Asian markets slumped Thursday as uncertainty around Zurich-headquartered Credit Suisse — on the heels of the collapse of a pair of midsize U.S. lenders — fed fears of a banking crisis.
Japanese mega-banks, including Sumitomo Mitsui Financial Group and MUFG, ended the day down after Credit Suisse announced that it would borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank after a slump in shares triggered market anxiety.
In Tokyo, the 225-issue Nikkei average and the broader Topix index were both down on Thursday morning, before recovering slightly by midday. Hong Kong’s Hang Seng followed a similar path.
At the close of the market, the Topix was down 1.17% and the Nikkei down 0.80%.
Economist John Beirne, vice chair of research at the Asian Development Bank Institute, said stress in global markets had been amplified by the share price plunge at Credit Suisse.
“Global risk aversion triggered contagion and equity sell-offs in Japan and elsewhere in Asia. While losses are limited for now, crisis-averting action by central banks and regulators to restore confidence in the banking sector will be key,” Beirne said.
On Wednesday, Credit Suisse’s largest shareholder ruled out further financial assistance, with Saudi National Bank Chairman Ammar Al Khudairy telling Bloomberg TV the group would “absolutely not” provide further assistance causing the Swiss bank’s shares to plunge to record lows.
The same day, Swiss Financial Market Supervisory Authority and the Swiss National Bank said in a joint statement that “If necessary, the SNB will provide (Credit Suisse) with liquidity.”
The Swiss bank has suffered tumultuous changes in leadership, recent poor financial performance and cuts to its headcount in select markets as part of its cost-cutting strategy.
On Tuesday, the bank released its 2022 Annual Report, which warned of “material weakness” in its financial statements that could “result in misstatements of account balances or disclosures.” Working to improve this was the group’s “highest priority,” the report said.
In the wake of the Silicon Valley Bank (SVB) collapse — the biggest bank failure in the U.S. since the 2008 financial crisis — along with the demise of Signature Bank, regulators around the world have been on high alert for financial crisis indicators amid fears of knock-on effects.
Experts have said that large banks in Japan were unlikely to suffer the fate of SVB, as specific regulatory gaps and underlying factors befelled the California-based lender, such as the dropping value of tech stocks and rising interest rates.
Beirne said that due to the significant U.S. bond holdings of Japanese banks “potential losses in the wake of the SVB collapse and concerns about future earnings negatively spilled over to share prices.”
But risks to the stability of the Japanese financial system are mitigated, by “ample liquidity and capital buffers,” he added.
While banks should have no trouble riding out the storm – investment giant SoftBank Group Corp. and its startup-focused Vision Fund is particularly vulnerable among Japanese companies. SoftBank shares have sunk 12.5% over the past five days, sparking talk that Masayoshi Son may announce a buyback.
On Tuesday, CreditSights released a note that the developments may “bring to light more issues for already troubled Vision Fund companies. It is also unclear how this will impact sentiment around venture-tech more broadly.”
A jittery equity market and weary investors could hamper SoftBank’s planned initial public offering for chip firm Arm, the CreditSights note said.
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