One of Switzerland's biggest and oldest banks, Credit Suisse, collapsed over the past weekend, forcing the Swiss government to broker a deal that saw rival UBS buy the bank for $3.2 billion. On March 14, shares of Credit Suisse plummeted more than 20% to record lows after the bank cited “material weakness” in its financial reporting Tuesday and got rid of executive bonuses. The bank reported a 7.3bn Swiss francs (£6.6bn) net loss for 2022.
The bank’s largest shareholder, which has a 9.9% stake, Saudi National Bank (SNB), said it would not spend any more money to back up the beleaguered Swiss bank because of regulatory restrictions. “Well, we can’t … We cannot because we would go above 10%,” SNB’s chair, Ammar al-Khudairy told Reuters in an interview.
The comments by SNB’s chair come only weeks after Credit Suisse’s former top shareholder, the Chicago-based investment firm Harris Associates, revealed it had dumped its entire 10% stake in Credit Suisse in recent months as it had become frustrated with Credit Suisse’s strategy and failure to stem losses.
The prospect of Credit Suisse's limited funding alarmed the markets, sending Credit Suisse of other European banks also tumbling. Societe Generale, BNP Paribas, Monte dei Paschi di Siena and UniCredit dropped more than 10%. The Swiss lender UBS dropped 5.7% and Germany’s Deutsche Bank slipped 8%. UK-headquartered Standard Chartered fell 5.8% and HSBC, which bought the UK operations of the collapsed US lender Silicon Valley Bank in a government-brokered deal on Monday, dropped 4%.
The anxiety rippled through the US banks as well sending shares of Wells Fargo down 4%. Citi dipped 5%, while Bank of America dropped 3%. JPMorgan and Goldman shed about 4% each.
While Credit Suisse’s hardships appear unrelated to the mid-tier U.S. banks such as Silicon Valley Bank and Signature Bank, which failures caused steep sell-offs in regional bank stocks on Monday, the combination of the two incidents could spur a broader reexamination of the banking system among investors, according to Peter Boockvar of Bleakley Financial Group.
“What this is telling us is there’s the potential for just a large credit extension contraction that banks are going to embark on [to] focus more on firming up balance sheets and rather than focus on lending,” Peter Boockvar of Bleakley Financial Group said to CNBC.
In the meantime, Wells Fargo on Tuesday filed with the SEC to raise $9.5 billion of capital through the sale of debt, warrants, and other securities. The bank said the new cash will be used for general corporate purposes.