Credit Suisse shares tumble again, sentiment remains fragile

© Reuters. A logo is seen on the headquarters of Swiss bank Credit Suisse on Paradeplatz in Zurich, Switzerland March 16, 2023. REUTERS/Denis Balibouse

By Joice Alves and Alexandra Hudson (NYSE:HUD)

LONDON/ZURICH (Reuters) - Shares in Credit Suisse resumed their decline on Friday as investor sentiment remained fragile following a $54 billion lifeline the Swiss bank secured this week.

A ratings downgrade and a U.S. lawsuit on Thursday offset some of the relief that stemmed from the emergency liquidity line offered by the Swiss central bank on Thursday.

Credit Suisse shares lost a further 8% on Friday following two days of sharp swings, which saw its shares recoup 20% on Thursday after a 24% drop on Wednesday when its largest investor said regulations meant it would not be able to increase its stake to inject capital.

"Whether depositors are sufficiently reassured to stem outflows over the next few days is a key question, in our view," said Frédérique Carrier, head of investment strategy for RBC Wealth Management.

    "While markets are relieved that the Swiss central bank stepped in, sentiment is bound to remain very fragile, particularly as investors will likely worry about the eventual economic impact of aggressive monetary policy tightening by the European Central Bank (ECB)," she added.

Credit Suisse has seen more than $200 million net outflows from its U.S. and European managed funds since March 13, Morningstar Direct said on Friday.

DBRS Morningstar on Thursday became the first global rating agency to cut the bank's credit score, with a downgrade to "BBB", which is still investment grade.

The head of the Credit Suisse's Swiss business said late on Thursday the new funding would allow the bank to continue with its turnaround plan, although it could take time to win back client confidence.

"We are still a little cautious here but there certainly has been more positive news on Credit Suisse," said John Milroy, investment adviser at Ord Minnett.

In a further sign that concern about banking stress remains elevated, the ECB Supervisory Board convened an unscheduled meeting on Friday to discuss stress and vulnerabilities in the euro zone bank sector.

The ECB supervisors were informed that deposits remained stable across euro zone banks and exposure to Credit Suisse was immaterial, a source familiar with the meeting's content told Reuters.

BANK LIFELINES

Credit Suisse became the first major global bank to take up an emergency lifeline since the 2008 financial crisis, fuelling doubts over whether central banks will be able to sustain aggressive rate hikes to rein in inflation.

The ECB pressed forward with a 50 basis point rate hike on Thursday as it prioritized trying to bring inflation, currently at 8.5%, back to its 2% target. The central bank said euro zone banks are in better shape than they were in 2008.

A $30 billion lifeline for U.S.-based First Republic Bank (NYSE:FRC) on Thursday also failed to reassure the market as investors remained concerned about cracks in the sector after the collapse of two other mid-sized U.S. lenders over the past week. Shares in First Republic were down 27.5% on Friday.

Credit Suisse shares had their worst week since the beginning of COVID 19 lockdown in March 2020, losing 25.5%.

(Graphic: Credit Suisse goes off piste - https://www.reuters.com/graphics/CREDITSUISSEGP-STOCKS/akveqegdgvr/chart.png)

Underscoring the febrile state of markets, European banking stocks fell almost 3% on Friday and nursed heavy weekly losses - down almost 12% in their biggest weekly fall in a year.

The banking sector has been in turmoil following the collapse last week of U.S. Silicon Valley Bank (SVB).

U.S. shareholders of Credit Suisse sued the bank on Thursday, claiming it defrauded them by concealing problems with its finances. Credit Suisse declined to comment on the lawsuit.

Swiss lawmakers on Friday vowed to bring those responsible for Credit Suisse's problems to account and urged it to clean up its act after years of scandals, as they sought to contain the crisis and limit any reputational damage to the country.

($1 = 0.9259 Swiss francs)