Credit Suisse Plunges 30%; ECB Increases Interest Rates Despite Turmoil
Credit Suisse’s shareholders were in panic mode this week after the bank’s largest shareholder, Saudi National Bank, said it was unable to invest more money due to regulatory restrictions limiting its holding to below 10%. This sent shares plummeting to record lows and forced the Swiss National Bank to step in with a $54 billion loan to prop up the beleaguered lender.
The Swiss central bank declared Credit Suisse to be well-capitalized, and pledged additional liquidity if necessary.[0] Credit Suisse then released its annual report, which noted “material weaknesses” to its financial controls for 2021 and 2022.[1] This prompted the US Treasury Secretary Janet Yellen to testify in Congress earlier on Thursday that “our [the US] banking system is sound and that Americans can feel confident that their deposits will be there when they need them”.[2]
The US banking system was also facing a crisis this week, with Wall Street giants agreeing to a $30 billion rescue package for First Republic Bank, which saw its stock plunge 30% before the open and its credit rating slashed by four notches to junk status.
Meanwhile, the 10-year Treasury yield skidded 14 basis points to 3.49%.[3] On the same day, the yield reached 3.39%, not much different from the February 2nd low of 3[3] The yield on the 2-year Treasury dropped 25 basis points to 3.97%, having reached a low of 3.72% during the day's trading[3]
Class action lawsuits have also been filed against Credit Suisse in federal court, alleging the bank made false or misleading statements about its finances and failed to adequately disclose that it suffered from a “significant” increase in customer outflows at the end of 2022.[4]
The European Central Bank (ECB) Thursday carried through with a large interest rate increase of half a percentage point, despite the financial turmoil of the past week.[5]
Credit Suisse shares were volatile this week, with the bank’s value plummeting nearly 30% Wednesday, before the Swiss National Bank announced it would provide liquidity support. Shares surged Thursday, but then erased those gains, and sank more than 23% before the bell Friday.
It remains to be seen if the $54 billion loan and the $30 billion rescue package will be enough to stabilize the US and Swiss banking systems.[6] Investors will be closely monitoring the situation in the coming weeks.
0. “Nouriel Roubini says Credit Suisse may be too big to save, risks ‘Lehman moment'” Markets Insider, 15 Mar. 2023, https://markets.businessinsider.com/news/stocks/nouriel-roubini-credit-suisse-too-big-to-save-lehman-moment-2023-3
1. “Wall Street Breakfast: Credit Suisse's $54B Lifeline” Seeking Alpha, 16 Mar. 2023, https://seekingalpha.com/article/4587870-wall-street-breakfast-credit-suisses-54b-lifeline
2. “Silicon Valley Bank collapse and other key moments in the week that rocked banks” NPR, 17 Mar. 2023, https://www.npr.org/2023/03/17/1163911866/5-big-moments-from-the-week-that-rocked-the-banking-system
3. “Dow Jones Futures Fall: Credit Suisse Taps Swiss National Bank; First Republic Dives On Sales Report | Investor's …” Investor's Business Daily, 16 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-rise-as-credit-suisse-taps-54-billion-from-swiss-national-bank/
4. “Credit Suisse: Imperiled global investment bank has CCP-tied official on risk committee” Fox News, 17 Mar. 2023, https://www.foxnews.com/politics/credit-suisse-imperiled-global-investment-bank-ccp-tied-official-risk-committee
5. “Wall Street banks organise a bailout operation as financial crisis deepens” WSWS, 17 Mar. 2023, https://www.wsws.org/en/articles/2023/03/17/obwo-m17.html
6. “Bank Failures, Like Earlier Shocks, Raise Odds of Recession” The Wall Street Journal, 17 Mar. 2023, https://www.wsj.com/articles/bank-failures-like-earlier-shocks-raise-odds-of-recession-beb1e376
