Banking Contagion - Deja Vu
March 17, 2023
This past week has been dominated by headlines about Silicon Valley Bank, Credit Suisse, and the health of the banking sector in general. After a 24% decline it its stock on Wednesday of this week, Credit Suisse struck a deal with the Swiss central bank to borrow up to 50 billion Swiss francs (approximately US $54 billion). This comes after the chairman of Saudi National Bank, Credit Suisse’s largest shareholder, said it wouldn’t increase its investment stake in the firm. Now that the bank has addressed the market’s immediate liquidity concerns, it will need to stem customer outflows and demonstrate to customers that it has a sustainable business.
The reason this is important is because Credit Suisse represents the largest bank lender to the Greek shipping industry. A reimagined version of CS could see a reduced focus on investment banking and less willingness to transact in complicated financial instruments with more focus on wealth management activities. Credit Suisse has not responded to inquiry about where shipping stands in their future strategy.
Credit Suisse’s business model as it relates to the shipping industry has been to offer loans to shipping clients in exchange for private investments in the bank’s wealth and asset management unit. It is worth nothing that in 2020, Credit Suisse had signed up to join the Poseidon Principles, an initiative designed to support shipowners in achieving at least 50% reductions in greenhouse gas reductions set by the IMO. CS has also been at the top of lending tables to Greek shipping clients for the past ten years. The bank had market share of almost 11% in the Greek shipping market at the end of 2021. The bank’s overall shipping portfolio is estimated to be approximately US $10 billion, so a shift in strategy would certainly be felt by the financing side of the shipping business. There is no doubt that players in the industry will be closely monitoring the situation for signs of any contagion in other institutions they utilize for both financing and depository functions.
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