Credit Suisse shares plunge as top holder rules out investing more

Credit Suisse Group's 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. 

“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 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.

Credit Suisse fell as much as 25% to a new record low in Zurich, while the cost to insure its bonds against default in the near term approached a level typically signaling serious investor concerns.

The bank is just months into a complex turnaround plan that will see the Swiss firm spin out the investment banking unit while focusing on its key wealth management business. That effort risks being further complicated by market unease across financials after the collapse of multiple U.S. regional banks. 

Chief Executive Ulrich Koerner said Tuesday the bank’s financial position is sound, including a so-called liquidity coverage ratio, which it can draw on to fulfill its obligations, of about 150%. He said that the firm saw inflows on Monday amid the market turmoil and is ahead of schedule on its turnaround plan. 

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

Saudi National Bank, which is 37% owned by the kingdom’s sovereign wealth fund, became Credit Suisse’s biggest shareholder late last year after acquiring a 9.9% stake in the Swiss lender for 1.4 billion francs. The stake has lost more than 500 million francs in a matter of months. 

Al Khudairy has consistently said that his bank doesn’t 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 is “out of the question.” He said Wednesday that adding to the stake would bring additional regulatory hurdles. 

“If we go above 10%, 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.”

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

While Koerner cited several key metrics to demonstrate the bank’s financial strength, including the intention to keep a CET1 ratio of 13% throughout the overhaul, concerns about the bank’s future are persisting. The CDS level is about 9 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 Wednesday, Chairman Axel Lehmann batted away any notion that Credit Suisse 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.

The Swiss National Bank declined to comment on Credit Suisse’s situation when reached earlier on Wednesday.

Ralph Hamers, CEO of larger rival UBS Group, said he wouldn’t answer “hypothetical questions” about its struggling rival. Speaking at the Morgan Stanley European Financials Conference in London on Wednesday, he said the bank is focused on its own strategy.

The Credit Suisse drama is also a sign of the fragility of investor confidence, particularly in the banking sector, after the collapse of Silicon Valley Bank.