Credit Suisse Explodes Into Full-Fledged Crisis As Competitors Retreat

The stock dropped as much as 31%, reaching new lows, while benchmark bond prices tumbled to levels that signal the Swiss lender is in serious financial trouble.

Credit Suisse Group AG's long-brewing problems erupted into a full-fledged crisis on Wednesday, as its shares and bonds plummeted and some of the world's largest banks hurried to protect their coffers from the possible impact.

The stock plunged as much as 31%, hitting historic lows, while benchmark bond prices fell to levels that signal the Swiss lender is in significant financial distress - something seldom, if ever, seen at a major global bank since the 2008 crisis. However, banks who do business with Credit Suisse purchased credit-default swap contracts that will reimburse them if the situation worsens.

According to persons familiar with the situation, at least one bank, BNP Paribas SA, has gone a step further and advised clients that it will no longer accept requests to take over derivatives contracts when Credit Suisse is the counterparty. This is in addition to the actions that several banks in the United States have been taking for months to gradually limit their exposure to the lender.

As the day progressed and the crisis wracked global financial markets, Swiss officials moved to limit the damage, issuing a statement in the evening promising to assist Credit Suisse with emergency financing if necessary. The bank's stock and CDS have both recovered modestly.

"The trading levels have created somewhat of a crisis in confidence in Credit Suisse," said Penn Mutual Asset Management president Mark Heppenstall. "They are seeking for any means of safety."

The Saudi National Bank, Credit Suisse's largest shareholder, issued a statement on Wednesday that caused the panic. When asked if he was prepared to infuse further capital into the institution, Ammar Al Khudairy said, "absolutely not." That was nothing new, and it occurred only a day after Credit Suisse Chief Executive Officer Ulrich Koerner declared business was improving, but it was enough to frighten investors who were already on edge after three regional US banks failed in a matter of days.

In the wake, the Swiss lender's dollar bonds fell as much as 40 cents, making them the worst performing notes in the world. Quotations for one-year credit default swaps soared beyond longer-term prices as banks sought a short-term hedge against counterparty risk, according to people familiar with the situation.

While Credit Suisse's American depositary receipts recovered some of their losses following the Swiss authorities' statement, they were still down 14% at the conclusion of regular trading in New York. Morgan Stanley and Citigroup Inc. both fell more than 5%, while JPMorgan Chase & Co., Goldman Sachs Group Inc., and Wells Fargo & Co. all down more than 3%.