The long-brewing troubles at Credit Suisse Group AG exploded into a full-blown crisis Wednesday as its stock and bonds cratered and some of the world’s biggest banks raced to shield their finances from the potential fallout.
The stock fell as much as 31%, hitting record lows, and prices on its benchmark bonds sank to levels that indicate the Swiss lender is in deep financial stress — something rarely, if ever seen at a major global bank since the throes of the 2008 crisis. Meanwhile, banks that trade with Credit Suisse snapped up contracts, known as credit-default swaps, that will compensate them if the crisis deepens.
At least one bank, BNP Paribas SA, went a step further and informed clients it will no longer accept requests to take over their derivatives contracts when Credit Suisse is the counterparty, according to people familiar with the matter. This adds to the steps that many banks in the US had been taking over the course of months to slowly reduce their exposure to the lender.
As the day went on and the crisis convulsed global financial markets, authorities in Switzerland sought to stem the damage, releasing a statement in their evening pledging to provide Credit Suisse with emergency financing if needed. The bank’s shares and CDS rebounded slightly.
“The trading levels have become somewhat a crisis in confidence in Credit Suisse,” said Mark Heppenstall, president of Penn Mutual Asset Management. “People are looking for any way possible to get protection.”
Wednesday’s panic was sparked by a statement from Credit Suisse’s biggest shareholder, the Saudi National Bank. When the bank’s chairman, Ammar Al Khudairy, was asked if he was willing to inject more cash into the lender, he responded “absolutely not.” That was nothing new, really — and came just a day after Credit Suisse Chief Executive Officer Ulrich Koerner said that business was starting to improve — but it was enough to unnerve investors already on edge after three regional US banks failed in a span of days.
In the aftermath, the Swiss lender’s dollar bonds plunged as much as 40 cents, by far the worst performing notes globally. Quotes for one-year credit default swaps surged above levels on longer durations as banks tried to give themselves a near-term shield from their counterparty exposure, according to people with knowledge of the matter.
While Credit Suisse’s American depositary receipts pared losses after the announcement by Swiss authorities, they were still down 14% at the close of regular trading in New York. The pain bled into the rest of the banking sector, with Morgan Stanley and Citigroup Inc. each tumbling more than 5%, while JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. all sank more than 3%.
Market Angst
All of which underscores just how high angst now is — both surrounding the fate of Credit Suisse and, more broadly, a global economy that’s been shaken by soaring interest rates as central bankers seek to tame rampant inflation. Recession fears sent the price of oil tumbling below $70 a barrel for the first time since 2021 in the US.
Amid the tumult, broader concern about the outlook for the banking system began to seep into dollar funding markets.
Rates on overnight repurchase agreements moved higher for a period, pointing to stronger demand and general jitteriness. A number of other market indicators, including the gap between forward-rate agreements and overnight index swaps, also indicated heightened tension.
Unlike the regional banks that fell in the US, “Credit Suisse is a global systemically important banking institution,” said Scott Kimball, managing director of fixed income at Loop Capital Asset Management, which has a position in the lender’s bonds. “The persistent problems at Credit Suisse carry bigger problems for the credit markets,” he added. “They can’t seem to get the ship right.”
The global effort to safeguard against further distress at Credit Suisse extended beyond banks. Izzy Englander’s Millennium Management instructed portfolio managers to cease derivatives trades with the bank, according to a person with knowledge of the situation. Having already stopped uncleared transactions with the lender, the hedge fund on Wednesday went a step further, halting trades that go through a clearing house.
“CDS and stock prices can drive a negative feedback loop, especially in volatile markets,” Bloomberg Intelligence’s Alison Williams and Ravi Chelluri wrote. “Credit Suisse’ risk-management issues have evolved over the past couple of years, and we think that big banks have managed counterparty-risk exposures accordingly.”
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