The global financial markets were rattled on Wednesday following fresh fears about the viability of Credit Suisse.
Just days after two historic U.S. bank failures, the Swiss National Bank stepped in to offer financial support to the embattled lender if necessary.
Credit Suisse Shares Plunge
Credit Suisse shares closed 14% lower in U.S. trading. Other bank stocks also took hits, with JPMorgan, Wells Fargo, and Goldman Sachs all closing down.
The broader Dow Jones Industrial Index ended Wednesday’s session down roughly 0.9%, while the S&P 500 closed 0.7% lower.
Analysts said the turmoil increased the likelihood that the Federal Reserve will hold off on raising interest rates aggressively when it meets next week.
Credit Suisse’s Troubles
Credit Suisse has had its own issues distinct from the problems that felled Silicon Valley Bank and Signature Bank.
Higher interest rates in the U.S. and abroad have put pressure on the value of assets held by lenders around the world. The bank has also faced one scandal after another in recent years. Last month, Credit Suisse reported its largest annual loss since the 2008 financial crisis.
In the last three months of last year, clients pulled more than $100 billion of assets, Bloomberg reported, as concerns about its financial health mounted.
Swiss Regulators Offer Support
The Swiss National Bank’s offer of financial support helped markets are some of the day’s steep losses.
The risk of roiling markets further “makes it more likely that they pass on raising rates,” said Pantheon Macroeconomics Chief Economist Ian Shepherdson in a note to clients.
“It is more important, in our view, not to take risks with the stability of the system than to reassert your determination to fight inflation.”
Impact on First Republic Bank
Two rating agencies downgraded the credit of First Republic Bank, a midsize lender whose shares have been on a roller coaster ride in recent days, to junk status, sending its stock down more than 21%.
“An expansion in contagion overseas is troubling but not entirely unexpected,” said Ian Lyngen, the managing director and head of U.S. rates strategy at BMO Capital Markets.
Credit Suisse a Key Part of Global Banking System
“Credit Suisse is a key part of the European and global banking system,” Lyngen added. The turmoil sparked by Credit Suisse’s troubles could potentially lead to wider fallout, so the Swiss regulators’ reassurance will be a relief to many.
The Swiss bank, which has struggled with weak profitability in recent years, warned Tuesday that a recent stream of customers pulling their money out had slowed down but “not yet reversed.” The acknowledgement coincided with the disclosure that Credit Suisse had found “material weaknesses” in its financial reporting for 2021 and 2022.
The bank has faced one scandal after another in recent years. It was convicted in connection with a money laundering plot involving a drug ring last summer. And it has had substantial entanglements with a collapsed hedge fund and a bankrupt British lender.
Last month, Credit Suisse reported its largest annual loss since the 2008 financial crisis.
During the previous three months of last year, clients pulled more than $100 billion of assets, Bloomberg reported, as concerns about its financial health mounted.