Credit Suisse Group AG signage outside the constructing that houses the corporate’s branch office in Tokyo, Japan, on Monday, March 20, 2023. UBS Group AG has agreed to purchase Credit Suisse Group as part of a historic government brokerage deal to contain the crisis confidence that has begun to spread to global financial markets.
Kosuke Okahara | Bloomberg | Getty’s paintings
Saudi National Bank suffers heavy losses after forced takeover Credit Suisse by UBS for $3.2 billion.
Saudi National Bank – Credit Suisse’s largest shareholder – confirmed to CNBC on Monday that it had been hit by the loss of about 80% of its investment.
The Riyadh-based bank holds a 9.9% stake in Credit Suisse, having invested 1.4 billion Swiss francs ($1.5 billion) within the 167-year-old Swiss lender last November at 3.82 francs a share.
Under the terms of the bailout deal, UBS is paying Credit Suisse shareholders 0.76 francs a share.
The significant discount comes as regulators attempt to shore up the worldwide banking system. The fight to save lots of comes after several tumultuous weeks that saw the collapse of US Silicon Valley Bank and stocks Bank of the First Republic tank, in addition to major declines in stock prices across the banking sector around the globe.
Shares in UBS, Switzerland’s biggest bank, fell 10.5% at 9:28am London time (5:28am EST), while the European banking sector fell around 4%. Credit Suisse fell as much as 62%.
The headquarters of the Saudi National Bank (SNB) outside the King Abdullah Financial District Conference Center within the King Abdullah Financial District (KAFD) in Riyadh, Saudi Arabia on Tuesday, December 6, 2022.
Bloomberg | Bloomberg | Getty’s paintings
Despite the loss, the National Bank of Saudi Arabia says its broader strategy stays unchanged. The lender’s shares rose 0.58% at 9.30am London time on Monday.
“In December 2022, SNB’s investments in Credit Suisse accounted for lower than 0.5% of total SNB assets and roughly 1.7% of SNB’s investment portfolio,” Saudi National Bank said in an announcement.
It said “zero impact on profitability” from a “regulatory capital perspective”.
“The revaluation of SNB’s investment in Credit Suisse has no impact on SNB’s development plans and forward-looking forecasts for 2023,” it added.
The Qatar Investment Authority, Credit Suisse’s second-largest investor, owns 6.8% of the bank and in addition suffered a giant loss. QIA didn’t reply to a request for further details.
Saudi shareholder ‘shot himself within the foot’
Credit Suisse’s demise would have been long overdue, culminating in years of scandals, multi-billion dollar losses, management changes, and a method that didn’t encourage investor confidence. In February, the bank – Switzerland’s second largest – reported its largest annual loss for the reason that 2008 financial crisis after customers withdrew greater than 110 billion francs.
The SNB’s feelings for the time being are probably similar to all CS shareholders – anger that management has brought things thus far.
Simon Fentham-Fletcher
Investment Director, Freedom Asset Management
Some argue that the sharp and sudden crisis that began last week and led to the emergency sale of the bank is partly the fault of the National Bank of Saudi Arabia itself.
Saudi National Bank governor Ammar Al Khudairy was asked by Bloomberg on Wednesday whether he would increase his stake within the struggling Swiss lender. His answer was “absolutely not, for a lot of reasons beyond the best reason, which is regulation and statute.”
The comment sparked a panic amongst investors and sent Credit Suisse shares down 24% in that session, although the statement was not actually recent; the Saudi bank said in October it had no plans to extend its stake beyond the present 9.9%.
“Though the situation at Credit Suisse was removed from perfect and investors had many questions on the bank’s future, the SNB didn’t reassure investors and shot itself within the foot,” commented the CEO, one UAE investment banker who requested anonymity with because of skilled constraints, he told CNBC.
“Because the bank’s biggest shareholders, they’d essentially the most to lose if the bank collapsed, and that is what happened,” the banker said.
The governor of the Saudi National Bank tried to calm things down the following day, telling Hadley Gamble of CNBC in Riyadh that “in the event you take a look at the decline of all the banking sector, unfortunately, rather a lot of people were just in search of excuses.”
“It’s panic, a bit of panic. I think it is totally unjustified, whether for Credit Suisse or for the market as a complete,” said Al Khudairy. His comments ultimately didn’t stop the bank’s ongoing failure.
The disorderly collapse that spilled over all the banking sector shook market confidence and fueled fears of one other global banking crisis. Swiss Finance Minister Karin Keller-Sutter decided to reassure indignant taxpayers during a Sunday press conference, stressing that “this can be a business solution, not a rescue”.
“The SNB’s current feelings are probably just like all CS shareholders – anger that the board has brought things thus far,” Simon Fentham-Fletcher, chief investment officer at Abu Dhabi-based Freedom Asset Management, told CNBC.
“Over time, CS has gone from crisis to regulatory superb and altered management because it embarked on a recent path. Ultimately, the bank ran out of time,” he said.
He said shareholders, particularly big ones like Saudi Arabia, will now likely need to re-evaluate how they invest and “where the stakes are as high as they’re here, they’ll probably want to begin putting people able to properly understand what is going on on.” of their investments.
“This might end in a rise within the number of activist shareholders who want not only a seat on the board, but real eyes and ears,” he added, noting that the previous few weeks of market turmoil will undoubtedly significantly reduce investors’ willingness to take risks.
From a risk perspective, Fentham-Fletcher said: “Overall, I believe we will see a drop in risk appetite as confidence has just dropped sharply, and this coupled with the apparent capital structure inversion will undoubtedly make people stop. “.