Sometimes a problem child acts out in class, and sometimes they rattle the global banking sector.
Panic over the collapse of two banks in the U.S. might have gone truly global this week as shares in a Switzerland-based bank, Credit Suisse Group AG, cratered nearly 30% from Tuesday to Wednesday.
Per the New York Times, the S&P 500 in the U.S. and markets in Europe took dings as investors seemed spooked by ongoing issues with Credit Suisse and the failure of Signature Bank and Silicon Valley Bank (SVB).
The S&P 500 was down about 1.6% from Tuesday.
Over the past week, the federal government seized control of two banks (and secured customer deposits) after disclosed losses from SVB triggered a bank run, the latter of which Signature Bank said it also experienced. Financial systems are interconnected, and it’s easy for something called “contagion” to happen, where struggles in one area spread to another.
Regional bank stocks in the U.S. picked back up on Tuesday, but anxiety roared back when Credit Suisse, something of a European banking “problem child,” per the Wall Street Journal, said issues in its system produced flaws in its financial reporting — not ones that changed its results meaningfully, but enough to cause concern, the outlet added.
Then, Saudi National Bank (SNB), the biggest shareholder of the bank, said on Bloomberg TV that it couldn’t help out Credit Suisse anymore, per the WSJ. The bank owns 9.9% of Credit Suisse.
“It’s a regulatory issue,” the chairman of the SNB, Ammar Al Khudairy, told Reuters. “We cannot because we would go above 10%.”
Major banks in Europe also saw stock pauses and declines of over 10% in share price, per news reports. Whether the contagion will be contained also remains to be seen.
Credit Suisse Chairman Axel Lehmann defended the bank in a panel this week, per CNBC.
“We are regulated, we have strong capital ratios, very strong balance sheet. We are all hands on deck. So that’s not the topic whatsoever,” he said, referring to help from the government.
The bank was already raising eyebrows in the fall after several scandals, which include pleading guilty to not succeeding at preventing money laundering in June, being forced to pay damages after an advisor committed fraud, and a scandal that involved defrauding investors over a tuna investment loan, per Reuters.
