Credit Suisse shares sink more than 30% as top shareholder rules out further investment

Bank is carrying out a complicated turnaround plan under which it will spin out the investment unit while focusing on wealth management

Saudi National Bank became Credit Suisse’s biggest shareholder late last year. Reuters

Credit Suisse Group's shares fell as much as 31 per cent to a record low in Zurich on Wednesday, after its top shareholder, whose stake has lost more than one third of its value in three months, ruled out investing any more in the troubled Swiss bank as a bigger holding would bring additional regulatory hurdles.

Shares later pared some losses, down 15 per cent as of 3.31pm in Zurich.

“The answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory,” Saudi National Bank chairman Ammar Al Khudairy said in an interview with Bloomberg TV on Wednesday.

That was in response to a question on whether the bank was open to further injections if there was another call for additional liquidity.

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 2 per cent and the S&P 500 lost 1.3 per cent. Short-term German bonds and Treasuries soared, pushing their yields down by more than 40 basis points.

“Markets are very sensitive to the negative news flow after the surprise of seeing a US bank disappear from one day to the other and the contagion that hit other US regional banks,” 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.”

The cost of insuring the bonds of Credit Suisse against default in the near term approached a level that typically signals serious investor concerns.

The bank is only months into a complicated turnaround plan under which it will spin out the investment banking unit while focusing on its key wealth management business.

That effort risks being complicated by market unease across financials after the collapse of several US regional banks.

Chief executive Ulrich Koerner on Tuesday said the bank’s financial position was sound, including a so-called liquidity coverage ratio, on which it can draw to fulfil its obligations, of about 150 per cent.

He said that the bank saw inflows on Monday amid the market turmoil and was ahead of schedule on its turnaround plan.

Ulrich Koerner, chief executive of Credit Suisse Group, said the bank recorded client inflows on Monday, as markets were thrown into turmoil after the collapse of several regional US banks. Bloomberg

“Nobody is pleased by the share price development but we manage what we can manage and this is the execution of our plan,” Mr Koerner said.

Saudi National Bank, which is 37 per cent owned by the kingdom’s sovereign wealth fund, became Credit Suisse’s biggest shareholder late last year after acquiring a 9.9 per cent stake in the lender for 1.4 billion Swiss francs ($1.5 billion).

The stake has lost more than 500 million francs in a matter of months.

Mr Al Khudairy has consistently said his bank does not want to take its stake beyond the current level. He said in October that he “likes” Credit Suisse’s new leadership and their resolve to execute on its turnaround plan, but any additional equity for the moment was “out of the question".

He said on Wednesday that adding to the stake would bring additional regulatory hurdles.

“If we go above 10 per cent, all new rules kick in whether it be by our regulator or the Swiss regulator or the European regulator,” he said.

“We’re not inclined to get into a new regulatory regime. I can cite five or six other reasons, but one reason is there is a glass ceiling and we’re not going to entertain going beyond it.”

Mr Al Khudairy also said his bank was not interested in taking a stake in CS First Boston, the investment bank that Credit Suisse is carving out.

While Mr Koerner cited key metrics to demonstrate the bank’s financial strength, concerns about its future are persisting.

The CDS (credit default swap) level is about nine times that of Deutsche Bank and 18 times that of UBS Group.

The CDS curve is also deeply inverted, meaning that it costs more to protect against an immediate failure at the bank instead of a default further down the line.

Speaking earlier on Wednesday, chairman Axel Lehmann batted away any notion that the bank would need government assistance, saying it “isn’t a topic” for the bank as it seeks to shore up confidence among clients, investors and regulators after a series of missteps.