Storm in the financial markets after the collapse of Credit Suisse on the stock market

European stock markets have all experienced significant falls, including here the German DAX index, after the misadventures of Credit Suisse, here at the Frankfurt Stock Exchange on March 15, 2023 © Staff / Reuters

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After a week of feverishness due to the bankruptcy of the American bank SVB, the stock markets relapsed Wednesday, March 15 with the return of fears related to the banking sector and in particular to Credit Suisse. The bank recorded the worst stock market crash in its history after Saudi Arabia's largest shareholder ruled out a bailout of the troubled bank, sending a storm to markets.

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The respite of the previous day did not hold: Paris was down 2.97%, London 2.76%, Frankfurt 2.43% and Milan 4.01% around 13:43 GMT. The index of the European banking sector plunged by more than 7%.

The fall in Credit Suisse shares, the institution perceived as the weak link in the banking sector in Switzerland, saw its share price fall by up to 30% to reach a new all-time low of 1.55 Swiss francs at midday. It closed down 24.24% to 1.697 Swiss francs, despite the intervention of its president to reassure.

In a domino effect, European banking stocks collapsed, including BNP Paribas which fell by 10.92% or Société Générale by 12.97%: since the beginning of the week, many banks have lost more than 10% of their value on the stock market, and some more than 15%.

At a conference for the banking sector in Saudi Arabia, its president Axel Lehmann assured that the bank does not need government aid.

This is "not a subject", he said, stressing that Credit Suisse relied on "solid financial ratios", but failed to reassure the markets. Apart from these public statements, the bank as well as the financial authorities and the government remained silent throughout the day.

But according to the Financial Times, citing three anonymous sources, Credit Suisse has asked, in vain for the moment, "a gesture of support" from the Swiss Central Bank and the market authority, Finma.

► Read also: International investigation reveals Credit Suisse's dirty business

Feverishness that worries Switzerland

The measures of the US authorities and the assurances of European governments on the soundness of the banking system following the bankruptcy of the Silicon Valley Bank (SVB) had been able to stabilize the markets a little on Tuesday. But "fears about the strength of the sector," said Susannah Streeter, analyst at Hargreaves Lansdown, explaining the sudden storm.

Nobel laureate Joseph Stiglitz did not rule out further failures in an interview with AFP on Wednesday.

The concern goes beyond the borders of the Alpine country. French Prime Minister Elisabeth Borne asked the Swiss authorities to solve the bank's problems and indicated that her finance minister would speak to her Swiss counterpart today.

This vertiginous fall in the stock began after statements by the president of the Saudi National Bank, Credit Suisse's largest shareholder. The Saudis came to the bank's rescue by taking a stake in its capital in November.

But the Saudi National Bank has "absolutely no plans" to inject more money for "several reasons," said Ammar al-Khudairy, its president. The simplest is "regulatory" issues, he said. The Saudi National Bank holds a 9.8% stake. But under Swiss law, FINMA would have to decide if it crosses the 10% threshold.

In an interview with Reuters, Ammar al-Khudairy said he was "very happy" with Credit Suisse's restructuring program, referring to a "very solid" bank.

Founded in 1856, Credit Suisse is a pillar of the Swiss financial centre, which has contributed to the development of the country's railways as well as to the emergence of insurance giants such as Swiss Life and to the financing of large industrial companies, including the forerunner of ABB.

But Credit Suisse has been in turmoil for two years since the bankruptcy of the British financial company Greensill, which marked the beginning of a series of scandals that have weakened the bank. Since March 2021, the stock has lost more than 83% of its value.

« Too important to let sink »

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The pressure on Credit Suisse hit an already nervous market " said Jane Foley, analyst at Rabobank, to AFP. The new shareholder's statements struck a chord as investors worry about the risk of contagion after the collapse of the US bank SVB. "There seems to be investors who are increasingly worried," Neil Wilson, an analyst at Finalto, said in a market commentary.

But if Credit Suisse were to face "existential problems," then "we would be faced with something of a whole new dimension. It is really too important to be allowed to sink," he insisted.

Unlike SVB, Credit Suisse is one of 30 banks worldwide considered too big to fail, which requires stricter regulation to withstand the shock in the event of trouble.

(With AFP)

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