The fear of a contagion risk rippled through the global banking industry on Wednesday as Credit Suisse shares slumped as much as 30 per cent after its largest shareholder said it could not provide further support. Saudi National Bank (SNB), which holds 9.88% of Credit Suisse, said it would not buy more shares on regulatory grounds. The dramatic development came just days after the US federal and monetary authorities stepped in to halt a banking crisis triggered by the collapse of Silicon Valley Bank and permitted its customers to withdraw their deposits. US stocks dropped on Wednesday as turbulence at Credit Suisse revived fears of a banking crisis, eclipsing bets of a smaller interest rate hike in March following weak economic data.
Troubles at Credit Suisse have piled more pressure on the banking sector following the collapse of SVB and peer Signature Bank, undoing relief from the emergency measures by US authorities aimed at preventing a contagion. US-listed shares of Credit Suisse hit a record low, after its largest investor said it could not provide more financing to the bank, starting a rout in European lenders. “Anything negative from any highly visible institution, in this case Credit Suisse, is going to have ripple effects across the financial sector,” said Michael James, managing director of equity trading at Wedbush Securities.
In India, the stock markets lost steam after a weak opening of European stocks. The Sensex tanked more than 1000 points from the day’s high to hit a low of 57455.67. The rupee declined by 28 paise to 82.65 against the dollar on Wednesday amid a strong greenback against major currencies overseas and unabated foreign fund outflows. Regulators and financial executives around the world have sought to assuage contagion fears after tech-focused lender SVB and another US bank failed last week, but fears persist.
Credit Suisse shares in Europe dropped as much as 30 per cent, leading to a 7 per cent fall in the European banking index, while five-year credit default swaps (CDS) for the flagship Swiss bank hit a new record high, highlighting increasing investor concerns. Two supervisory sources told Reuters that the European Central Bank (ECB) had contacted banks on its watch to quiz them about their exposures to Credit Suisse. One of sources said, however, that they saw Credit Suisse’s problems as specific to that bank, rather than being systemic.
Europe’s bank index has seen more than 120 billion euros evaporate ($127 billion) in value since March 8. Among the biggest decliners on Wednesday were French lenders Societe Generale, down 12 per cent, and BNP Paribas, off 9 per cent. “Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
Saudi stand
The head of Credit Suisse Group’s largest shareholder, Saudi National Bank, said on Wednesday it would not buy more shares in the Swiss bank. “We cannot because we would go above 10 per cent. It’s a regulatory issue,” SNB chairman Ammar al Khudairy said in an interview with Reuters. Trading in the Swiss bank’s shares was halted late morning as they fell by a fifth to fresh record lows, having been pummelled earlier in the week in market fallout from the collapse of Silicon Valley Bank The Swiss National Bank declined to comment on Credit Suisse. “There has to be some game-changing action to stabilise the situation,” Exane’s analysts said.
Credit Suisse had appealed to the Swiss National Bank and Swiss financial watchdog FINMA for a public show of support, the Financial Times reported.