Investing in a bank that has survived 167 years may seem like a safe bet. All the more so when it is based in Zurich, Switzerland’s economic metropolis, a country that is as closely linked to finance as the Gulf States are to oil, Germany to automobiles, Spain to tourism or Taiwan to chips. That’s what the owners of the Saudi National Bank (SNB) must have believed last fall, when the Swiss group launched a capital increase of CHF 4,000 million – a similar amount in euros – in the middle of the crisis. The Saudis swooped in with a $1.4 billion check that suddenly made them the largest shareholder at 9.88%. They felt they had hit the nail on the head: they had bought a piece of a historic Swiss bank that had probably hit rock bottom at a bargain price.
Credit Suisse’s new Arab tenants were paying 3.82 francs a share in November, 60% down from two years earlier and a far cry from the peak of over 80 in 2007, before the Great Recession, when it was all wine and roses at the bank . You might think, without it being a far-fetched thesis, that after more than a decade of scandals, instability at the top, regulator fines, and poor results, the stock price penalty should be about to end. In a normal environment they might have gotten away with it and the move would have paid off, but on Wednesday, March 8th, a publicly unknown California bank called Silicon Valley Bank went public with its problems, and on March 10th it was ousted by intervened the United States
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The eyes of the market then began the witch hunt. Who could get into trouble as the US regional bank crisis spills over into Europe? It didn’t take much thought to find the answer. Credit Suisse, the epicenter of all evil, had just suffered a deposit flight of over 100,000 million in the last quarter of 2022. She was the easiest prey. And in the past week there would not be a single rest day.
Its shares were among the hardest hit as European markets opened Monday immediately after Silicon Valley Bank’s bankruptcy. It released its annual report on Tuesday, identifying “relevant vulnerabilities” in its financial information control systems. And on Wednesday, a historic communications error committed by the Saudis themselves resulted in a breach of trust. When Ammar Al Khudairy, the President of the SNB, was asked if he would put more money into Credit Suisse, the answer was emphatic. “Absolutely not”.
It’s hard to guess what would have happened if the answer had been different. But we know what sparked that refusal: a brutal market attack on a helpless and helpless Credit Suisse. Its largest investor’s protective shield was suddenly stripped off, and shares were down 24% by the close, having previously plunged more than 30%. Credit Suisse was officially in the crosshairs.
Events unfolded at a speed few expected. On Thursday, the bank borrowed $50 billion from the Swiss National Bank to shore up its liquidity. But on Friday, as deposit withdrawals accelerated at a rate of 10 billion a day, authorities were convinced there was no way to go it alone: a buyer was needed. Negotiations over the weekend culminated in a sale to UBS, the country’s largest bank, on Sunday. It was not easy for him to stay with a being on the edge of the abyss, and he demanded a heavy discount for taking the risk. It was given to him. The Saudis fought back, but they had to lose: to go to market without a closed deal on Monday would have been suicide once it was known to sell at a deep discount, so their negotiating position was weak. The closing price is CHF 0.76 per share. The National Bank of Saudi Arabia had just lost 80% of its investments in just five months. 1,000 million evaporate, about seven million per day.
They weren’t the only ones defeated. The list of victims is long, starting with the owners of €16,000 million in high-risk debt issued by the company who lost everything. And by other Gulf shareholders who have also been penalized, such as the Qatari Sovereign Fund (owners of nearly 7% of Credit Suisse) and the Saudi Olayan family (3%).
Harris Associates escaped just in time
Just hours after that notable loss, the Saudi National Bank – the largest bank in Saudi Arabia – issued a statement to minimize the impact of this disastrous investment. They reminded that it accounts for less than 0.5% of its assets and 1.7% of the investment portfolio. In other words, 1,000 million evaporated in five months might be a painful loss, but they would comfortably survive without having to adjust an iota to their roadmap. “The changes in the valuation of the SNB’s stake in Credit Suisse do not affect the SNB’s growth plans, nor its likely direction for 2023,” read the text, recalling that they have 945,000 million riyals in assets (233,000 million euros). .
There were those who went the opposite route to the Saudis, escaping Credit Suisse just before the storm swept the bank away. American fund Harris Associates, based in Chicago, was the largest shareholder for years with 10% of the stock, but began to reduce its position in October when the capital increase was announced, until it left it at 5% at the end of 2018. Then, in March, it was revealed that he had parted ways with his entire package. You were right about that. Even if you were born in 1856, you’re not immune to the conflation of bankrun and inefficient management.
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