Credit Suisse Bank insolvency Risk Assessment

Credit Suisse shares have fallen further this week

Panicked investors began selling shares, anticipating that the key bank in the system was in trouble before the SNB intervened to reassure the market.

Credit Suisse's concerns are just the tip of the iceberg

Credit Suisse (NYSE:CS), the second largest bank in Switzerland with a long history of 167 years, has been embroiled in controversy for years now. Charged with manipulation, tax evasion and money laundering, CS has been losing significant market share. 

This situation has severely affected the bank's reputation due to negative reports and large fines imposed by European authorities in recent years.

However, the long-term outlook has deteriorated significantly this week, as the closure of Silicon Valley and Signature banks by US regulators raised concerns about the contagion effect, as investors Investors believe that mass withdrawals could soon occur in Europe's weaker banks, which will likely cause solvency difficulties for Credit Suisse.

As a result of these concerns, CS stock fell as much as 28%, hitting a record low of $1.75 a share, then rallied back to end the day at $2.16. However, CS is still down 71% from last year.

CS's earnings and customer base have declined since the first half of last year, leading to doubts about the effectiveness of overall supervision of the banking system.

According to its annual report published on March 14, the bank lost $8 billion. Previously, the bank delayed the report for 2022, which was a cause for concern for customers. The SEC states that this is due to regulatory and technical review.

Assess situation

Firstly, the bankruptcy of SVB made the market nervous this week. Not only Credit Suisse, but Deutsche Bank (NYSE:DB) and BNP Paribas (OTC:BNPQY) were also among the biggest losers. As a result, the iShares STOXX Europe 600 UCITS ETF (ETR:STOXXIEX) index plummeted 7% yesterday.

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SVB's collapse hit Credit Suisse shares on Monday, followed by higher losses and cash outflows in its annual report that further hit Credit Suisse. Yesterday, the stance of the National Bank of Saudi Arabia, a 9.9% shareholder, led to a large drop in the share price.

Ammar Al Khudairy, president of the National Bank of Saudi Arabia, stated that they will not provide financial support due to legal and regulatory issues and that they believe the bank does not need much support.

Khudairy added that they were surprised at the amount of interest received when increasing their ownership rate to 9.9%, or about 2.5% of their assets. As a result, Credit Suisse shares fell 13.9% on the day to close at $2.16.

Two notable events took place later in the day. Firstly, the US Treasury Department announced that it is reviewing the situation and assessing the potential impact of Credit Suisse on US banks.

The ECB will also participate in the investigation. The decisive factor in this, however, was the course of action taken by the Swiss National Bank (SNB).

After the meeting with the weak bank, the SNB issued a statement in the evening and announced that it would provide liquidity if necessary. The statement noted that Credit Suisse had complied with the capital and liquidity requirements for key banks in the system and was free of counterparty risk.

The statement also sought to reassure markets that the problems faced by some US banks did not pose a direct risk to Swiss banks and that the legal and regulatory process was being closely monitored.

A statement from Credit Suisse said the bank would capitalize on liquidity by borrowing CHF50 billion from the central bank.

Credit Suisse still makes the market very worried this week and this concern shows no sign of abating. However, swift action by the Swiss National Bank could help calm the market.

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