Banking fears spread to Europe, dragging down the shares of major lenders

Geneva — Fears about the global system spilled over into Europe on Wednesday, as shares in the globally connected Swiss bank Credit Suisse tumbled, dragging other big European lenders down in the wake of bank failures in the United States.

At one point, Credit Suisse shares lost more than a quarter of their value and hit record lows after the bank’s biggest shareholder, the National Bank of Saudi Arabia, told news outlets it would not put more money into the beleaguered Swiss lender. problems long before the collapse of American banks.

The turmoil prompted an automatic trading halt in Credit Suisse shares on the Swiss market, and shares of other European banks also fell, some by double digits. This fueled fresh fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the US.

Credit Suisse Chairman Axel Lehmann defended the bank at a financial conference in the Saudi capital Riyadh on Wednesday, saying: “We have already taken the medicine” to reduce risks.

Asked if he would rule out state aid in the future, he said: “That is not an issue. … We are regulated. Our capital ratio is strong, our balance sheet is very strong. We’re all on board, so it’s not an issue at all.”

But the Swiss National Bank announced late on Wednesday that it was ready to act, saying it would support Credit Suisse if needed. The bank’s statement did not reveal whether the support will be in the form of cash, loans, or other assistance. Currently, regulators said they believe the bank has enough cash to meet its obligations.

Credit Suisse said early Thursday it was taking steps to shore up its finances, including the option to borrow up to 50 billion francs ($53.7 billion) from the central bank.

“This additional liquidity would support Credit Suisse’s core business and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.

A day earlier, Credit Suisse reported that executives had identified “material deficiencies” in the bank’s internal controls over financial reporting at the end of last year. This raised further doubts about the bank’s ability to weather the storm.

Shares in Credit Suisse fell about 30% to about 1.6 Swiss francs ($1.73) before closing down 24% at 1.70 francs ($1.83) on the SIX exchange. At its lowest point, the price is down more than 85% from February 2021.

After the joint announcement by the Swiss National Bank and the Swiss financial market regulator, shares gained ground on Wall Street as well.

The stock suffered a long, sustained decline: in 2007, the bank’s shares traded at more than 80 francs ($86.71) each.

Concerns about the possibility of more hidden problems in the banking system caused investors to quickly sell bank stocks.

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

The STOXX Banks index of 21 leading European lenders fell 8.4% after Tuesday’s relatively calm market.

The turbulence occurred a day before the meeting of the European Central Bank. President Christine Lagarde said last week, ahead of the US setbacks, that the bank was “highly likely” to raise interest rates by half a percentage point to fight inflation. Markets were watching closely to see if the bank would deliver despite the recent turmoil.

Andrew Kenningham, chief European economist at Capital Economics, said Credit Suisse was “a much bigger problem for the global economy” than the mid-sized US banks that collapsed.

It has several subsidiaries outside Switzerland and trades in hedge funds.

“Credit Suisse is not just a Swiss problem, it’s a global problem,” he said.

He noted, however, that the bank’s problems were well known, so they did not come as a complete shock to either investors or decision-makers.

The troubles “reraise the question of whether this is the beginning of a global crisis or just another ‘special’ case,” Kenningham said in a statement. “Credit Suisse was widely seen as the weakest link among Europe’s big banks, but it is not the only bank that has struggled with weak profitability in recent years.”

Leaving the Credit Suisse branch in Geneva, Fady Rachid said he and his wife were worried about the bank’s health. He planned to transfer money to UBS.

“I find it hard to believe that Credit Suisse will be able to get rid of these problems and get over it,” said Rachid, a 56-year-old doctor.

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

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

To achieve returns, banks “had to take on more risk, and some banks did so more prudently than others.”

Investors now worry that the banks “have risks on their balance sheets that they don’t know about and therefore have accumulated significant losses that have yet to materialize.”

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

Europe has strengthened its banking safeguards after the global financial crisis following the collapse of US investment bank Lehman Brothers in 2008 by transferring supervision of the largest banks to the central bank, analysts said. The central bank is considered less likely that the national supervisors will look at emerging problems from a different angle.

The parent bank Credit Suisse is not part of EU supervision, but it has organizations in several European countries that are. Credit Suisse is subject to international rules that require it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.

Shares fell after National Bank of Saudi Arabia President Ammar Al Khudairy told Bloomberg and Reuters that the bank had ruled out further investment in Credit Suisse to avoid regulations on holdings above 10%.

The National Bank of Saudi Arabia invested about 1.5 billion Swiss francs to acquire a stake below this threshold.

The Swiss bank is seeking to raise money from investors and develop a new strategy to overcome a range of problems, including bad bets on hedge funds, repeated shakeups in top management and a spy scandal involving Zurich rival UBS.

Credit Suisse’s annual report released Tuesday showed that customer deposits fell 41% to 159.6 billion francs ($172.1 billion) at the end of last year compared to a year earlier.

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