The fear of contagion in the banking system after the failure of Silicon Valley Bank has reached Switzerland. Credit Suisse’s thud on the Zurich stock exchange to all-time lows, down 24.2 percent to 1.69 francs.
This triggered a selling storm on the entire banking sector in Europe yesterday, with the Stoxx index losing 7.11 percent. Today, however, the institution is flying on the Zurich Stock Exchange where after the decision to borrow from the Swiss central bank.
So it is no longer the U.S.-based Silicon Valley Bank that is scary. But the second-largest Swiss bank, which is now in Arab hands. It is precisely Saudi National Bank, 37 percent owned by the Saudi sovereign wealth fund, which is Credit Suisse’s largest shareholder. And, when it ruled out new financial support, it unleashed a storm on Zurich.
Credit Suisse in Arab hands
Saudi National Bank had purchased a 9.88 percent stake in the institution at the end of last year in conjunction with the CHF 4 billion capital increase. Alongside it are Qatar Holding with 5.03 percent and Olayan Group at 4.93 percent. Together they form a bloc that is close to 20 percent of the capital. Outside the Gulf area it goes to the U.S., with BlackRock just above 4 percent.
Credit Suisse has signaled that it is offering to buy back debt of about 3 billion Swiss francs and is taking “decisive action to preemptively strengthen its liquidity with plans to exercise its option to borrow up to 50 billion Swiss francs,” about $54 billion “from the Swiss central bank. This additional liquidity will support Credit Suisse’s core businesses and clients while Credit Suisse takes the necessary steps to create a simpler bank focused on the needs of its clients.”
The European reactions to the crisis
“We are closely following developments in the EU banking sector and are in contact with the relevant European and national authorities responsible for the supervision of banks,” said a European Commission spokeswoman asked about tensions over Credit Suisse. “As usual,” she added, “we do not comment on daily market movements.”
There are those, however, who have gloomy views. According to U.S. fund CEO Larry Fink, the price of “decades of easy money” is being paid today. And Robert Kiyosaki, the investor who predicted the collapse of Lehman Brothers in 2008, believes that Credit Suisse will be the next victim. In contrast, Nouriel Roubini says the bank is “too big to fail but also to be bailed out.”
The Saudi ‘no’ had heavy backlash in the Old Continent, which returned to the negative after rebounding on the eve of the event. Thus burning a total of 355 billion euros in capitalization.
Milan lost 4.61 percent, London 3.83 percent, Paris 3.58 percent, Frankfurt 3.27 percent, while Zurich limited the decline to 1.87 percent
Credit Suisse, a pre-announced crisis?
The Swiss bank has been sailing in bad waters for some time. The U.S. hedge funds Archegos and Greensill had failed in 2021, costing Zurich more than 6 billion francs (6.16 billion euros).
Since then Credit Suisse has tried to square off with the succession between Thomas Gottstein and Ulrich Korner at the helm of the group and by devising a strategy of revitalization and cutbacks, but 2021 ended with a CHF 1.5 billion red.
The year before, on the other hand, it was in profit at 2.7 billion francs (-22%). By contrast, 2022 was even more difficult, with an announced loss of more than 7 billion francs. A figure predicted by S&P, which last Feb. 9 cut the rating to ‘Bbb-‘, indicative of a deteriorated situation.
After findings by the U.S. Securities and Exchange Commission, the U.S. market authority, questioned the reliability of previous financial disclosures, red alarms went off as early as Tuesday. The final sinking of the stock, however, came yesterday, after Saudi National Bank President Ammar Al Khudairy stepped down on statutory grounds.
Credit Suisse has also been the focus of international institutions and politics. The ECB is asking banks across Europe to disclose their exposure on the Zurich-based institution. Italian Prime Minister Giorgia Meloni announced the government’s “utmost attention to the financial markets,” while French Prime Minister Elisabeth Borne asked Swiss authorities to “intervene” directly.