- Bets that Credit Suisse will default on its debt soared to record levels on Wednesday.
- Shares of Credit Suisse plunged 25%, setting off fresh fears of a banking crisis.
- The plunge for Credit Suisse came after a top investor said it would not invest more money in the bank.
Credit default swaps tied to bonds issued by $4 soared to record levels on Wednesday, indicating that more and more traders believe the Swiss bank will default on its debt.
The alarm bell rang after Saudi National Bank chairman Ammar Al Khudairy said he would "absolutely not" invest more money in the struggling bank. The Saudi National Bank bought a 9.99% stake in Credit Suisse late last year, and the chairman said they had no interest in eclipsing the 10% stake threshold, which comes with more stringent regulations.
Those $4 to record lows, while CDS spreads tied to the bank's one-year and five-year debt surged to crisis-level highs.
Credit default swaps are a form of insurance against issuers not making scheduled payments on their debt.
The trading instrument $4 in 2008, including Michael Burry of Scion Capital. Protection payouts on the CDS are triggered when a debt payment is missed.
The volatility on Wednesday spread to other beleaguered European banks, with $4 seeing its stock price plunge as much as 11% while $4 fell as much as 10%.
$4 that a rather-contained crisis in US regional banks over the past week had spread to European banks, but Credit Suisse CEO Ulrich Körner said the situation in the US is not comparable to what's happening at Credit Suisse.
Meanwhile, Credit Suisse chairman Axel Lehmann said the bank receiving assistance from the Swiss government "isn't a topic."
"We have strong capital ratios, a strong balance sheet. We already took the medicine," Lehmann said, alluding to a restructuring the bank underwent late last year.
Al Khudairy said he is "happy" with the bank's transformation plan. "I don't think they will need extra money; if you look at their ratios, they're fine. And they operate under a strong regulatory regime in Switzerland and in other countries," Al Khudairy said.
Credit Suisse pared its losses to about 21%, as the company still faced a crisis of confidence among investors Wednesday afternoon. Fundstrat's Tom Lee summed it up succinctly in a Wednesday note.
"The markets remain nervous about contagion reaching the systematically important banks," Lee said.
Bank stocks across the board dropped considerably on Wednesday, with the S&P Banking Sector ETF and Regional Banking ETF both falling about 4%. Meanwhile, the $4 like First Republic and PacWest Bancorp was completely reversed in early Wednesday trades.