Phew, what a day when financial markets were gripped by fears about the banking sector as Britain’s chancellor outlined his budget.
The big news tonight is that Swiss regulators said Credit Suisse could tap liquidity from the central bank if needed, as they struggle to ease fears around the lender after it sent European bank shares tumbling on Wednesday.
Switzerland’s financial regulator FINMA and the country’s central bank said in a joint statement that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”
Governments and at least one bank were pressuring Switzerland to act, according to reports, as London’s stock market posted its biggest one-day loss in a year.
Here are today’s top stories, first on the Credit Suisse crisis.
And regarding the budget.
And in other news.
A 30% drop in Credit Suisse shares today has sent them down to a level that is either “ridiculously cheap or a prelude to a full-blown crisis”, writes our finance editor Nils Pratley.
The former pride of the Swiss banking system, an institution founded in 1856, was valued at just 7 billion Swiss francs at its lowest point. For an unrelated comparison, national chocolate champion Nestlé is worth almost 300 billion Swiss francs.
For the “don’t panic” optimists, it’s just a case of anxious investors being unfairly played by the bully after last week’s collapse of Silicon Valley Bank in the US. There are no direct links between the two institutions, but the market is struggling to hunt down the next victim. It’s easy to hit on Credit Suisse, which everyone already saw as the weak side of Europe’s major financial institutions.
In an attempt to convince investors to look at fundamentals, bank chairman Axel Lehman urged patience. “We have strong capital ratios, a strong balance sheet,” he said. “We already took the medicine.” This last comment was presumably in reference to last year’s 4 billion Swiss franc capital increase.
The bottom line is that external finance cannot be ignored so easily. The SVB implosion, like last autumn’s crisis over the LDI (commitment-led investment) strategy of UK pension funds, has its deep roots in rising interest rates, which in turn caused unrealized losses in bond portfolios. One of SVB’s problems (besides basic risk management) was that it had to absorb some of those losses when depositors fled. It’s not unreasonable for the market to wonder where else bond pressure could open a few holes.
Here is the full excerpt.
The closing bell rang on Wall Street, with stocks in the red as fears about the banking sector weighed on New York.
The Dow Jones industrial average index of 30 major American companies ended the day down 280 points or 0.87% to 31,875 points.
The broader S&P 500 lost 0.7%, while the tech-focused Nasdaq closed slightly higher.
Wall Street recovered some of its earlier losses after it was reported that Swiss officials were in talks over the situation at Credit Suisse (see earlier post).
Credit Suisse’s share and bond prices have been hit by “market reactions” in recent days, Swiss authorities said in a statement tonight.
In a section titled “Credit Suisse meets regulatory capital and liquidity requirements,” FINMA and the Swiss National Bank say:
Credit Suisse’s stock market value and the value of its debt securities have been particularly affected by market reactions in recent days.
FINMA is in very close contact with the bank and has access to all information regarding supervisory legislation. Against this background, FINMA confirms that Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks.
In addition, the SNB will provide liquidity to the globally active bank when needed. FINMA and the SNB are following developments very closely and are in close contact with the Federal Department of Finance to ensure financial stability.
SNB to provide liquidity to Credit Suisse when needed
The Swiss National Bank has committed to providing liquidity to Credit Suisse when needed.
Swiss financial market watchdog FINMA and the Swiss National Bank have argued that “problems at some US banks do not pose a direct risk of contagion for Swiss financial markets.”
In a joint statement, after a day of chaos in the financial markets, FINMA and the SNB said:
The strict capital and liquidity requirements applied to Swiss financial institutions ensure their stability.
Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide liquidity to the CS.
FINMA and the SNB add that “there are no indications of an immediate contagion risk for Swiss institutions due to the current turmoil in the US banking market.”
And they note that “Credit Suisse meets regulatory capital and liquidity requirements,” saying:
Swiss regulation requires all banks to maintain capital and liquidity buffers that meet or exceed the minimum requirements of the Basel standards.
Furthermore, systemically important banks must meet higher capital and liquidity requirements. This allows to absorb the negative effects of major crises and shocks.
Swiss government ‘negotiates options to stabilize Credit Suisse’
Swiss authorities and Credit Suisse Group AG are discussing ways to stabilize the bank, Bloomberg reported on Wednesday, citing people familiar with the matter.
Credit Suisse executives and government officials have talked about options that range from a public announcement of support to potentially withdrawing liquidity, the report said.
Other potential moves suggested for Credit Suisse could be a possible spin-off of their Swiss unit and a tie-up with larger Swiss rival UBS Group AG, the report said, adding that it was unclear whether any of these moves would actually materialize. .
Switzerland is under pressure from at least one major government to quickly intervene in Credit Suisse, a source familiar with the situation told Reuters, after the Swiss bank hammered European bank shares on Wednesday.
Swiss authorities and Credit Suisse are discussing ways to stabilize the bank, Bloomberg reports.
Swiss financial regulator Finma could make an announcement “soon”, they added.
Switzerland is under pressure from at least one major government to intervene in Credit Suisse in the coming hours, given the systemic nature of the bank. A source familiar with the situation told Reuters.
The U.S. Treasury said it is monitoring the situation surrounding Credit Suisse and is in contact with global counterparts about it, a Treasury spokesman said Wednesday, as the bank comes under renewed market pressure.
Heavy losses across Europe as banks tank
There were also heavy losses in European stock markets today as bank shares tumbled.
Germany DAX: lost 3.27% to France CAC: decreased by 3.6%, and Italy FTSE: MIB: the index decreased by 4.6%.
Meanwhile Credit: Suisse was the worst-performing bank, down 24%, with other financial institutions also experiencing major declines. French bank Society General fell by 12%, the competitor BNP Paribas lost 10%.
German: Bank fell by 9%, and Commerzbank decreased by 8.7%.
“Concerns about 2008-style financial crises have intensified,” warned Fawad Razakzada, market analyst at City Index, “following the broader industry sell-off following the Silicon Valley bank collapse.”
The sell-off in financial stocks was sparked by Credit Suisse, which has seen its shares hit historic lows in recent weeks.
The lender’s largest shareholder, Saudi National Bank, said it could not raise more than a 10% stake in the Swiss bank due to regulatory issues. Worried about another bank failure, traders sold European bank stocks heavily.
It’s another remarkable day in the financial markets, and unfortunately, it looks like the worst is yet to come.
It says so Craig Earlham, Senior Market Analyst at OANDAwho adds
Fear has gripped the markets once again, with concerns about a repeat of past crises, one in particular, for obvious reasons, and the consequences for the financial system and the global economy. Of course, this is only natural when so little is known about the situation and ultimately what it means for the health of the rest of the system.
The lack of information from the Swiss central bank and the regulator about Credit Suisse’s situation has only fueled fears. Erlam adds:
We are now left in a situation where stock markets have crashed, banks around the world have failed, and everyone is wondering how bad things are going to get. The bill could pay for more than a decade of low interest rates and a massive experiment in quantitative easing.
£75bn wiped off UK blue-chip stocks
Today’s sell-off has wiped £75bn off the value of the FTSE 100 index, we reckon.
US Treasury monitoring the Credit Suisse situation
The U.S. Treasury Department is monitoring Credit Suisse’s situation, a spokeswoman said Wednesday.
The Treasury is in touch with its global counterparts, a spokeswoman said, speaking after Credit Suisse shares hit record lows after its largest shareholder ruled out increasing its holdings.
Shares of Credit Suisse ended the day at a record closing low, down 24% to 1.69 Swiss francs.