Credit Suisse’s share price plunges, as fear sweeps the market

Shaky share-issuances can sink banks. Silicon Valley Bank’s (svb’s) disastrous attempt to raise capital last week proved as much. On March 15th Credit Suisse found that shaky shareholders can do considerable damage, too. Saudi National Bank, the firm’s biggest shareholder, appears to be suffering a bad case of buyer’s remorse. Quizzed about any further investment in Credit Suisse, the response from the bank’s chairman was brutal: “Absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory”.

Investors ran for cover. Credit Suisse’s share price plunged by a quarter to its lowest-ever level, and other European banks took a knock as well. By the end of the day the Swiss regulators had released a statement saying that Credit Suisse met the capital and liquidity requirements applicable to big banks, but that it would offer the lender liquidity support if needed.

Investors are unlikely to lose everything. They nevertheless have plenty of reasons for concern. Multibillion-dollar losses from Credit Suisse’s dealings with Archegos Capital, a family office that collapsed in 2021, and Greensill Capital, a supply-chain-finance company that suffered the same fate in the same year, are near the top of the list. Last year clients withdrew cash from every corner of the bank. It was all too much for one long-term shareholder: Harris Associates, an investment firm, sold the last of its shares.

Newer owners have not been spared the woe. On March 9th Credit Suisse announced a delay in the publication of its annual report owing to a last-minute call from the Securities and Exchange Commission, America’s main financial regulator. The relevant accounting issues are not major, but the firm’s confession of “material weaknesses” in its financial-reporting system does not suggest the sort of polished internal procedures which would reassure investors.

When shareholders finally got their hands on the report on March 14th, it made for grim reading. At the end of 2022 Credit Suisse posted its fifth consecutive quarterly loss. Raising SFr4bn ($4.3bn) late last year repaired the bank’s common equity to risk-weighted assets ratio, a crucial indicator of a bank’s capital strength. The figure now stands at a respectable 14.1%, up from 12.6% at the end of September. But few expect it to hold steady as the bank embarks on an ambitious restructuring programme and simultaneously attempts to reverse uncomfortable outflows of client cash.

Plugging this cash gush is the more immediate problem. Assets managed by the wealth-management division fell from around SFr740bn to just over SFr540bn, as bankers failed to convince ultra-rich clients to park money with Credit Suisse. Little reprieve was found in the domestic Swiss bank, normally the cash cow of the business. Total outflows amounted to 8% of assets under management during the fourth quarter, obliging the bank to make use of its liquidity buffers.

Although Ulrich Körner, Credit Suisse’s chief executive, hopes to trim the lender’s cost base and restructure the investment bank, there could still be more pain ahead. The remodelled investment bank, called cs First Boston, will revolve around Michael Klein. Mr Klein, who served on Credit Suisse’s board of directors until October 2022, is a dealmaking supremo famed for sitting on both sides (as a “strategic consultant”) of the mega mining tie-up between Glencore and Xstrata in 2012. In February Credit Suisse purchased his boutique advisory shop for $175m.

There are reasons to take the intention to build a big boutique investment bank seriously. Credit Suisse has long excelled in advising on corporate buy-outs, which will eventually recover after a frosty 2022. Giving senior managers equity in the business is a reasonable way to attract senior dealmakers. But those preparing for the leap will this week probably have decided to pause in order to assess the damage.

In the event of a catastrophic run, which still seems unlikely, few doubt the Swiss government would come to the rescue of half of the country’s beloved banking duopoly. One option would be a sale, perhaps to Credit Suisse’s better-behaved compatriot, ubs. But such a rescue mission would have a weak commercial logic, and involve considerable turbulence. As with Credit Suisse’s current plans, its success would be far from guaranteed.

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