Credit Suisse shares plunge 30% to new all-time lowCredit Suisse shares have plunged 30% to another fresh all-time low, of 1.56 Swiss francs.
Andrew Kenningham, chief Europe economist at Capital Economics, has outlined the issues:
First, Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week. Admittedly, its problems were well known so do not come as a complete shock to either investors or policymakers. However, Credit Suisse has a much larger balance sheet than SVB (CHF530bn at end-2022) and is much more globally inter-connected, with multiple subsidiaries outside Switzerland including in the US. It is also a US primary broker. Credit Suisse is not just a Swiss problem but a global one.
Second, if Credit Suisse were to fail much would depend on how orderly the resolution is. As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or “living wills”) have not been put to the test since they were introduced during the Global Financial Crisis. Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected. While regulators will be aware of this, the risk of a botched resolution will be worrying the markets until a solution becomes apparent.
Third, the sell-off may have implications for the ECB’s policy decision due tomorrow. Clearly there is a strong case for the ECB to wait and see how things develop. But our best guess at this stage is that the Bank will press on with its pre-announced plan to raise the deposit rate from 2.5% to 3.0%, while stressing that policy is not on a predetermined path.
Finally, and most importantly, the problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another “idiosyncratic” case. Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years. Moreover, this is the third “one-off” problem in a few months, following the UK’s gilt market crisis in September and the US regional bank failures last week, so it would be foolish to assume there will be no other problems coming down the road.