Investors wary of contagion amid banking crisis fears

Investors wary of contagion amid banking crisis fears

A Credit Suisse logo seen on a smartphone with a broken screen and an illustrative stock chart background in Athens, Greece, on March 15, 2023. (Photo illustration by Nikolas Kokovlis/NurPhoto via Getty Images)

Nikolas Kokovlis | Nurphoto | Getty Images

Credit Suisse shares rose Thursday, recovering from a new all-time low, after the troubled lender announced it would enlist central bank support to shore up its finances.

Switzerland’s second-largest bank said it will borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank, giving investors a moment of relief after the Zurich-headquartered company blew Europe’s banking sector in last year had led to a wild ride down session.

The Switzerland-listed stock was trading about 17% higher as of 1:35 p.m. London time (9:35 a.m. ET) — a massive bounce after Wednesday’s more than 30% plunge after its biggest supporter said it would not provide further support due to regulatory restrictions.

The sudden loss of confidence in Credit Suisse, which came as worries about the health of the banking system spread from the US to Europe, has led some to question the “true” value of Credit Suisse’s share price.

“We have to take a step back and of course look at the viability of the business model [and] on the entire regulatory landscape,” Beat Wittmann, chairman of the Swiss Porta Advisors, told CNBC’s “Squawk Box Europe” on Thursday.

“I think the bank’s leadership really needs to use this lifeline now to review their plan because obviously the capital markets haven’t bought the plan, as we’ve seen recently from the performance of the share price and credit default swaps.”

Asked for his opinion on the sharp fall in Credit Suisse share price – which fell below 2 Swiss francs for the first time on Wednesday – Wittmann said a “brutal” monetary tightening cycle led by major central banks in recent months was at work made companies vulnerable to shocks now I’m “really starting to suffer”.

“The weakest links break and that’s happening right now and that was totally predictable – and this won’t be the last. So now is really the time for policymakers to restore confidence and liquidity to the system, be it in the US, be it in Switzerland or elsewhere,” Wittmann said.

Soliciting investors’ advice amid the market turmoil, he said: “The upward momentum in inflation and interest rates is declining very significantly, so I think the capital markets are on a very sound footing.”

“But I would highly recommend sticking with quality companies – that means strong management, strong balance sheets, a strong value proposition. And now you can buy them at more attractive valuations,” Wittmann added.

“Material Weaknesses”

Even before the shocking collapse of two US banks last week, Credit Suisse had faced problems in recent years, including allegations of money laundering and espionage.

The bank’s disclosure of “material weaknesses” in its reporting earlier this week added to investor concerns.

However, Credit Suisse management said on Wednesday that the latest move to secure a major financing deal shows “decisive action” to strengthen the business. He thanked the Swiss National Bank and the Swiss Financial Market Supervisory Authority for their support.

Securing depositors is key to Credit Suisse survival, says CIO

Analysts welcomed the move, suggesting fears of another banking crisis may be overdone.

“A stronger liquidity position and a backstop provided by the Swiss National Bank with the support of Finma are positives,” RBC Capital Markets analyst Anke Reingen said in a research note on Thursday.

“Regaining confidence is key for CS shares. The measures taken should offer some consolation that spillover to the sector may be contained, but the situation remains uncertain,” she added.

UBS analysts, meanwhile, said market participants are “considering three related but distinct issues: bank solvency, bank liquidity and bank profitability.”

“In short, we think concerns about bank solvency are overdone and most banks retain strong liquidity positions,” they added.

“A Great Turnaround Story”?

It’s not all bad news for Dan Scott, head of multi-asset management at Swiss wealth manager Vontobel – who used to work at Credit Suisse.

“I would say that Credit Suisse in particular is still one of the biggest money managers in the world, they have half a trillion assets and this could certainly be a great turnaround story if the execution is good,” he told Squawk Box Europe” continued Thursday.

Credit Suisse could be one

Asked by CNBC’s Geoff Cutmore if that would mean investors would remain patient despite the market turmoil and the scale of the outflows from the bank, Scott replied: “Absolutely. But I think again that the stress we are experiencing at the moment really should have been predictable.”

“When rates go up so fast, certain business models are being challenged and I don’t think it’s a wealth management business model that’s being challenged. I think a lot more and why we saw it with Silicon Valley Bank is where the private markets are being challenged,” added Scott.