Signage for Credit Suisse Group AG outside a building housing the company’s branch office, in Tokyo, Japan, on Monday, March 20, 2023. UBS Group AG agreed to buy Credit Suisse Group in a landmark government-brokered deal to a crisis of confidence that began to spread across global financial markets.
Kosuke Okahara| Bloomberg | Getty Images
Saudi National Bank Suffers Huge Losses in the Aftermath of Credit Suisse failure after a deal was reached for UBS to buy the embattled Swiss lender for $3.2 billion.
Saudi National Bank – Credit Suisse’s largest shareholder – confirmed to CNBC on Monday that it had lost about 80% on its investment.
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The Riyadh-based bank has a 9.9% stake in Credit Suisse and invested 1.4 billion Swiss francs ($1.5 billion) in the 167-year-old Swiss lender in November last year, up from 3.82 Swiss francs per share.
Under the terms of the rescue agreement, UBS will pay Credit Suisse shareholders CHF 0.76 per share.
The significant discount comes as regulators seek to strengthen the global banking system. The battle for rescue follows a tumultuous few weeks in which the US-based Silicon Valley Bank and First Republic bank collapsed, as well as major share price falls in the international banking sector.
Shares of UBS, Switzerland’s largest bank, were down 10.5% at 9:28 am London time, while the European banking sector was down about 4%. Credit Suisse fell as much as 62%.
The headquarters of the Saudi National Bank (SNB) outside the King Abdullah Financial District Conference Center in the King Abdullah Financial District (KAFD) in Riyadh, Saudi Arabia, on Tuesday, December 6, 2022.
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Despite the loss, Saudi National Bank says its broader strategy remains unchanged. Shares of the lender were up 0.58% at 9:30am London time on Monday.
“As of December 2022, SNB’s investment in Credit Suisse constituted less than 0.5% of SNB’s total assets and approximately 1.7% of SNB’s investment portfolio,” the Saudi National Bank said in a statement.
It said there was “zero impact on profitability” from a “regulatory capital perspective”.
“Changes in the valuation of SNB’s investment in Credit Suisse will not affect SNB’s growth plans and forward-looking outlook for 2023,” it added.
The Qatar Investment Authority, Credit Suisse’s second largest investor, has a 6.8% stake in the bank and also suffered a hefty loss. QIA has not responded to a request for more details.
Saudi shareholder ‘shot themselves in the foot’
Credit Suisse’s demise was a long time coming, culminating in years of scandals, multi-billion dollar losses, leadership changes and a strategy that failed to inspire investor confidence. In February, the bank, Switzerland’s second-largest bank, reported its biggest annual loss since the 2008 financial crisis, after customers withdrew more than 110 billion Swiss francs ($120 billion).
As of December 2022, Credit Suisse raised approximately $4 billion in funding from investors, including major Gulf banks and sovereign wealth funds such as Saudi National Bank, the Qatari Investment Authority and the Saudi Olayan Group. Norway’s sovereign wealth fund, Norges Bank Investment Management, is also a major shareholder.
SNB’s feeling right now is probably like all shareholders in CS – utter rage that management has allowed the situation to get to this point.
Simon Fentham-Fletcher
Chief Investment Officer, Freedom Asset Management
The sharp and sudden downturn that began last week and led to the emergency sale of the bank is partly the fault of Saudi National Bank itself, some analysts claim.
Saudi National Bank chairman Ammar Al Khudiary was asked by Bloomberg on Wednesday whether it would increase its stake in the troubled Swiss lender. His answer was “absolutely not, for many reasons beyond the simplest reason, which is regulatory and legal.”
The comment caused panic among investors and sent Credit Suisse shares down 24% during that session, even though the statement was not in fact new; the Saudi bank said in October it had no plans to expand its holdings beyond the current 9.9%.
“While the situation at Credit Suisse was not perfect and investors had a lot of doubts about the future of the bank, SNB did not help appease investors and shoot themselves in the foot,” said the chairman, a UAE-based investment banker, who requested not to be named due to professional restrictions, told CNBC.
“As the bank’s largest shareholders, they had the most to lose if the bank went bankrupt, which is exactly what happened,” the banker said.
So did the chairman of the Saudi National Bank try to calm the situation down the next day by telling CNBC’s Hadley Gamble in Riyadh that “when you look at how the whole banking industry has gone down, unfortunately a lot of people were just looking for excuses.”
“It’s panic, a little bit of panic. I believe it’s completely unfounded, whether it’s for Credit Suisse or for the whole market,” Al Khudairy said. His comments ultimately failed to stop the bench’s ongoing defeat.
The messy fallout, which has spread throughout the banking sector, has damaged market confidence and fueled fears of another global banking crisis. Swiss Finance Minister Karin Keller-Sutter wanted to reassure angry taxpayers at a press conference on Sunday, stressing that “this is a commercial solution and not a bailout”.
“SNB’s feeling right now is probably like all shareholders in CS — utter rage that management has allowed the situation to get this way,” Simon Fentham-Fletcher, chief investment officer at Abu Dhabi-based Freedom Asset Management, told CNBC.
“For years, CS lurched from crisis to regulatory fine, changing management as it took a new path. Finally, the bank ran out of time,” he said.
He said shareholders, especially big ones like Saudi National Bank, are now likely to want to reassess the way they make investments and “where the stakes are as high as here, they probably want to embed people so they have a good understanding of what’s happening within their investments. “
“This could lead to an increase in activist shareholders who want not just a board seat, but real eyes and ears,” he added, noting that the last few weeks of market turmoil will undoubtedly make a significant dent in investors’ desire to to take risks.
From a risk perspective, Fentham-Fletcher said, “Overall, I think we’re going to see a pullback in all risk appetite as confidence just took a bad break.”