Next Big Banking Domino Set to Fall
PUBLISHED
2023-03-16
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Swiss financial regulators say they are prepared to help troubled banking giant Credit Suisse “if necessary” after its shares slumped 24% on Wednesday, sparking the return of global fears about the stability of banks which erupted after the small US Silicon Valley Bank collapsed last week.
Investors are worried about how Credit Suisse, beset by billions of dollars in losses from poor investment decisions problems, will handle the fallout from US bank failures.
The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority said in a joint statement that strict rules applied to Swiss financial institutions "ensure their stability”.
"The problems of certain banks in the US do not pose a direct risk of contagion for the Swiss financial markets," the regulators said.
"Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide [Credit Suisse] with liquidity."
Credit Suisse has lost money for five straight quarters and says it's expecting to post a loss before tax this year.
It's undergoing a big transformation after losing billions lending to the Archegos family office and having to freeze $US10 billion worth of funds tied to Greensill Capital.
Clients withdrew $US100 billion in managed funds from Credit Suisse in the final three months of 2022 which re-ignited fears about its viability.
The worries sparked a wider sell-off in bank stocks, with all major indexes down sharply - the Stoxx 600 bank index fell more than 7% and in the US the KBW Bank Index shed 3.6%, with shares in the country’s biggest bank, JPMorgan down 4.7%.
The wider Stoxx 600 index fell nearly 3% in Europe while London’s Footsie 100 shed nearly 4% in the biggest one day fall since 2020.
In the US, the Dow lost 0.8%, the S&P 500 fell 07% but the Nasdaq rose 0.05% because investors bought shares in tech giants like Apple and Microsoft as a ’safe haven’ amid the return of fears about banks.
Gold rose to just over $US1.920 an ounce - up around $US10 on the day but oil prices slumped on renewed fears of the banking problems forcing economies into recession.
US crude prices lost more than 4% to just over $US68 a barrel at 7am (the lowest since November, 2021). Brent crude rose in early Asian trading after falling to $US73.69 a barrel at the session’s settlement.
The slide offshore saw the ASX 200 poised to slump more than 100 points when trading resumes this (Thursday) morning.
Those fears about the stability of global banking erupted again on Wednesday (after Tuesday’s reprieve) when the major shareholder in Credit Suisse ruled out any more capital contributions.
That shock statement came in an interview with Bloomberg and saw markets sell off across Europe and sharp falls in US futures and then the physical market.
In the interview Saudi National Bank Chairman Ammar Al Khudairy said the company will not assist Credit Suisse in case of a liquidity call, citing regulatory and statutory reasons, among others.
Saudi National Bank has a 9.9% stake in Credit Suisse
Credit Suisse shares were trading fell straight away and ended the day down more than 24% at an all-time low of 1.70 Swiss francs. That was the last of a succession of lows during a frantic day of trading across the globe.
Credit Sussie is a global giant fallen on hard times - all self-inflicted - it has more than $US700 billion in assets and is classed by regulators as a global system bank, meaning problems in its businesses can mean problems for the global banking and financial systems.
Coming so soon after the shock collapse of Silicon Valley Bank and then the closing of Signature Bank (and after the closing of Silvergate Bank), the renewed fears about Credit Sussie are worrying.
They could be enough to stop the European Central Bank from lifting interest rates (a half a per cent rise was tipped) at its meeting on Thursday and could choke off the Fed’s rise next week (now tipped to be 0.25%).
At September 30 last year Credit Sussie had total assets of more than $US724 billion, a fall of 17% from the previous year.
The bank's delayed annual report published Tuesday describes "material weaknesses in our internal control over financial reporting" both for 2021 and 2022.
The bank said it failed to design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements.
The annual report had been delayed over a dispute with the US Securities and Exchange Commission over revisions to its cash flow statements from 2019 and 2020, as well as related controls.