Troubles at Credit Suisse prompt broader market selloff
Troubles at the Swiss banking giant Credit Suisse spooked markets Wednesday, causing bank stocks to sell off after regaining some ground Tuesday.
The sell-off was sparked in part when Credit Suisse’s largest shareholder, Saudi National Bank, said publicly that it wouldn’t beef up its investment to help steady the embattled lender. Credit Suisse shares took a roughly 25% nosedive Wednesday to hit a record low.
Shares in Citibank were down as much as 5%, while Goldman Sachs, JPMorgan and Wells Fargo were each down roughly 4% Wednesday. Bank of America’s stock was trading about 3% lower.
The Dow and S&P indexes were both down by more than 1.4% Wednesday morning, with the tech-heavy Nasdaq trading at least 1% lower. Even the markets for assets typically considered safe, such as U.S. government bonds, were also down sharply.
The broad-based jitters in Europe and the United States, which come days after American regulators took over and shut down two banks, have kicked up fresh worries about troubles in the global financial sector.
Some of that shakiness is to be expected, analysts say, since banking around the world is so interconnected and because investors eyeing instability in one part of the industry tend to scan the horizon for other threats — and to reflect those concerns in their stock trades.
“Credit Suisse is not just a Swiss problem but a global one,” Andrew Kenningham, chief Europe economist at the Capital Economics research and consulting group, warned clients in a note Wednesday.
That is partly because Credit Suisse is so large — with $574 billion in assets, it is more than twice as big as Silicon Valley Bank — and partly because it has long been seen as the “weakest link among Europe’s large banks,” he wrote.
Not only has the bank struggled with weak profitability in recent years, but it also said Tuesday that a recent stream of customers pulling their money out had slowed down but “not yet reversed.”
That acknowledgment came at the same time that Credit Suisse said it had found “material weaknesses” in its financial reporting for 2021 and last year.
The issues are not related to the problems that caused U.S. regulators to close SVB and Signature Bank, and Credit Suisse said the problems didn’t change its financial results for those years.
But the disclosures added to investors’ fears that the lender was on thin ice — increasing pressure on an already stressed banking system.
“It would be foolish to assume there will be no other problems coming down the road,” Kenningham said.
While the risks of broader instability are real, Credit Suisse’s litany of travails are unique.
The bank — Switzerland’s second largest after UBS — has faced one scandal after another in recent years. It was convicted in connection with a money laundering plot involving a drug ring last summer. And the bank has had substantial entanglements with a collapsed hedge fund and a bankrupt British lender.
Last month, Credit Suisse reported its largest annual loss since the 2008 financial crisis. In the last three months of last year, clients pulled more than $100 billion of assets, Bloomberg reported, as concerns mounted about its financial health.
As investors dumped the bank’s stock this week, Credit Suisse Chair Axel Lehmann sought to reassure markets that it hadn’t lost its footing. In an interview with CNBC on Wednesday morning, he said that government assistance isn’t on the table.