Credit Suisse shares tank after Swiss banking giant's top shareholder rules out assistance

According to former RBI Governor Raghuram Rajan, Credit Suisse's problem is that it does not have a business.

Credit Suisse, Switzerland's second-biggest bank's stock plunged to fresh record lows after its biggest shareholder said it could provide more financial assistance to the banking giant.

Citing regulatory issues, the head of Credit Suisse Group's largest shareholder, Saudi National Bank (SNB), said it would not buy more shares. "We cannot because we would go above 10%. It's a regulatory issue," Reuters quoted SNB chairman Ammar Al Khudairy as saying in an interview. The shares of the Swiss banking giant plunged by 24 per cent and the trading in Credit Suisse's shares was halted several times by the stock exchange operator.

According to Refinitiv data, the Saudi bank holds a 9.88% stake in Credit Suisse. It had become its biggest shareholder last year after acquiring the said stake for 1.4 billion francs. However, its stake has lost more than 500 million francs.

"Where one big shareholder goes, others may follow. Credit Suisse now has to come with a concrete plan to stop outflows, and do it fast," IG analyst Chris Beauchamp told AFP.

"If Credit Suisse were to run into serious existential trouble, we are in a whole other world of pain. It really is too big to fail," AFP quoted Neil Wilson, chief market analyst at trading firm Finalto as saying.

The Swiss banking giant was hard hit by the collapse of US investment firm Archegos in 2021 as well as the freezing of billions of supply chain finance funds linked to insolvent British financier Greensill. Also, a prosecution in Switzerland involving laundering money for a criminal gang added to its woes.

"Credit Suisse's problem is that it does not have a business. Over last few years, Credit Suisse has participated in almost every scandal that's come to light. There is a turnaround under way at Credit Suisse, but it needs investments," said former RBI Governor Raghuram Rajan in an interview with CNBC-TV18 referring to the string of scandals.

"Other European banks don't have the same problem as Credit Suisse. House prices may have stabilised but with supplies being low, people are not selling. Fed may not be too rattled if the market falls by another 10%," he said.

The former RBI Governor said a pause in the Fed rate hike looks unlikely and a 25 bps hike still looks like a strong possibility as core inflation in US continues to be high.

"I think in the US, at least for the moment there seems to be a sense that the Fed has pulled out all stocks. Depositors have been guaranteed right up to the largest depositors who typically are uninsured and and second, banks have access to liquidity by using the entire value of their bond portfolio. Remember, there are two reasons for concern in the US. One is a lot of small and medium banks are sitting on unrealised losses on their bond portfolios," Rajan added.

"Many of them holding long term bonds, which have fallen in value with the Fed's rate hiking and the second is, many of them have a lot of uninsured depositors and the toxic combination of these two asset values having fallen and uninsured depositors getting very anxious is what led to Silicon Valley Bank's failure. And what is being attempted now is to reassure both sides, on the one side you can borrow against the full value of your assets and on the liability side, don't run, we've got you covered," he said.