Credit Suisse: Understand the crisis that brought stocks down – 03/15/2023 – Market

Shares of Credit Suisse operated sharply on Wednesday (15) and brought down the main global exchanges, with investors fearful of the bank’s financial health and a potential risk of contagion to the financial sector more broadly.

Distortions in the balance sheet and the need for capital injection, added to the bankruptcy of the SVB bank in the United States, contribute to the delicate moment that Credit Suisse is going through.

In Brazil, the shares of large banks also fluctuate in the negative field, with the risk of systemic contagion increasing risk aversion among investors —that is, they prefer to sell riskier securities, such as shares, and the more people selling the greater the drop in price, which contributes to the retreat of the Ibovespa index.

What triggered the crisis involving Credit Suisse?

A crisis of investor confidence in relation to Credit Suisse began on Tuesday (14), after a report released by the bank indicated distortions in its financial statements.

Auditor PricewaterhouseCoopers included in Credit Suisse’s annual report an “adverse opinion on the effectiveness of the group’s internal control over financial reporting”.

The news about the bank comes at a time of weakness for the global banking sector, in the wake of the collapse of the SVB (Silicon Valley Bank) last week. The bank focused on the startup sector was hard hit by the increase in interest rates by the Fed (Federal Reserve, US central bank), which caused billionaire losses for the portfolio allocated to long-term US government bonds.

BlackRock CEO Larry Fink said the SVB crash may not have been a one-off event. In an annual letter addressed to investors and CEOs, the executive says that it is still too early to know how widespread the damage will be, but he does not rule out a scenario in which the bank failure spreads through the US regional banking system, causing more bankruptcies.

Why did Credit Suisse shares start to plummet this Wednesday?

Shares of Credit Suisse sank almost 30% on the New York Stock Exchange this morning (15), renewing their historic lows, after one of its main investors declared that it could not provide financial support to the Swiss bank due to regulatory obstacles.

“We can not [socorrer o banco financeiramente], because we would go above 10%. It’s a regulatory issue,” said Ammar Al Khudairy, chairman of the board of directors of Saudi National Bank, a Saudi bank that last year acquired an almost 10% stake in Credit Suisse.

When did the current bank crisis start?

At the end of last year, Credit Suisse had already been hit by a wave of withdrawals from investors, after signs that the bank would need a capital increase to maintain financial soundness —in October, Credit Suisse announced that it planned to raise 4 billion Swiss francs ($4 billion) with investors and cut thousands of jobs.

The plans also involve a change in the focus of its investment banking business, which provides for the segregation of that unit and the creation of CS First Boston, a business focused on advisory work, such as mergers and acquisitions.

The crisis meant that the bank ended last year with an annual loss of about 7.3 billion Swiss francs (US$ 7.9 billion; R$ 41.3 billion).

Does the risk of contagion affect Brazilian banks?

On the Brazilian Stock Exchange, the shares of large banks operate in decline this Wednesday and contribute to the devaluation of the Ibovespa index. Itaú shares fell 1.8%, Bradesco lost 1.3%, while Santander lost 0.8% and BB lost 1%. Already the Ibovespa fell about 1.6%.

“This is a ripple effect for local banks”, says João Frota Salles, an analyst at Senso Investimentos. “The rationale for the drop in shares of local banks is because there is a systemic risk in Europe that could spread globally”, adds the specialist.

He recalls that the financial sector is the most sensitive to systemic risks, because technology is advanced and everyone is connected to each other. Anyway, Salles also says that the big Brazilian banks have solid capital, liquidity and are ready to face crises.

What are Credit Suisse’s operations in Brazil?

In the Brazilian market, Credit Suisse operates mainly in the areas of wealth management (wealth management and private banking) and resources (asset management), and investment banking, such as credit operations, issue of shares and bonds, opening of capital (IPO), mergers and acquisitions of companies (M&A), brokerage and treasury.

Is there a risk for Brazilian customers?

Analysts say it is still difficult to make a precise assessment of the impacts that the crisis at the parent company may have on the Brazilian unit and on customers in the country for the time being, but they estimate that the news coming from Switzerland is not positive for the bank’s global operations. .

According to Luis Miguel Santacreu, a bank analyst at Austin Rating, the biggest impact that has already materialized in relation to the bank is related to the image of Credit Suisse, which was badly damaged after the episode.

“[A crise] should have effects on business internally, and of course investors will be more afraid of transacting with Credit Suisse”, says Santacreu, adding that, in a more extreme scenario, depending on the evolution of events abroad, he does not rule out the possibility for the bank to sell operations in the country.

Sought after, the Credit Suisse advisor did not return until the publication of the report.

X-ray | Credit Suisse

Founded in 1856, Credit Suisse is headquartered in Zurich and is Switzerland’s second-largest bank after rival UBS. The bank has approximately 50,500 employees globally, working in the areas of investment banking, resource and wealth management. In 2022, it posted an annual loss of approximately 7.3 billion Swiss francs ($7.9 billion; R$41.3 billion).

With Reuters