Credit Suisse Group AG's share price hit an all-time low March 15, heightening concerns about its stability and a potential default.

The bank's stock fell as much as 30%, and the cost of hedging against a default reached a record high after its largest shareholder, The Saudi National Bank, ruled out making any further investment.

The news came one day after the group flagged material weaknesses in its financial reporting controls in its 2022 annual report and amid a wider market sell-off triggered by the collapse of Silicon Valley Bank

"Investors fear that regulators might need to step in," Joost Beaumont, head of bank research at ABN Amro, told S&P Global Market Intelligence.

Credit Suisse declined to comment.

Stock down, credit default swaps up

Trading in Credit Suisse and several other European banks was suspended at points on March 15 in a tumultuous day for lenders. Credit Suisse's stock was trading 17.5% lower at CHF1.85 at 4:35 p.m. Zurich time and has lost more than 75% of its value over the last 12 months.

The spread on Credit Suisse's five-year senior debt credit default swaps — derivatives that investors use to hedge against risk of a company failing — reached 554.77 basis points, compared to 113.44 basis points on the five-year debt of similarly rated peer companies, Market Intelligence data shows.

The swaps are now pricing in the possibility of a default, Morningstar analyst Johann Scholtz said in a March 15 research note, though a rights issue or breakup of the bank are more likely outcomes.

Ammar Al Khudairy, chairman of the Saudi National Bank, which holds 9.88% of Credit Suisse, said in an interview with Reuters published March 15 that the shareholder would not raise the stake beyond 10%. Al Khudairy cited regulatory barriers and said his bank did not expect Credit Suisse to require more capital.

The market jitters have drawn the attention of the European Central Bank and politicians in Europe, Reuters reported March 15. The ECB has been in contact with other European banks to check their exposure to Credit Suisse, while French Finance Minister Bruno Le Maire planned to discuss the situation at Credit Suisse with Swiss counterpart Karin Keller-Sutter, according to Reuters.

Eroding liquidity

Credit Suisse's liquidity position has notably weakened after the bank suffered large asset outflows in recent months. The group's liquidity coverage ratio at the end of 2022 was at its lowest level since 2015, though it remains above many of its peers in Europe and the U.S.

From a fundamental point of view, Credit Suisse can withstand a larger shock given it has about CHF100 billion in loss-absorbing capital available, Beaumont said.

"In that respect, it's more about trust and confidence in the bank rather than its fundamentals," Beaumont noted.

Still, there is a high risk that Credit Suisse will suspend the dividend it was scheduled to pay next month, according to S&P Global's Dividend Forecasting unit. Dividend Forecasting no longer expects the bank to make a payout in 2024, either.