By Elliot Smith, Hannah Ward-Glenton, Sam Meredith —
CNBC
and Jesse Pound —
CNBC
Credit Suisse shares plunged more than 30% this Wednesday to their record low (below two Swiss francs) for the second day in a row, after one of the entity's main investors stated that it will not contribute more funds to the institution due to regulatory restrictions.
The Swiss bank crisis aggravated fear in the markets, after the bankruptcy of two entities in the United States over the weekend, affecting the banking sector above all but sinking the stock market indices along the way: the Dow Jones, for example, opened the day with a fall of 1.3%, and the S&P lost 1.1%.
Added to the fear for the banking sector is the slowdown in consumption (four tenths in February, according to the indicator known this Wednesday) and the fall in inflation in wholesale prices (to 4.6% in February, from 6% in January), which point to a recession.
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The origin of the fall on Wednesday was the announcement by Credit Suisse's largest investor, Saudi National Bank, that it will not be able to provide the Swiss bank with more financial aid, according to a report by the Reuters news agency: "We cannot because we would exceed the 10%
It is a regulatory issue," said its president, Ammar Al Khudairy.
However, he added that his bank is pleased with Credit Suisse's transformation plan and suggested that the bank is unlikely to need extra money.
The Saudi national bank acquired a 9.9% stake in Credit Suisse last year as part of the Swiss bank's $4.2 billion capital increase to carry out a massive restructuring aimed at improving its performance.
Credit Suisse Chairman Axel Lehmann declined on Wednesday to say whether he will need help in the future;
"We are regulated, we have strong capital ratios, a very solid balance sheet."
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material weaknesses
Investors, however, are still weighing the bank's announcement on Tuesday in its annual report that it has found "material weaknesses" in its 2022 and 2021 financial reporting processes.
The communication, scheduled for last Thursday, was delayed by a last-minute call from the Securities and Exchange Commission (SEC) for a "technical evaluation of the previously disclosed revisions to the consolidated statements of cash flows in the years ended on December 31, 2020 and 2019, as well as the related controls.”
By the end of 2022, the bank disclosed that it was recording “significantly higher withdrawals of cash deposits, non-renewal of maturing time deposits, and net asset outflows at levels substantially above third-quarter rates.”
Credit Suisse recorded client withdrawals worth more than 110 billion Swiss francs in the fourth quarter amid a series of scandals, legacy risks and compliance failures.
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stocks fall
Credit Suisse's sharp fall rocked markets already reeling after the failures of Silicon Valley Bank and Signature Bank last week in the United States.
First Republic Bank, one of the most battered banks in the United States by this financial crisis, lost 15%.
KeyCorp fell 9% and Bancshares 7%.
Big banks like Wells Fargo, Citi, JPMorgan and Goldman also suffered notable drops.
Although Credit Suisse's troubles do not appear to be related to US banks, the combination of the two problems could prompt broader scrutiny of the banking system among investors, according to Peter Boockvar of Bleakley Financial Group.
“What this tells us is that there is a possibility that banks embark on a big credit crunch [to] focus more on strengthening their balance sheets than lending,” he explained, “the markets are rethinking their balance sheets. And there are to wonder if many of these banks are going to have to start raising capital”.