Shares of embattled Credit Suisse lost more than one-quarter of their value on Wednesday, leading the fall in European bank stocks that tumbled on renewed investor concerns about stresses within the sector triggered by Silicon Valley Bank's (SVB) sudden collapse.
Regulators and financial executives around the world have sought to assuage fears about the health of financial institutions after tech-focused lender SVB and another U.S. bank failed last week, but worries persist.
The turmoil in Credit Suisse stock prices came after its biggest shareholder – the Saudi National Bank – told outlets it would not inject more money into the ailing Swiss bank.
The steep fall prompted an automatic pause in trading of the bank's shares on Switzerland's market and brought down shares of other European banks by as much as double digits.
Credit Suisse shares dropped by as much as 30%, spearheaded a 7% fall in the European banking index, while five-year credit default swaps (CDS) for the flagship Swiss bank hit a new record high, highlighting increasing investor concerns.
The tumble came after Ammar Al Khudairy, the chairperson of key Credit Suisse shareholder Saudi National Bank, told Bloomberg and Reuters that it has ruled out further investments in the Swiss bank to avoid regulations that kick in when it has a stake above 10%.
Saudi National Bank put in some 1.5 billion Swiss francs ($1.5 billion) to acquire a holding just under 10% as Credit Suisse looked to raise funding from investors last year and roll out a new strategy to overcome an array of troubles.
Those include bad bets on hedge funds, repeated shake-ups off its top management and a spying scandal involving Zurich rival UBS.
On Tuesday, Credit Suisse published its annual report for 2022, indicating that managers had identified "material weaknesses" in the bank's internal control over financial reporting as of the end of last year. That fanned new doubts about the bank's ability to weather the recent storm.
Other European banks were taking a battering on Wednesday amid concerns about the sector: France’s Societe Generale SA dropped 12%, France’s BNP Paribas fell over 10%, Germany's Deutsche Bank was down 8% and Britain's Barclays Bank was down nearly 8%. Shares in the two French banks were briefly suspended.
"Markets are wild. We move from the problems of American banks to those of European banks, first of all, Credit Suisse," said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.
The turbulence at Credit Suisse and renewed fears also prompted a fall in the U.S. stocks, while data hinting at economic weakness kept alive hopes of a less aggressive monetary policy move by the Federal Reserve (Fed) in March.
U.S.-listed shares of Credit Suisse slid 24.3% to hit a record low.
Regional and large banks also fell. First Republic Bank dropped 13.1%, while peers Western Alliance Bancorp and PacWest Bancorp slid 7.1% and 18.4%, respectively, before trading in their shares was halted for volatility.
Big U.S. banks, including JPMorgan Chase & Co, Citigroup and Bank of America Corp, fell between 5% and 1%.
The KBW regional banking index slid 3.8% while the S&P 500 banking index dropped 4.2%%.
"Anything negative from any highly visible institution, in this case, Credit Suisse, is going to have ripple effects across the financial sector," said Michael James, managing director of equity trading at Wedbush Securities.
At 9:47 a.m. ET, the Dow Jones Industrial Average was down 417.25 points, or 1.30%, at 31,738.15, the S&P 500 was down 48.11 points, or 1.23%, at 3,871.18, and the Nasdaq Composite was down 104.12 points, or 0.91%, at 11,324.03.
BlackRock Chief Executive Laurence Fink warned on Wednesday that the U.S. regional banking sector remains at risk, and predicted further high inflation and rate increases.
Fink described the financial situation as the "price of easy money" and said in an annual letter that he expected more Fed interest rate increases.
He said that after the regional banking crisis, "liquidity mismatches" could follow because low rates have driven some asset owners to raise their exposure to higher-yielding investments that are not easy to sell.
Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.
However, European Central Bank (ECB) policymakers are still leaning towards a half-percentage-point rate hike on Thursday, a source told Reuters, as they expect inflation will remain high.
Investors had begun to doubt the ECB's commitment to another big rate hike as SVB's collapse rattled markets.
But the source said the central bank was unlikely to diverge from its plan to raise rates by 50 basis points on Thursday because doing so would damage its credibility.
In the U.S., the focus is shifting to the possibility of tighter regulation of banks, particularly mid-tier ones like SVB and New York-based Signature Bank, whose collapses triggered the market tumult.
Moody's Investors Service on Tuesday revised its outlook on the U.S. banking system to "negative" from "stable," citing heightened risks for the sector.
SVB's shutdown forced President Joe Biden to rush out assurances that the U.S. financial system is safe and prompted emergency measures giving banks access to more funding.
And to avert a similar crisis down the line, the Fed is considering tougher rules and oversight for midsize banks similar in size to SVB.
Earlier, the Tokyo Stock Exchange banks index jumped over 4%, after three straight days of heavy selling.
Investors had been particularly concerned about the huge bond holdings of Japan's lenders, but Japanese finance minister Shunichi Suzuki said differences in the structure of deposits, meant local banks would not face incidents similar to SVB.
Wednesday's sell-off comes after some respite on Tuesday when bruised U.S. bank stocks regained some ground, aided by news that private equity and buyout firms were looking to scoop up some SVB's assets.
And in Britain, HSBC's top bosses have called on employees at SVB's rescued U.K. arm to assure clients "their deposits are safe and loans are supported" as the process of integration following its takeover begins, a memo from the bank showed.
Meanwhile, Charles Schwab Chief Executive Walt Bettinger said on Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.
The firm had seen an influx of $4 billion in assets to its parent company on Friday as clients moved assets to Schwab from other firms, Bettinger told Reuters.
