After the mess in the U.S. banking sector, Europe is now having its own mess as Credit Suisse is scrambling for cash when its biggest investor Saudi National Bank said that it would not be able to provide further assistance to the Swiss bank due to regulatory restrictions.
This has caused the market to go completely in a panic mode in fear of the global investment bank to be the latest victim in this financial crisis.
The Swiss bank does not have the same problem as the American banks currently facing. It has been in a weak stage for years due to several scandals and allegations that resulted in an overhaul and Saudi National Bank becoming its major investor.
The incident that sparks market concerns was the announcement from the Swiss bank on Tuesday saying that it found certain material weaknesses in its internal control over financial reporting without further elaboration.
Saudi National Bank fueled the fire by announcing that it could not give more money to Credit Suisse as the national bank could not go above 10% ownership due to regulatory issues. The Saudi bank is currently holding 9.88% of shareholding in Credit Suisse.
Just like that, confidence, share prices and deposits of Credit Suisse came crashing down as investors and customers lost trust in the Swiss bank.
However, the Swiss National Bank swooped in and buoyed Credit Suisse out late Wednesday with a loan of $53.69 billion as the latter was trying to build confidence among investors and customers.
On paper, there are no signs of weakness in Credit Suisse’s balance sheet as of the current stage and aside from the ‘material weakness’ that the bank warned about. Capital position of Credit Suisse is in a good position with the Capital Adequacy Tier 1 finishing YE2022 at CHF 35.3 billion and the Capital Adequacy Tier 1 ratio of 14.1%, compared to 9.3% minimum requirement. Meanwhile, the bank booked loss absorbing capital of CHF 10.5 billion in high trigger Additional Tier 1 capital and CHF 4.2 billion low trigger Additional Tier 1 capital.
With the help of Swiss National Bank and Swiss Financial Market Supervisory Authority, the Bank of America Global Research was positive on Credit Suisse, citing its strong capitalization while reiterating ‘BUY’ rating at CHF 3.85 per share.
Meanwhile, JPMorgan had a ‘Neutral’ view and listed three scenarios for Credit Suisse, which are 1) self-help approach with full closure of investment banking, 2) Swiss National Bank steps in with full deposit guarantee and 3) a takeover scenario. Despite its Neutral view, JPMorgan gave a target price for Credit Suisse at CHF 3.80 per share.