BackBlack Wednesday? Credit Suisse stock nosedives 78% from 1-year high, sparks $60 bn rout in European banks
Investors are dumping Credit Suisse's share price after its biggest backer ruled out the possibility of aiding the troubled Swiss bank as a bigger shareholding could lead to additional regulatory hurdles. Also, the Swiss lender has come under regulatory radar, while questions have arose over its clients withdrawal.
PremiumIt's a bloodbath in Switzerland-based global investment bank and financial services firm, Credit Suisse's share price. It almost gives the vibe of Black Wednesday as financial stocks have dragged broader European markets. The reason would be panic among investors as worries about growth prospects in the banking and financial sector escalate. Credit Suisse is the talk of the town right now in this sharp selloff. The firm's stock is not even worth 2 euros.
Trading was halted in some of the European banks including Credit Suisse on Wednesday to tame the steep plunging, however, that did not stop the company's stock to hit a record low.
There is a contagion of fear among investors about the banking and financial sector, especially after lenders like Silicon Valley Bank and Signature Bank collapsed in the US last week. Soon after, worries followed in Credit Suisse when it said in its annual report for 2022 that they have identified "material weaknesses" in internal control over financial reporting.
Also, investors are dumping Credit Suisse's share price after its biggest backer ruled out the possibility of aiding the troubled Swiss bank as a bigger shareholding could lead to additional regulatory hurdles.
In a response to whether the bank was open to infusing additional liquidity in Credit Suisse, Saudi National Bank Chairman Ammar Al Khudairy said in an interview with Bloomberg TV on Wednesday “The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory."
Saudi National Bank bought a 9.9% stake in Credit Suisse last year.
If that was not enough to jolt investors, then Credit Suisse is facing regulatory scrutiny. Bloomberg also reported today that Switzerland’s financial regulator is reviewing comments that the lender’s Chairman Axel Lehmann made in December on outflows from the company had stabilized.
Lehmann told the said news agency in an interview that client withdrawals, which had surged in early October, had “basically stopped." These remarks were made before the close of a crucial $4 billion capital raise. However, notably, the lender's results published this month revealed that further outflows worth tens of billions of dollars continued until at least the end of the quarter.
Credit Suisse did not comment on the report. But the Swiss lender has denied the need for government assistance for itself. However, the lender's chair also believes that it is not accurate to compared Credit Suisse issues with SVB's collapse.
At the Financial Sector Conference in Saudi Arabia, Bloomberg reported that Lehmann said it would not be accurate to compare Credit Suisse's problems with the recent collapse of Silicon Valley Bank, particularly because the banks are regulated differently. He also said, taking state assistance isn't a topic.
But the uncertainty revolving around Credit Suisse was enough to spark a wildfire among banking stocks globally, especially the hard-hit ones were European banks. The discomfort around Credit Suisse has even fuelled around $60 billion of rout in European banks.
At the time of writing, Credit Suisse traded at CHF 1.80 down by 19.44%. The stock has touched a record low of CHF 1.55. At the current market price level, Credit Suisse's stock has dipped by nearly 28.5% in 5 days, while in a month the drop is nearly 33.5%. In six months period, the stock has dipped by nearly 62%.
The latest record low led to at least a 78.99% drop in Credit Suisse's share price from its 52-week high of CHF 7.38.
In April last year, Credit Suisse touched a 1-year of CHF 7.38.
Earlier in the day, the combined market value of European banks dipped by over $60 billion. Reuters reported that Europe's bank index has seen more than 120 billion euros evaporate ($127 billion) in value since March 8, 2023.
In the annual report to shareholders, clients, and colleagues, Axel Lehmann, Chairman of the Board of Directors (left), and Ulrich Körner, Chief Executive Officer said, "We aim to reduce the Group’s cost base to approximately CHF 14.5 billion by 2025, to substantially improve long-term efficiency and boost Credit Suisse’s overall resilience."
The duo said that actions already initiated in the fourth quarter of 2022 are expected to represent approximately 80% of the 2023 cost base reduction target of approximately CHF 1.2 billion, with further initiatives underway.
Cost reduction is the focal point of Credit Suisse, but also the Chairman and CEO pointed out that " growth investments should be protected."
"Ultimately, we want to transform the way we run our bank to ensure we can sustainably build our business at lower costs in the future," the duo said.
Also, the lender is reviving the CS First Boston brand by creating a leading capital market and advisory business. This business is expected to have a reduced risk profile while building on a partnership model to tap the right talent and attract external capital.
In 2022, the annual report said, "our financial results for 2022 were significantly affected by the challenging macro and geopolitical environment with market uncertainty and client risk aversion, significant deposit and net asset outflows in the fourth quarter as well as the strategic actions we are taking to build the new Credit Suisse."
In 2022, Credit Suisse's net revenue dipped by 34% YoY to CHF 14.9 billion, driven by a decline across all its divisions. While operating expenses declined by 5% YoY to CHF 18.2 billion which also included major litigation provisions of CHF 1.3 billion and restructuring expenses of CHF 533 million.
For the full year, Credit Suisse reported a pre-tax loss of CHF 3.3 billion, compared to CHF 600 million for 2021. The adjusted pre-tax loss for 2022 was CHF 1.3 billion, compared to an exceptionally strong adjusted pre-tax income of CHF 6.6 billion for 2021. The net loss attributable to shareholders for 2022 was CHF 7.3 billion, compared to a net loss attributable to shareholders of CHF 1.7 billion in 2021.
Thereby, the lender's annual bonus pool plunged 50% to 1 billion francs after 2022 -- due to the sharp decline in stock price, an exodus of wealthy clients, and erosion of its credibility.
Both in 2023 and 2024, Credit Suisse's leaders said that the company will be focused on the execution of its strategic plans, transforming into the new Credit Suisse with its leading franchises in Switzerland and in Wealth Management, strong capabilities in Asset Management and Markets and the carveout of CS First Boston as leading capital markets and advisory business.
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