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TOP 10 Articles of 2023: #5 Credit Sus

Swiss National Bank to Financially Support Credit Suisse Amid Plunge in Stock Prices

On Wednesday, the Swiss National Bank announced that it would provide financial support to Credit Suisse, if necessary. The country’s financial regulator made this announcement a day after Credit Suisse had warned of problems in its financial reports, causing the bank’s stock price to plummet to a record low. Credit Suisse’s shares declined by about 24%, adding to existing concerns about the banking industry, as broader European stock markets suffered sharp losses. However, the Swiss National Bank clarified that the problems of certain banks in the United States do not pose a direct risk of contagion for the Swiss financial markets.

Credit Suisse, the second-largest Swiss lender, has faced a series of setbacks over recent years, from big trading losses to spying scandals that led to the ousting of a chief executive. In October 2020, the bank announced a restructuring plan that called for spinning off its investment bank to concentrate on managing global elites’ wealth, with hopes that this would be enough to turn around its fortunes. However, Credit Suisse’s difficulties continue, with negative news coming to light, such as the disclosure that it had found “material weakness” in its financial reporting controls. This discovery led to the company delaying publication of its annual report.

Credit Suisse’s largest shareholder, Saudi National Bank, has already ruled out providing more money to the bank as it struggles with its latest turnaround plan. The state-owned bank had agreed to invest up to $1.6 billion for a nearly 10% stake in Credit Suisse, making it the bank’s largest shareholder as part of the turnaround plan. On Wednesday, the chairman of Saudi National Bank, Ammar Al Khudairy, ruled out any further investments in Credit Suisse but clarified that he was satisfied with the bank’s turnaround plan and believed that the bank would not need additional capital.

However, the reason that Saudi National Bank would not invest more in Credit Suisse was not due to losing faith in its finances but due to avoiding additional Swiss regulations if it were to raise its stake above 10%. Mr. Al Khudairy said he was not interested in becoming subject to further Swiss regulations. The uncertainty surrounding Credit Suisse’s finances and its largest shareholder’s unwillingness to provide more capital have left investors worried about the banking sector’s stability.

Silicon Valley Bank and Signature Bank, Now Suisse

The sudden collapse of Silicon Valley Bank and Signature Bank in the United States has sent shockwaves through the financial markets, causing investors to worry about the spiraling risk in the system. Though these banks were relatively small, their shutdown has raised concerns about the banking industry’s financial health. The collapse of the two banks has sparked fears that the banking turmoil will spread globally. On Wednesday, Credit Suisse’s steep fall in shares further fueled these fears, causing the Dow Jones Industrial Average to drop more than 1.7%, or more than 500 points, and the S&P to slump more than 1.5%. Investors remain deeply worried about the financial health of banks, and regional banks have seen their stock prices fall again after staging a comeback on Tuesday.
Karen Petrou, managing partner at Federal Financial Analytics, a consulting firm based in Washington, D.C., has said that she expects Switzerland to rescue Credit Suisse if needed. However, she added that any failure could have major ramifications due to the bank’s global interconnectedness. Petrou said, “If Credit Suisse were to fail, you would see significant problems. All sorts of exposures would come unglued.”

The drop in Credit Suisse’s share price has also caused sharp falls in rival banks and European markets broadly, further compounding the global concern over the stability of the financial industry.