‘The weakest links are cracking’: Investors eye possible Credit Suisse contagion

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Shares of Credit Suisse surged on Thursday, rebounding from a new all-time low after the beleaguered lender announced it would seek central bank support to shore up its finances.

Switzerland’s second-biggest bank said it would borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank, offering a moment of relief to investors after the Zurich-based company led the European banking sector into a wild fall during the previous session.

The Swiss-listed stock was trading up around 17% at 1:35 p.m. London time (9:35 a.m. ET) – a massive deviation from Wednesday’s more than 30% drop after its more major funder said it would not provide additional aid due to regulatory restrictions.

The sharp loss of confidence in Credit Suisse, which came as fears over the health of the banking system spread from the United States to Europe, has prompted some to question the ‘true’ value of Credit Suisse’s share price.

“You have to take a step back and of course look at the viability of the business model [and] on the overall regulatory landscape,” Beat Wittmann, president of Porta Advisors in Switzerland, told CNBC’s “Squawk Box Europe” on Thursday.

“I think the management of the bank really needs to use this lifeline now to revisit their plan because clearly the capital markets haven’t bought the plan as we’ve seen by the share price performance. and credit default swaps very recently.”

Asked about the sharp drop in Credit Suisse’s share price – which fell below 2 Swiss francs for the first time on Wednesday – Wittmann said a cycle of “brutal” monetary tightening led by major central banks these months meant that companies were vulnerable to shocks. now begins to “really suffer”.

“The weakest links are cracking and it’s happening, and it was completely predictable – and it won’t be the last. So now it really is time for policy makers to restore trust and liquidity in the system, whether in the United States, whether in Switzerland or elsewhere,” Wittmann said.

Asked about his advice to investors amid the market turmoil, he said: “The upward momentum in inflation and interest rates is very clearly receding, so I think there is a very healthy on the capital markets.”

“But I would very strongly recommend sticking with high-quality companies – that means strong management, strong balance sheets, strong value proposition. And now you can pick them up at more attractive valuations,” added Wittmann.

“Material Weaknesses”

Even before the abrupt collapse of two US banks last week, Credit Suisse has been plagued with problems in recent years, including accusations of money laundering and allegations of espionage.

The bank’s disclosure earlier this week of “significant weaknesses” in its reports added to investor concerns.

Credit Suisse management, however, said on Wednesday that its latest step to secure a major financing deal showed “decisive action” to strengthen the business. He thanked the Swiss National Bank and the Swiss Financial Market Supervisory Authority for their support.

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Analysts welcomed the move and suggested fears of another banking crisis may be overblown.

“A stronger liquidity position and a safety net provided by the Swiss National Bank with the support of Finma are positive,” RBC Capital Markets analyst Anke Reingen said in a research note on Thursday.

“Regaining trust is essential for CS actions. The measures taken should provide reassurance that a spillover into the sector could be contained, but the situation remains uncertain,” she added.

UBS analysts, meanwhile, said market participants were “struggling with three interrelated but different issues: bank solvency, bank liquidity and bank profitability.”

“In short, we believe fears about bank solvency are overblown and most banks maintain strong liquidity positions,” they added.

“A beautiful story of a turnaround”?

For Dan Scott, head of multi-asset management at Swiss asset manager Vontobel – who previously worked at Credit Suisse – it’s not all bad news.

“I would say Credit Suisse is still one of the biggest asset managers in the world, it has half a trillion in assets, and it could definitely be a great turnaround story if the execution is right,” he told “Squawk Box Europe” on Thursday.

Credit Suisse could have a

Asked by CNBC’s Geoff Cutmore if that would mean investors would remain patient despite market turmoil and the scale of the bank’s cash outflows, Scott replied: “Absolutely. But again I think the stress that we’re seeing right now really should have been predictable.”

“When rates go up so fast, certain business models are challenged and I don’t think it’s a wealth management business model that’s challenged. I think a lot more and why we saw it at the Silicon Valley Bank is that private markets are going to be challenged,” Scott added.


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