Credit Suisse Moves To Ignite Global Markets In The Face Of Banking Fears

It only took a few tough words from the biggest shareholder of Credit Suisse Group AG on Wednesday to trigger a selloff that rapidly spread across global markets as a result.

‍

The Chairman of the Saudi National Bank responded by stating “absolutely not” to a question about whether Saudi National Bank was open to receiving more cash injections in the future. It was a reminder of the precarious situation facing the Swiss bank, and another reason for investors to sell the Swiss bank, who was still nervous after Silicon Valley Bank's collapse.

‍

In an effort to bolster confidence in the turnaround plans of the bank, the management has sought to do just that this week. Ulrich Koerner, the company's chief executive officer, said on Tuesday that the business environment is starting to improve, and Axel Lehmann, the company's chairman, said on Tuesday that government assistance "is not a topic."

‍

Even so, it was not enough to deter investors from fleeing the market. A dramatic one-day selloff of 28% in the share price of Credit Suisse has left it down more than 75% over the past year, which is the biggest one-day drop in the firm's history. Bonds issued by the company fell to levels that indicate severe financial distress. Securities due in 2026 fell in value by 17.75 cents on the dollar in New York to 70 cents on the dollar. Based on Trace's calculations, the yield on these bonds is about 20 percentage points higher than that of US Treasuries.

‍

“In light of the recent surprise that a US bank had disappeared from one day to the next, the markets have been particularly sensitive to the negative news flow,” according to Francois Lavier, head of financial debt strategies at Lazard Freres. “It doesn't take much to further weaken market sentiment in a context where it has already weakened, so there is little to lose by weakening it further."

‍

Credit Suisse's panic selling spread around the globe, hitting European banks and dragging down the US stock market. Frightened investors flew to safety, driving yields on German two-year bonds below 2.5%.

‍

BNP Paribas SA and Societe Generale SA both fell more than 10%. There was a loss of more than $60 billion in market value among European banks on Wednesday.

‍

The Swiss firm, Credit Suisse, is just months away from completing a complex turnaround plan that will see it spin off its investment banking unit and focus on its key wealth management practice. As a result of the collapse of numerous US regional banks in the past few weeks, market unrest across the financials sector threatens to further complicate that effort.

‍

Trade Algo was unable to reach a spokesperson at the bank for comment.

‍

“It will take a while for markets to return to calm when there is this kind of material risk,” said Frederic Dodard, head of the asset allocation at State Street Global Advisors Ltd. As a result of the central bank meetings that are scheduled for this week and next week, we could continue to see market swings for a few days. “They could have a positive impact on restoring confidence or even have a negative impact on it. We’re not out of the woods yet.”