Thousands of miles away from U.S. shores early Wednesday, a headline began working its way across Europe, then Wall Street, sparking fresh panic as it dawned on investors they may be facing yet another banking crisis.
In Zurich, shares of Credit Suisse CS CH:CSGN tumbled more than 20% at one point to a new record under €2 after the chairman of the Swiss lender’s top shareholder, the Saudi National Bank, said they won’t invest any more in the bank.
U.S. investors were undoubtedly taken by surprise when Credit Suisse reported an unexpected and steep loss in the most recent quarter. As the banking giant continues to restructure its business, the losses are showing investors the market is still vulnerable and it is still important to pay attention to the warning signs.
Credit Suisse reported a net loss of 1.3 billion Swiss francs (1.2 billion USD) in the second quarter of 2019, which is far lower than the 628 million Swiss Francs expected by analysts. The losses are due in large part due to attempting to reposition its business as part of a restructuring.
For U.S. investors, understanding the Credit Suisse losses is important for a couple of reasons. First, the understanding of the failure highlights the vulnerability of banks, even one as large and well-capitalized as Credit Suisse. They have estimated that their losses are a result of a combination of one-off items and provision for losses on debt exposure that have been made in anticipation for potential losses due to default. This has implications for other banks and other investors who have a significant part of their exposure in debt.
Second, the news serves as a reminder to U.S. investors to remain vigilant with their investments. The global markets are constantly changing and while Credit Suisse’s losses may not have direct consequences on their own, the market is still unpredictable and highly volatile.
In conclusion, Credit Suisse’s losses are likely to be short-term and should not cause any long-term worries for investors. Nonetheless, it is important for U.S. investors to remember that the weak economic growth and risky business environment is something to still be aware of.