Credit Suisse left in the lurch, sparks selloff across global markets

All it took was a few tough words from Credit Suisse Group AG’s biggest shareholder on Wednesday to spark a selloff that spread like wildfire across global markets. 

Asked whether Saudi National Bank was open to further cash injections, Chairman Ammar Al Khudairy said “absolutely not.” It was a reminder about the precarious situation facing the Swiss bank just one day after its CEO, Ulrich Koerner, had sought to shore up investor confidence by pointing to signs of improvement in its business.

Credit Suisse’s share price plunged as much as 31 per cent, in the biggest one-day selloff on record, before paring declines. Its bonds fell to levels that signal deep financial distress, with securities due in 2026 dropping 17.75 cents to 70 cents on the dollar in New York. That puts their yield at about 20 percentage points above US Treasuries, according to Trace.

For global investors still on edge after the rapid-fire collapse of three regional US banks, the growing Credit Suisse crisis provided a new reason to sell risky assets and pile into the safety of government bonds. Benchmark indexes in Europe sank more than 2 per cent and the S&P 500 lost 1.2 per cent. Short-term German bonds and Treasuries soared, pushing their yields down by more than 40 basis points.

“The markets are very sensitive to the negative news flow after the surprise of seeing a US bank disappear from one day to the other,” said Francois Lavier, head of financial debt strategies at Lazard Freres Gestion. “In a context where market sentiment is already weakened, not much is needed to weaken it even further.” 

Societe Generale SA, BNP Paribas SA and Banco de Sabadell SA fell more than 10 per cent, leading the decline in the Stoxx 600. Among European banks, over $60 billion in combined market value was wiped out on Wednesday. 

CEO Koerner on Tuesday pointed to the firm’s liquidity coverage ratio, which indicates the bank can handle more than a month of heavy outflows in a period of stress. He said that the firm saw inflows on Monday amid the market turmoil and is ahead of schedule on its turnaround plan. A spokesperson at the bank declined to comment when contacted by Bloomberg News.  

The European Central Bank has contacted banks on its watch to quiz them on their exposure to struggling Swiss lender Credit Suisse, two sources told Reuters.