Credit Suisse is in an existential crisis and markets are fearful. What’ll happen next?

Is Credit Suisse (NYSE:CS) in trouble? That’s what investors, both those invested in the Swiss bank and those who aren’t, appear to fear. But are they over-reacting?

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Credit Suisse shares slammed

Credit Suisse shares fell more than 30% at market open before closing the Wall Street trading day 14% lower than at the opening bell. 

Credit Suisse (NYSE:CS) share price chart, log scale (Source: TradingView)

Credit Suisse has been through several scandals in recent years leading to a gradual outflow of funds by fed up clients.

It appears the two straws that broke the camel’s back overnight were, first, the bank revealing it had found ‘material weaknesses’ in its reporting prcesses for CY21 and CY22. And second, the Saudi National Bank (a 10% shareholder) ruling out providing the Swiss lender with any more financial assistance. 

The cost of insuring the bank’s bonds against default for one year surged to levels not seen since the GFC and indicated the probability of defaulting to 10%. 

Arguably, the collapse of SVB has made liquidity more of a worry for investors than it otherwise would be. But mitigating the damage was a statement by Credit Suisse a few hours ago. In it, the company said that,’ Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the Swiss National Bank (SNB) will provide CS with liquidity’.  That seemed to calm the markets a bit.

What next for the company?

Will Credit Suisse go under? Not in the next week or so at least. However, the company itself has acknowledged something has to give, unveiling a turnaround plan at the end of last year. It is aiming to shift focus from investment banking towards less turbulent wealth management and to cut costs while increasing revenue. 

But with interest rates rising at the fastest pace in history and the financial system in jitters, it is not a good time to be doing so. 

Earlier this week, we argued that the Silicon Valley Bank collapse wouldn’t be a ‘Lehman’ moment, leading to a broader financial crisis. But if Credit Suisse goes under, it could be.

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