Sometimes a problem child behaves in class, and sometimes they rattle the global banking industry.
Panic over the collapse of two US banks could really be global this week as shares in a Swiss-based bank, Credit Suisse Group AG, plunged nearly 30% from Tuesday to Wednesday.
By the New York Timesthe S&P 500 in the US and markets in Europe took a beating as investors were shocked by the ongoing problems with Credit Suisse and the bankruptcy of Signature Bank and Silicon Valley Bank (SVB).
The S&P 500 was down about 1.6% from Tuesday.
Related: “Everyone’s Crazy.” What’s going on with Silicon Valley Bank? Federal government takes control.
In the past week, the federal government seized control of two banks (and secured customer deposits) after publicized losses from SVB triggered a bank run, which Signature Bank said it was also facing. Financial systems are interconnected and it’s easy for something called “contagion” to happen, where the struggle in one area spreads to another.
US regional banking stocks rallied again on Tuesday, but fears flared back as Credit Suisse, a kind of European banking “problem child,” according to the Wall Street Journalsaid problems in the system caused errors in financial reporting — not ones that meaningfully changed results, but enough to cause concern, the outlet added.
Subsequently, Saudi National Bank (SNB), the bank’s largest shareholder, said on Bloomberg TV that it couldn’t help Credit Suisse anymore, according to the WSJ. The bank owns 9.9% of Credit Suisse.
“It’s a matter of regulation,” said SNB president Ammar Al Khudairy. told Reuters. “We can’t, because then we would go above 10%.”
Related: Billionaire Charles Schwab has lost nearly $3 billion in personal wealth since the collapse of Silicon Valley Bank
Major banks in Europe also saw share breaks and falls of more than 10% in share price, according to news reports. Whether the contamination will be contained also remains to be seen.
Credit Suisse chairman Axel Lehmann defended the bank in a panel this week, per CNBC.
“We’re regulated, we have strong capital ratios, a very strong balance sheet. We’re all hands on deck. So that’s not the point at all,” he said, referring to government assistance.
The bank already raised eyebrows in the fall after several scandals, including a plea of guilty for failing to prevent money laundering in June, forced damages after an advisor committed fraud, and a scandal that defrauded investors with a tuna investment loan. according to Reuters.