Shares of European banks, shares of Credit Suisse fell sharply


The Swiss National Bank says it will provide financial support to troubled Credit Suisse “if necessary,” but said the firm meets requirements for systemically important banks.

This is an evolving story.

Fresh threats to the stability of the global financial system rattled markets on Wednesday after Credit Suisse admitted to a “material weakness” in its financial reporting, adding uncertainty to an already jittery banking sector following the collapse of a Silicon Valley bank.

Shares of Credit Suisse fell more than 20 percent on the news. The Dow Jones industrial average fell nearly 2 percent, while the tech-heavy Nasdaq also fell more than 1 percent, reversing Tuesday’s gains. European bank stocks also fell, dragging major indexes lower; The pan-European Stoxx 600 index fell more than 2 percent.

The Swiss bank’s biggest investor, National Bank of Saudi Arabia, said on Wednesday it was in no rush to borrow more cash to help shore up the firm.

Credit Suisse has struggled with many problems over the years, and the latest challenges it reported differed from those that brought down SVB. But the Swiss bank is much larger and more integrated with the global financial system, and its problems come amid growing concerns about bank stability globally.

“Credit Suisse is a much bigger concern for the global economy than the US regional banks, which have largely been in the firing line for the past week,” Andrew Cunningham, chief European economist at Capital Economics, said in a research note on Wednesday. “Credit Suisse is not just a Swiss problem, but a global problem.”

Federal officials are trying to assess how vulnerable U.S. banks might be to Credit Suisse’s downgrade, according to two people familiar with the matter who spoke on condition of anonymity to describe internal negotiations. This review was first reported by Bloomberg.

The Treasury Department declined to comment, although a spokeswoman confirmed in a statement that Treasury was monitoring the situation and in contact with global counterparts. In addition to the risk arising from the US bank holding of Credit Suisse shares, the Swiss bank also has subsidiaries in the US that are subject to federal control and may pose financial risks.

The sell-off in Credit Suisse’s shares could affect the European Central Bank’s decision to raise interest rates, which is scheduled for Thursday.

In its annual report published on Tuesday, the Swiss bank said it had found “material weaknesses” in its failure to adequately identify the risk of misstatements in its financial statements and the bank’s “failure to effectively monitor internal control objectives” and “risk assessment and monitoring objectives”.

The bank added that it “did not exercise effective control over the classification and presentation of the consolidated statement of cash flows.”

Treasury Department officials and other federal regulators are closely monitoring Credit Suisse amid concerns that turmoil in European markets could spill back into the United States.

Credit Suisse said it was working to resolve its problems, which “may require us to commit significant resources.” He warned that the problems could eventually affect the bank’s access to capital markets and expose it to “potential regulatory investigations and sanctions”.

The Swiss bank delayed the release of its annual report last week after the US Securities and Exchange Commission requested more information about its cash flow reporting.

The SEC and the Justice Department are looking into the collapse of a Silicon Valley bank

The bank previously announced in October that it had suffered significant customer withdrawals. It reiterated that information in its annual report, saying “significant deposit and net asset outflows in the fourth quarter” hurt the bank’s full-year financial results. Bank chairman Axel Lehman said this in December Bloomberg that the flow has “largely stopped” and that some customers are getting refunds, especially in Switzerland.

French economist Nicolas Veron, a senior fellow at the Bruegel and Peterson Institute for International Economics, said the Swiss bank “would be a big deal if it entered a truly chaotic period.” “Having said that, it has been perceived as a concern for some time. I believe that this fact has influenced the strategies of market participants. So I don’t think the risk is borne by well-regulated institutions.”

The US economy has appeared to be growing strongly in recent months, the labor market has remained strong and inflation has shown signs of cooling. But that all changed on Friday, when a Silicon Valley bank suddenly failed, marking the second largest bank failure in US history.

Financial stocks have been reeling ever since, and regulators shut down Signature Bank on Sunday. To avoid a wider panic, US authorities began to reassure depositors that they would be in full. US regional bank stocks fell sharply on Monday and rebounded on Tuesday. But Wednesday’s news from Credit Suisse, a sign that the banking sector’s woes are not limited to US banks, seemed to rattle investors in banks again.

Shares of First Republic Bank, another Bay Area bank that caters to technology clients, fell more than 16 percent, while Phoenix-based Western Alliance fell 6 percent. Volatility spread across the market — the CBOE VIX, known as Wall Street’s “fear gauge,” rose more than 12 percent.

167-year-old Credit Suisse was founded to finance the expansion of Swiss railways.

Unlike Lehman Brothers, which collapsed suddenly when people recognized the size of its off-balance sheet liabilities and business, Credit Suisse’s troubles built over time as the bank grappled with financial losses, risks and compliance issues, as well as high-profile data breaches. breach. In recent years, it has suffered heavy losses from counterparties such as a hedge fund called Archegos and a financial firm called Greensill Capital.

According to Fitch Ratings, the Swiss bank has been trying to restructure its business for months, aiming to cut its investment banking business and shift money to global wealth management.

Cunningham, the economist, said it was unclear how widespread the Swiss bank’s troubles would be. “The problems at Credit Suisse again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” he wrote.

Market volatility could accelerate the U.S. recession predicted by many analysts, Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said on Wednesday.

Earlier, Luzetti had predicted that the US would enter a recession by the end of this year. He now has a “high conviction” on that assumption, he told the Post.

Deutsche Bank predicts the U.S. unemployment rate will rise to around 5.5% in 2024 from 3.6% in February, which could signal the start of major job losses later this year. The costs are likely to be heaviest in areas such as technology, retail, transportation, warehousing, manufacturing and construction, he said. However, he says it’s hard to predict exactly what will happen because of how fluid things are.

“We’re a few days away from seeing that volatility, and it’s impossible to see how it’s going to play out.”

The White House moved quickly this weekend to stave off a sense of crisis, trying to reassure customers and the banking industry. In Silicon Valley, startup founders who keep their money in a Silicon Valley bank struggle to figure out how to pay their employees before heaving a sigh of relief when they learn they have access to their entire accounts.

6 other questions about this bailout and the collapse of SVB

But the closure of SVB and Signature still sent a sense of insecurity through the banking sector. When Credit Suisse released its annual report, it was found that its “opening controls and procedures were not effective” over a period of time, which was already in the developed market.

Credit Suisse’s largest investor, the National Bank of Saudi Arabia, said it would not accept a large stake in the company.

“The answer is absolutely no, for many reasons beyond the simple ones that are regulatory and legal,” Ammar Al Hudayri told Bloomberg Television.

David J. Lynch contributed to this report.

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