Credit Suisse shares drop amid financial reporting worries
GENEVA — Fears about the world banking system spread to Europe on Wednesday as shares in the globally connected Swiss bank Credit Suisse plunged and dragged down other major European lenders in the wake of bank failures in the United States.
At one point, Credit Suisse shares lost more than a quarter of their value, hitting a record low after the bank’s biggest shareholder — the Saudi National Bank — told news outlets that it would not put more money into the Swiss lender, which was beset by problems long before the U.S. banks collapsed.
The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. That fanned new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the U.S.
Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying, “We already took the medicine” to reduce risks.
When asked if he would rule out government aid in the future, he said: “That’s not a topic. … We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”
A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.
Credit Suisse stock dropped about 30 percent, to about $1.73, before clawing back to a 24 percent loss at $1.83 at the close of trading on the SIX stock exchange. At its lowest, the price was down more than 85 percent from February 2021.
The stock has suffered a long, sustained decline: In 2007, the bank’s shares traded at more than $86.71 each.
With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.
The STOXX Banks index of 21 leading European lenders sagged
8.4 percent following relative calm in the markets Tuesday.
Credit Suisse is “a much bigger concern for the global economy” than the midsize U.S. banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.
It has multiple subsidiaries outside Switzerland and handles trading for hedge funds.
“Credit Suisse is not just a Swiss problem but a global one,” he said.
He noted, however, that the bank’s “problems were well known so do not come as a complete shock to either investors or policymakers.”
The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”
Leaving a Credit Suisse branch in Geneva, Fady Rachid said he and his wife are worried about the bank’s health. He planned to transfer some money to UBS.
“I find it hard to believe that Credit Suisse is going to be able to get rid of these problems and get through it,” said Rachid, a 56-year-old doctor.
The Swiss National Bank declined to comment. The Swiss Financial Market Supervisory Authority did not respond to calls and emails seeking comment.
Investors responded to “a broader structural problem” in banking 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 & Management.
To earn some yield, banks “needed to take more risks, and some banks did this more prudently than others.”
Now investors are worried that banks “have risks on their balance sheet that they don’t know about and therefore have accumulated significant losses that haven’t been yet realized.”