Credit Suisse shares plunge as bank fear widens

Source the Ghana Report

Shares in troubled Swiss banking giant Credit Suisse have plunged to a record low as investors remain on edge after the collapse of Silicon Valley Bank.

Credit Suisse’s shares sank by 30% at one point, extending declines from Tuesday, when it disclosed “material weakness” in its accounting controls.

Investors are worried about how the bank, beset by problems, will handle the fallout from US bank failures.

The worries spread across share markets with all major indexes falling sharply.

“The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” wrote Andrew Kenningham of Capital Economics.

The bank insisted its financial position was not a concern, with the chief executive saying its cash reserves were “still very very strong.”

The three major share indexes in the US were all lower in opening trade in New York, while major exchanges across Europe – including the FTSE 100 – were down more than 2.5% at mid-afternoon.

The FTSE 100 has fallen 6% in the past week to reach a three-month low.

Problems at a major bank like Credit Suisse could have widespread repercussions. Banking shares around the world were under pressure, with the Stoxx Europe banking index down more than 6%.

The turmoil in the banking sector began last week with the collapse of SVB, the US’s 16th-largest bank.

The bank – which specialised in lending to technology companies – was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008. SVB’s UK arm was snapped up for £1 by HSBC.

In the wake of the SVB collapse, New York-based Signature Bank also went bust, with the US regulators guaranteeing all deposits at both.

But fears have persisted over the fallout from the collapse and trading in bank shares has been volatile this week.

Credit ratings giant Moody’s on Tuesday warned of more pain ahead for the US banking system, cutting its outlook for the sector to “negative” from stable to reflect the “rapid deterioration in the operating environment”.

“It’s too early to know how widespread the damage is,” Laurence Fink, chief executive of investment giant BlackRock wrote in an annual letter to investors. “The regulatory response has so far been swift, and decisive actions have helped stave off contagion risks. But markets remain on edge.”

Credit Suisse, founded in 1856, has faced a string of scandals in recent years, including money laundering charges and other issues.

It lost money in 2021 and again in 2022 – its worst year since the financial crisis of 2008 – and has warned it does not expect to be profitable until 2024.

Shares in the firm had already been severely hit before this week – their value falling by roughly two-thirds last year.

Amid the troubles, customers have been transferring funds elsewhere – including 110bn Swiss francs ($120bn) in the last three months of 2022.

The bank’s disclosure on Tuesday of “material weakness” in its financial reporting controls renewed concerns, prompting major investor the Saudi National Bank to say it would not inject further funds into the Swiss lender.

The concerns weighed on share prices of regional banks in the US and even the biggest US banks, which analysts have said should be more stable, saw their shares reverse course after Tuesday’s market recovery.

“Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years,” Mr Kenningham said.

One of the problems that hit SVB was that it was forced to sell US government bonds that it held in order to raise money.

But the value of these bond holdings had fallen over the past year as the US Federal Reserve increased borrowing costs to try to curb inflation.

Many other central banks – including the Bank of England – have also been raising interest rates. As rates rise, the value of bond portfolios has declined.

The falls mean many banks could be sitting on significant potential losses – though the change in value would not typically be a problem unless other pressures – like significant outflows of customer funds -force the firms to sell the holdings.

“The worry is that banks sitting on large unrealised losses in their bond portfolios might not have sufficient buffers if there is a fast withdrawal of deposits,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“Although the biggest players are judged not to be at risk, thanks to the chunky layer of capital they are sitting on and the stable nature of their deposits, the nervousness is palpable.”

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