”
‘Not just a Swiss issue.’
According to S&P Global Market Intelligence, the bank’s shares were down 24% in Zurich on Wednesday, and the cost of purchasing insurance against the risk of a Credit Suisse default hit a new record high.
Credit Suisse did not respond to requests for comment.
The crash spread to other European banking stocks, with French and German banks like BNP Paribas, Societe Generale, Commerzbank, and Deutsche Bank falling 8% to 12%. Banks in Italy and the United Kingdom also fell.
According to two supervisory sources, the ECB contacted banks to question them about their Credit Suisse exposure. The ECB did not respond.
While Credit Suisse’s problems were widely publicized, with assets of approximately 530 billion Swiss francs ($573 billion), it represents a much larger potential headache.
“[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the United States,” Capital Economics’ chief Europe economist Andrew Kenningham wrote. “Credit Suisse is a global problem, not just a Swiss one.”
The setbacks for Switzerland’s second largest bank continue. It acknowledged “material weakness” in its financial reporting on Tuesday and canceled bonuses for top executives.
In its annual report, Credit Suisse stated that “the group’s internal control over financial reporting was not effective” due to a failure to adequately identify potential risks to financial statements.
The bank is working on a “remediation plan” to strengthen its controls as soon as possible.
Credit Suisse CEO Ulrich Körner told Bloomberg TV on Tuesday that the bank saw “material good inflows” of money on Monday, despite the collapse of SVB and Signature Bank in the United States.
Overall, the bank’s outflows had “significantly moderated” after customers withdrew 111 billion Swiss francs ($122 billion) in the three months to December, according to Körner. According to the bank’s annual report, outflows had not yet been reversed by the end of last year.