Credit Suisse sinks, $60 billion flows into European banks

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(Bloomberg) — Shares of Credit Suisse Group AG fell and credit default swaps were close to a distressed level after its largest shareholder refused any additional support.

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Saudi National Bank President Ammar Al Khudairi said “absolutely not” on Wednesday in response to a question on whether the bank was open to further injections for additional liquidity.

Shares of Credit Suisse plunged 20% in the biggest one-day selloff on record. Traders saw prices on one-year senior credit-default swaps 1,200 basis points higher on Wednesday morning, according to two people who saw the quotes and asked not to be named because they are not public. The last recorded quote on pricing source CMAQ was at 835.9 basis points on Tuesday.

Panic-selling spread to European banks and dragged US futures down. In another sign of the flight to safety, two-year yields on German bonds fell 33 basis points.

A gauge for the European banking sector declined 7%, reaching its lowest since early January, and SA sank 11%. The combined market value among European banks was more than $60 billion on Wednesday.

“Markets are very sensitive to negative news flow after the surprise of seeing the US bank disappear overnight,” said Francois Levier, head of financial debt strategies at Lazard Frères Gestion. “In a context where market sentiment is already weak, there is not much need to weaken it further.”

Credit Suisse top holder refuses to invest more after fall

Credit Suisse is just months into a complex turnaround plan that will see the Swiss firm spin off the investment banking unit while focusing on its core wealth management business. This effort has been further complicated by market unease in the financial sector following the collapse of several US regional banks.

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A spokesman for Credit Suisse declined to comment when contacted by Bloomberg News. Chief Executive Officer Ulrich Korner said in a Bloomberg television interview on Tuesday that business momentum had improved this quarter and that the bank had attracted funding following the collapse of SVB.

Shares of large US lenders plunged in premarket trading. Bank of America Corp dropped 3.9% and Wells Fargo & Co dropped 4%. Shares of Citigroup Inc declined 3.8%.

In the credit market, a spread of more than 1,000 basis points in one-year senior bank CDS is extremely rare. Major Greek banks traded at similar levels during the country’s debt crisis and economic downturn. The level recorded on Tuesday is nearly 18 times the contract of rival Swiss bank UBS Group AG and nine times that of Deutsche Bank AG.

The CDS curve is also deeply inverted for the bank, meaning it costs more to protect against an immediate failure, rather than a default further down the line. The lender’s CDS curve had a general upward slope as recently as Friday. Traders typically attribute the higher cost of security to longer, more uncertain periods.

“When we have material exposure like this, it takes a while for the markets to come back,” said Frederic Dodard, head of asset allocation at State Street Global Advisors Ltd. , especially with central banks’ meetings this week and next. They can help restore confidence or even destroy it. We’re not out of the woods yet.

– With assistance from Macarena Muñoz, Chiara Remondini and Jan-Patrick Barnert.

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