Swiss Bank Crisis Spreads Fear Across Europe: Big Lenders Feel the Pain

Credit Suisse, a big bank in Switzerland that does business globally, saw their stock prices drop a lot on Wednesday. This decrease in price caused other important banks in Europe to drop too because people were worried that other banks around the world might have similar money problems as what happened in the United States recently.

Credit Suisse’s shares didn’t do well – they dropped by a quarter of their original price and went to the lowest it has ever been. This was because its biggest shareholder, the Saudi National Bank said it would not give more money to Credit Suisse since the bank already had problems even before the ones in America happened.

The news of this incident caused the shares of Credit Suisse to stop trading in Switzerland and made the shares of other European banks go down quickly, with some losing up to 10%. This brought back fears about the stability of these banks after two U.S. banks recently fell apart.

On Wednesday, at a meeting in Riyadh (the capital city of Saudi Arabia), Axel Lehmann defended Credit Suisse bank and said they had already done the work to make it safer. When asked if the government could help out, he said there was no need for it because the bank already has strong rules to keep it secure with a strong balance sheet.

A day ago, Credit Suisse let everyone know that some people had discovered major problems with how the bank keeps track of their money. This made people worried about if the bank would be able to survive its difficulties.

Credit Suisse stock went down 27%, to 1.6 Swiss francs ($1.73). It ended up being a 22% drop at 1.75 francs ($1.89) on the SIX stock exchange. This price was 85% lower than it was in February 2021! In 2007, the price of Credit Suisse stocks were way higher – up to 80 francs ($86.71).

Investors got worried about potential issues in banks and started selling stocks quickly when something bad happened.

Stocks on Wall Street started to dip down because people were suddenly afraid of the banks. Many banks in Europe dropped drastically in prices, including Societe Generale SA (down 12%), BNP Paribas (down 10%), Deutsche Bank (down 8%) and Barclays Bank (down 8%). They even had to stop trading with these two French banks for a while. Furthermore, 21 big European lenders went down by 8.4%.

Things got a bit rocky a day before the European Central Bank had their meeting. President Christine Lagarde said maybe they’ll raise the interest rates by half a percent to help control inflation. People were paying close attention to see if the bank does it despite all of the recent issues.

Andrew Kenningham from Capital Economics said Credit Suisse is a much bigger issue for the world’s economy than any of the mid-sized banks that failed in the U.S. He added this Swiss bank has a lot of partners abroad and makes investments for various hedge funds. Andrew pointed out that Credit Suisse having problems isn’t just limited to Switzerland; it affects everyone around the globe. But he also noted that people already knew about these issues so there wasn’t too much surprise when they came up.

People are now asking if this problem is the start of a global crisis or an uncommon situation. Kenningham says that Credit Suisse was seen as the weakest of the big banks in Europe but it is not the only one with low profits lately. Neither the Swiss National Bank nor the Swiss Financial Market Supervisory Authority immediately answered calls and emails when they were asked to comment on this.

Banks have been taking bigger risks lately because of the low interest rates and easier access to money. According to Professor Sascha Steffen from Frankfurt School of Finance & Management, some banks are dealing with this situation better than others.

Investors are concerned that banks may have risks on their balance sheets, which could mean they may have to face losses in the future. This week European finance ministers said that their banks don’t hold investments from U.S. banks that had faced failure.

After Lehman Brothers, a big investment bank in the USA, collapsed in 2008, Europe decided to make their banking system more secure. To do this they transferred the control of the biggest banks to the European Central Bank. This made it less likely that any problems would be ignored because the central bank would look out for them.

Credit Suisse has businesses in different countries of Europe, but the parent company is not part of any European Union regulations. However, Credit Suisse does need to follow international laws that demand for it to keep financial backups against possible losses as a part of 30 special big banks known as G-SIBs.

In October, Saudi National Bank invested an amount of 1.5 billion Swiss francs to receive approximately 10% ownership of Credit Suisse.

The chairman of Saudi National Bank, Ammar Al Khudairy, said that the bank won’t buy anymore stocks from Credit Suisse to avoid a law that stops them owning more than 10%.

Credit Suisse was trying to get money from investors and figure out a new way to fix their problems including investments in bad hedge funds, too many changes in top management and even spying on UBS!

Someone named McHugh reported something from Germany. Two other people, Joseph Krauss in Canada and Angela Charlton in France, also added to this news report.