Swiss Bank Credit Suisse Feels Bad Effect of SVB Collapse

In an unprecedented action by a central bank, Swiss regulators promised a liquidity lifeline to Credit Suisse (CSGN.S) after the company's shares fell as much as 30% on Wednesday.

Investors were alarmed by the sharp decline in Credit Suisse shares since they were already on edge due to the failure of US banks Silicon Valley Bank and Signature Bank.

Credit Suisse Troubles

Credit Suisse "meets the capital and liquidity standards imposed on systemically important institutions," according to a joint statement from the Swiss financial regulator FINMA and the country's central bank. They claimed that the bank could obtain liquidity from the central bank if necessary, as per Reuters.

People who know the situation said that SVB Financial Group (SIVB.O), whose former subsidiary Silicon Valley Bank was taken over by American banking regulators last week, is considering filing for bankruptcy protection as one option for selling assets, including its investment bank and venture capital business.

According to two supervisory sources who spoke to Reuters, the European Central Bank has contacted banks under its supervision to inquire about their exposure to ailing Swiss lender Credit Suisse CSGN.S. However, one of the individuals stated that they did not believe Credit Suisse's issues were systemic but rather unique to that bank.

Shares of Credit Suisse Group (CSGKF) fell to a new record low on Wednesday after a significant Saudi investor declined to lend further money to the struggling Swiss lender, raising fears about the state of the global financial system.

Saudi National Bank, which owns a $1.5 billion stake in Credit Suisse as a result of the group's capital-raising effort last year, expressed satisfaction with the bank's recent turnaround plans, which include the separation of its investment banking unit, and noted that its equity capital ratios were compliant with Swiss regulations.

However, chairman Ammar Al Khudairy stated that the bank could not exceed its current 9.9% threshold due to a "regulatory issue," The Street reported.

Ahead of the European Central Bank's policy meeting on Thursday in Frankfurt, shares of European banks were affected by the Credit Suisse downdraft as well due to lingering worries about the effects of Silicon Valley Bank's collapse late last week and the impact that rising central bank rates will have on balance sheets and business models.

US Banking Dilemma Affects Global System

Earlier this week, about the failure of Silicon Valley Bank, Swiss financial regulator FINMA stated that it was "evaluating the direct and indirect exposure of the banks and insurance companies it supervises to the institutions concerned" and "closely monitoring the situation."

As the US Securities and Exchange Commission requested more information last week regarding prior cash flow statements, the Swiss bank postponed the release of its annual report.

Per Washington Post, the bank admitted that October saw a significant increase in consumer withdrawals. It reiterated this information in its annual report, stating that "large outflows of net assets and deposits in the fourth quarter" had negatively impacted the bank's financial performance for the entire year.

The outflows "essentially have halted," according to bank Chairman Axel Lehmann, who said in December that some client money was coming back, particularly in Switzerland. The labor market has remained robust, and inflation has shown indications of cooling in recent months, giving the impression that the US economy is in good shape.

But, things took a turn for the worst on Friday when Silicon Valley Bank abruptly failed, becoming the second-largest bank failure in American history. The bank, which serves clients in the IT industry, ran into problems when the value of its sizable holdings in US government bonds declined when the Federal Reserve hiked interest rates.

Then, worries about SVB's condition spurred a run on deposits. Since then, the value of financial equities has been unstable, and on Sunday, regulators closed the Signature Bank of New York. US officials intervened to ensure depositors at the collapsed banks would be compensated to prevent a wider panic.

Regional US bank equities experienced a steep decline on Monday but recovered Tuesday. Yet, the Credit Suisse news on Wednesday, a reminder that problems in the banking sector aren't limited to American banks, has alarmed investors once more.