Saudi National Bank has disclosed that it has experienced a loss of nearly 80% on its investment in Credit Suisse, the Swiss-based lender. The bank invested $1.5 billion, equivalent to 10% of Credit Suisse, at a rate of 3.82 Swiss francs per share in November 2022, making it the largest shareholder.
However, reports surfaced earlier in the day that Credit Suisse Group AG was to be acquired by UBS Group AG, following a government-backed intervention aimed at containing a crisis of confidence that was spreading throughout global financial markets. Under the deal’s terms, UBS is to purchase Credit Suisse for 0.76 Swiss francs per share, a reduced rate.
This discounted price follows regulatory attempts to strengthen the banking system worldwide. The acquisition also comes after a period of turmoil, with the collapse of US-based Silicon Valley Bank and First Republic Bank and a significant downturn in stock prices across the banking sector.
Despite the significant loss, Saudi National Bank has affirmed that its broader strategy will remain unchanged. As of December 2022, the bank’s investment in Credit Suisse accounted for less than 0.5% of its total assets and 1.7% of its investment portfolio, according to a statement by the Riyadh-based bank.
The bank has also stated that the impact on its regulatory capital is negligible. Additionally, changes in the valuation of the investment in Credit Suisse are unlikely to have an impact on the bank’s growth plans or forward-looking guidance for 2023.
UBS, which is Switzerland’s largest bank, experienced a decline of 10.5% in its stock price at 9.28am London time. In contrast, Credit Suisse experienced a significant decline of 60%, while the banking sector in Europe was down by 4%.
Saudi National Bank’s $1 Billion Loss
Saudi National Bank has suffered a substantial loss on its investment in Credit Suisse, as the Swiss-based lender has been acquired by UBS at a discounted price.
The acquisition follows a period of instability in the banking sector, with the collapse of some US-based banks and a significant downturn in stock prices. However, Saudi National Bank has stated that its broader strategy will remain unchanged, and the loss will have no impact on its growth plans or forward-looking guidance for 2023.
Despite the loss, Saudi National Bank has affirmed that its broader strategy will remain unchanged. This suggests that the bank may continue to pursue its investment objectives and maintain its existing portfolio, rather than making significant changes to its investment strategy in response to the loss.
Nonetheless, the loss highlights the risks associated with investing in equities, particularly in volatile market conditions, and underscores the importance of diversification and risk management in investment decisions.
While the loss incurred by Saudi National Bank on its investment in Credit Suisse is significant, its impact on the bank’s overall financial health is likely to be limited.