As its largest shareholder stated it would “absolutely not” provide extra help, Credit Suisse’s shares dropped by more than 20% on Wednesday, and the price of insurance against default on its bonds increased.
Shares reached a record low as a result of the decrease. For three months, the stock has been under pressure due to worries about the bank’s viability and health.
When questioned if the Saudi bank was available to additional capital injections, the head of Saudi National Bank, Credit Suisse’s largest shareholder, made some comments that appeared to be the catalyst for the most recent sell-off.
In an interview with Bloomberg TV, Chairman Ammar Al Khudairy stated, “The answer is certainly not, for numerous reasons outside of the simplest issue, which is statutory and regulatory.”
Increasing the share held by his bank in Credit Suisse, according to Al Khudairy, would result in an unwelcome regulatory burden under Saudi, Swiss, and European law.
“If we exceed 10%, all additional regulations—whether they come from our regulator, the European regulator, or the Swiss regulator—begin to apply. We don’t want to enter a new regulatory system.”
He added that there were five or six further reasons, but he did not say what they may be.
Fears of major financial hardship were evident by a dramatic decline in the bank’s “bail-in bonds,” which are wiped out if the bank runs out of risk capital and serve as a fallback cushion against losses.
Axel Lehmann, chairman of Credit Suisse, stated on Wednesday that the firm did not require government assistance because its balance sheet and capital were robust. According to the Wall Street Journal, he said that “all hands are on deck” to handle the problem. Ulrich Koerner, the bank’s chief executive, stated on Tuesday that the institution was in good financial standing with a liquidity coverage ratio of roughly 150%.
Investors didn’t seem to be calmed by these statements.
The bank announced a sophisticated recovery strategy months ago that calls for spinning off their investment banking division and concentrating on its wealth management operations. Wealth management companies are valued by investors at greater multiples versus investment banking companies since the former’s earnings are thought to be more consistent and less likely to result in unforeseen losses.
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