Why Are Stocks Down Today?
The major indices are down more than 1.5% in pre-market trading as investors continue to react to bad news about Credit Suisse (NYSE:CS). In the latest development involving CS, the Swiss bank’s largest investor indicated that it would n…
The major indices are down more than 1.5% in pre-market trading as investors continue to react to bad news about Credit Suisse (NYSE:CS). In the latest development involving CS, the Swiss bank’s largest investor indicated that it would not buy any additional shares of CS stock, and its shares are tumbling nearly 30%. Credit Suisse appears to be the negative catalyst driving U.S. stocks down this morning.
The latest bad news for CS came after the scandal-plagued bank yesterday disclosed “material weaknesses” in its 2021 and 2022 results.
No More Share Purchases
Saudi National Bank’s chairman said it would not buy any more shares of CS stock due to “regulatory issues.” The Saudi lender obtained almost 10% of CS stock last year after the Swiss bank ran into significant headaches. Saudi National also helped CS raise capital in 2022.
Material Weaknesses and Outflows
Yesterday CS reported that it had found “‘material weaknesses’ related to its 2021 and 2022 financial results. However, the bank also indicated that its reporting errors related to its categorization of “noncash items,” and it maintained that its results “can be relied upon by investors to gauge its performance and overall status.”
Probably more serious is that the bank’s clients pulled $120 billion of their funds from the bank last quarter. Although CS reported yesterday that its outflows had dropped in recent months, the latest news and the massive decline in its stock will likely cause those outflows to reaccelerate.
Gauging the Long-Term Impact of Credit Suisse on U.S. Stocks
After being hit with a series of scandals in the last two years, Credit Suisse has been troubled for many months.
Moreover, the long-term impact of Credit Suisse on U.S. stocks and the American financial system is difficult to assess.
But perhaps worth noting is that, in 1997, many sizeable East Asian countries endured a significant debt crisis, and the long-term impact of that situation on U.S. stocks was negligible, as American equities soared tremendously from 1997 to 1999.
Consequently, one troubled European bank may not ultimately affect most American stocks very much.
Additionally, around 2010-2014, many investors were worried about how a debt crisis that several European Union members experienced would affect European and American banks and stocks. Again, ultimately the long-term impact of the crisis on American stocks was insignificant.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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