Credit Suisse’s rivals retreated and plunged into full-blown crisis

The panic on Wednesday was caused by a statement from Credit Suisse’s largest shareholder.

Long-standing problems at Credit Suisse Group AG turned into a full-blown crisis on Wednesday as its shares and bonds tumbled and some of the world’s biggest banks raced to protect their finances from a possible meltdown.

The stock plunged as much as 31%, hitting a record low, and the price of its benchmark bond fell to levels that signaled the Swiss lender was in deep financial trouble – a rarity at a major global bank since the 2008 crisis. In addition, banks that do business with Credit Suisse have suspended so-called credit-default swaps contracts that would replace them if the crisis deepens.

At least one bank, BNP Paribas SA, went a step further and told clients it would no longer accept requests to accept derivatives contracts when Credit Suisse was a counterparty, according to people familiar with the matter. It adds to steps many U.S. banks have taken over the past few months to slowly reduce their exposure to the lender.

As the day wore on and the crisis rocked global financial markets, Swiss authorities sought to stem the losses, pledging to provide emergency funding to Credit Suisse in a late-night statement if needed. Bank stocks and CDS rose slightly.

“The level of trading has turned into a crisis of confidence in Credit Suisse,” said Mark Heppenstall, president of Penn Mutual Asset Management. “People are looking for any way to get protection.”

The panic on Wednesday was caused by a statement from the National Bank of Saudi Arabia, Credit Suisse’s largest shareholder. The bank’s chairman, Ammar Al Hudayri, was asked if he was ready to inject more cash into the lender, and he said “absolutely not”. That wasn’t really news — and it came a day after Credit Suisse Chief Executive Ulrich Koerner said business was starting to improve — but it was enough to anger investors who were already reeling after three regional U.S. banks failed in a matter of days.

After that, the Swiss lender’s dollar-denominated bonds fell to 40 cents, the world’s worst-performing notes. One-year credit default swap quotes have been above levels for a long time as banks have sought to hedge against exposure to counterparties in the near term, according to people familiar with the matter.

Credit Suisse’s American Depositary Receipts were still down 14% at the close of regular trade in New York, although they suffered losses after the Swiss authorities’ announcement. The pain bled through the rest of the banking sector, with Morgan Stanley and Citigroup Inc. each fell more than 5%, while JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. all down more than 3%.

market fear

All of this underscores just how high concerns are now about the fate of Credit Suisse, as well as a global economy rocked by rising interest rates as central bankers try to tame inflation. Recession fears have pushed US oil prices below $70 a barrel for the first time since 2021.

Amidst the turmoil, broad concerns about the outlook for the banking system began to permeate dollar funding markets.

Overnight repo rates rose for a period, reflecting increased demand and general excitement. A number of other market indicators, including the gap between forward rate contracts and overnight index swaps, also showed heightened tensions.

Unlike the regional banks that collapsed in the U.S., “Credit Suisse is a globally systemically important banking institution,” said Scott Kimball, managing director of fixed income at Loop Capital Asset Management, which has a position in the lender’s bonds. “Persistent problems at Credit Suisse pose big problems for credit markets,” he added. “They can’t seem to get the ship right.”

Global efforts to hedge against further trouble at Credit Suisse have gone beyond banks. Izzy Englander’s Millennium Management has instructed its portfolio managers to stop trading derivatives with the bank, according to a person familiar with the situation. The hedge fund went a step further on Wednesday by suspending trades through the clearinghouse after it suspended unprocessed deals with the lender.

“CDS and equity prices can create a negative feedback loop, especially in volatile markets,” Bloomberg Intelligence’s Alison Williams and Ravi Chelluri wrote. “Credit Suisse’s risk management issues have evolved over the past two years, and we believe the major banks have managed their exposure to counterparty risk appropriately.”

(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)

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