Credit Suisse shares plunge 9.2% as bank’s CDS rises Friday

Investment bank and financial services company Credit Suisse saw its shares plunge 9.21% to CHF3.61, following reports that the bank’s executives are meeting with key stakeholders to reassure the company’s financial position.

As reported by the Financial Times, executives at the Swiss financial giant spent last weekend reassuring investors that the bank’s capital base and liquidity are healthy despite the current decline in its share performance. The decision to appease investors came after the spread on the bank’s credit default swaps (CDS) rose sharply on Friday.

The Credit Default Swap is an indicator of how well the bank can protect its creditors from financial risks such as default. The plunge was linked to claims that the bank’s chief executive, Ulrich Koerner, is seeking to raise capital from investors.

Although the Financial Times reports that bank executives deny the allegations of fundraising, a discussion that was notably part of discussions with investors as well as what was shared with employees in a memo.

“I hope you are not confusing our daily stock price performance with the bank’s strong capital base and liquidity position” the CEO said in a memo obtained by CNBC.

The company’s attempt to maintain an optimistic and confident business outlook is currently being undermined by its volatile share price. Credit Suisse has seen its shares plunge 60% since the beginning of the year.

Among other things, Ulrich Koerner assured that the bank would not be raising new funds and that it “was trying to avoid such a move with its share price at an all-time low and higher borrowing costs due to the ratings downgrade.“

Credit Suisse stock drop and systemic impact

Among other things, Credit Suisse officials are exploring every means to get back on good terms with rating agencies, analysts, investors and their broader stakeholders.

According to a Reuters report citing people close to the company’s plans, the Swiss banking giant may move its operations out of the U.S. in order to continue concentrating value in its most profitable regions.

Should that happen, John Vail, head of global strategy at Nikko Asset Management, believes the U.S. Federal Reserve and other central banks should reconsider their aggressive approach to rate hikes, as the damage to Credit Suisse may underscore a more widespread negative impact on others.

“The glimmer of hope at the end of this period is that central banks will probably start to calm down at some point, as inflation is falling and financial conditions are deteriorating dramatically“, said John Vail. “I don’t think it’s the end of the world“.