The Credit Suisse crisis must be resolved by the Swiss authorities. That’s how it has to be and that’s what the French Prime Minister, Elisabeth Borne, said. This bank, Switzerland’s second largest, is one of thirty global banks considered too big to fail. But that doesn’t mean it can’t have problems. The collapse of its shares on the Zurich Stock Exchange yesterday, with a fall of more than 30%, which adds to the cumulative 80% loss since March 2021, again caused a stock market earthquake in Europe, where dragged down the entire banking sector.
The share price of most banks recorded sharp declines, between 6% and more than 10%, after they had recovered on Tuesday from the scare caused by the bankruptcy of Silicon Valley Bank in the US.
As we said two days ago, nerves are on edge in the European financial system, and also the global one, due to the doubts that have arisen about the soundness of banking. The case of Credit Suisse, however, like that of Silicon Valley Bank, obeys a series of specific known causes, since it accumulates a long history of irregularities and failed businesses, as demonstrated by the negative stock market performance that it has registered since two years
The fact that yesterday the main shareholder of Credit Suisse, which is Saudi National Bank, announced that it will no longer invest in the aforementioned entity was what triggered the climate of financial panic. But the main reason, they said, is that they already own 9.8% of the capital and cannot invest more because Swiss law prevents a single foreign shareholder from owning more than 10% of their banks’ shares.
The Saudis entered Credit this past November, as support to help the restructuring that the bank started in October to try to solve its problems. As the president of Saudi National Bank stated yesterday, the aforementioned restructuring program is working very well and they are calm because Credit Suisse is a very solid bank.
Likewise, the president of the Swiss bank himself said that they have enough resources to move forward and that they will not need public aid. But that will have to be seen.
It should be borne in mind, however, that last month Credit Suisse made public that in 2022 it had recorded large losses, to the value of 7.4 billion euros, and announced that it would also incur substantial losses in 2023. This led to a massive withdrawal of funds from the entity and the abandonment of some of its major shareholders, such as the American investment fund Harris Associates.
Everything that happens at Credit Suisse is also confusing, which breeds even more mistrust. The fact that the Swiss banking authorities did not say anything throughout the day yesterday added to the climate of unease in the global banking sector as a whole. At the last minute the central bank of Switzerland, under intense international pressure, announced that it would give the bank all the liquidity it needed, in an attempt to calm the financial markets. If the survival of this bank were to be jeopardized, a major problem would be created in global finance.
The banking business is fundamentally based on trust. Any situation that weakens this confidence can exacerbate the problems of the banking sector as a whole. At the moment, at least on the stock market, this sector is viewed with suspicion because it is not known if there are more entities that could cause problems.
It is to be hoped that the Credit Suisse problem is a one-off. In this scenario, it brings reassurance that, in the case of the Eurozone, all the big banks are well capitalized and subject to strict supervision by the banking authorities, after the great financial crisis that started in 2008 with the bankruptcy of Lehman Brothers, whose ghost now roams the world.
