Credit Suisse shares plunge, drag European lenders lower

GENEVA (AP) — Shares of globally connected Swiss bank Credit Suisse plunged on Wednesday and dragged down other major European lenders as fears of deeper problems in the global banking system spread in the wake of state bank failures. -United.

At one point, Credit Suisse shares lost more than a quarter of their value, hitting an all-time high after the bank’s largest shareholder – the Saudi National Bank – told news outlets that it would not would not inject more money into the troubled bank. well before the American chess.

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The turmoil caused an automatic pause in trading of Credit Suisse shares in the Swiss market and sent shares of other European banks plummeting, some by double digits. This has stoked new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the United States.

Speaking at a financial conference in the Saudi capital of Riyadh on Wednesday, Credit Suisse Chairman Axel Lehmann defended the bank, saying “we’ve already taken the medicine” to reduce risk.

When asked if he would rule out government aid in the future, he replied, “That’s not a topic. … We are regulated. We have strong capital ratios, a very strong balance sheet. We’re all on deck, so it’s not a topic at all.

A day earlier, Credit Suisse reported that managers had identified “significant weaknesses” in the bank’s internal controls over financial reporting late last year. This stoked new doubts about the bank’s ability to weather the storm.

Credit Suisse shares fell more than 27% to around 1.6 Swiss francs ($1.73) before recovering a 22% loss to 1.75 francs ($1.89) on the stock market SIX. At its lowest, the price was down more than 85% from February 2021. The stock suffered a long and sustained decline: in 2007, the bank’s shares were trading at more than 80 francs ($86.71 ) each.

With worries about the possibility of more hidden problems in the banking system, investors rushed to sell bank stocks on bad news.

France’s Societe Generale SA fell 12% at one point. BNP Paribas in France fell by more than 10%. Germany’s Deutsche Bank fell 8% and Britain’s Barclays Bank nearly 8%. The listing of the two French banks was briefly suspended.

The STOXX Banks index of 21 major European lenders fell 8.4% after relative calm in markets on Tuesday.

The turbulence came a day before a European Central Bank policy meeting. President Christine Lagarde said last week ahead of the US bankruptcies that the bank would “very likely” raise its key rates by half a percentage point to put pressure on its banks. fight against inflation. Markets were watching closely to see if the bank held its own despite the latest turmoil.

Credit Suisse is “a much bigger concern for the global economy” than the mid-sized U.S. banks that have collapsed, said Andrew Kenningham, chief economist for Europe at Capital Economics.

It has several subsidiaries outside Switzerland and handles trading for hedge funds.

“Credit Suisse is not just a Swiss problem, but a global problem,” he said.

He noted, however, that the Swiss bank’s “problems were well known and therefore not a complete shock to investors or policymakers.”

The unrest “raises once again the question of whether this is the start of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a research note. “Credit Suisse was widely seen as the weakest link among major European banks, but it is not the only bank that has struggled with low profitability in recent years.”

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The Swiss National Bank declined to comment. The Swiss Financial Market Supervisory Authority did not immediately respond to calls and emails seeking comment.

Investors reacted to “a broader structural problem” in the banking sector after a long period of low interest rates and “very, very loose monetary policy”, said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Managment.

In order to get a certain return, banks “needed to take on more risk, and some banks did so more cautiously than others.”

Investors now fear that banks “have risks on their balance sheets that they don’t know about and have therefore accumulated significant losses that have not yet been realized”.

European finance ministers said this week that their banking system was not directly exposed to US bank failures.

Europe strengthened its banking safeguards after the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008, analysts say, by transferring supervision of the biggest banks to the European Central Bank. The central bank is seen as less likely than national supervisors to turn a blind eye to developing problems.

Credit Suisse’s parent bank is not part of EU oversight, but it does have entities in several European countries that are. Credit Suisse is subject to international rules that require it to maintain financial cushions against losses as one of 30 so-called global systemically important banks, or G-SIBs.

Following an announcement in October, the Saudi National Bank invested some 1.5 billion Swiss francs to acquire a stake in Credit Suisse of just under 10%.

Share prices fell after Saudi National Bank President Ammar Al Khudairy told Bloomberg and Reuters that the bank had ruled out new investments in Credit Suisse to avoid regulations that come into effect with a higher stake. at 10%.

The Swiss bank was pushing to raise funds from investors and roll out a new strategy to overcome a series of problems, including poor hedge fund bets, repeated management reshuffles and a spy scandal involving its Zurich rival. UBS.

McHugh reported from Frankfurt, Germany. Associated Press writers Joseph Krauss in Ottawa, Ontario and Angela Charlton in Paris also contributed to this report.

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