Bloomberg News

Swiss Stocks Drop as SNB Says Banks Must Raise Capital

June 14, 2012

Stocks in Switzerland declined for the first time in eight days as the Swiss National Bank said UBS AG (UBSN) and Credit Suisse (CSGN) Group AG need to increase their capital this year.

Credit Suisse, the country’s second-biggest bank, slumped to the lowest in 19 years. Swatch Group AG (UHR) and Cie. Financiere Richemont SA declined more than 1.5 percent each.

The Swiss Market Index (SMI) fell 0.6 percent to 5,908.51 at the close of trading in Zurich. The gauge has lost 6.8 percent from its 2012 high on March 16 amid mounting concern that Greece will have to leave the euro currency union. The broader Swiss Performance Index declined 0.7 percent today.

“The SNB’s comments on Credit Suisse only added to the uncertainties on the market that have been and will be present until we see the outcome of the Greek new elections,” said Christoph Riniker, head of strategy research at Julius Baer Group Ltd. in Zurich. “Hence investors will be on the sell side in the short term. We need to see some confirmations before we’ll see a calming of the markets.”

Greeks head to the polls on June 17 after an inconclusive May 6 election in which a left-wing group opposed to spending cuts required for obtaining international aid came in the second place.

Banks Decline

Credit Suisse tumbled 10 percent to 17.01 Swiss francs, the lowest since September 1992, after the SNB said the lender needs a “marked increase” in capital this year to prepare for risks stemming from the region’s sovereign-debt crisis.

“For Credit Suisse, given the low starting point and the risks in the environment, it is essential that it already substantially expand its loss-absorbing capital base during the current year,” the SNB said in its annual financial stability report.

“The third dividend cut in three years may be a precursor to significant management changes, which will cause further uncertainty,” said Christopher Wheeler, an analyst with Mediobanca SpA. “In addition, while the bank has been vigorous in de-leveraging, it may have to do more and reduce its credit- trading risk appetite.”

The central bank, which also recommended that UBS boost capital, said improvements can be achieved by suspending dividend payments or selling new shares in addition to the banks’ plans for cutting assets. UBS fell 0.3 percent to 11.12 francs.

The SNB maintained the currency ceiling at 1.20 francs per euro and reiterated that it will uphold the measure “with the utmost determination.” It also kept its benchmark interest rate on hold, as projected by all 20 economists in a Bloomberg News survey.

Spanish Credit Rating

Moody’s yesterday cut Spain’s rating three steps to Baa3, one level above junk, from A3, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1. Spain’s 10-year bond yield rose to a euro-era record today.

Italy’s yields reached the highest in almost five months as the Mediterranean nation prepared to auction 4.5 billion euros ($5.7 billion) of three-, seven- and eight-year bonds. Its borrowing costs climbed at a sale of 12-month bills yesterday.

In the U.S., a Labor Department report showed that first- time applications for unemployment benefits unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated. Economists had forecast a drop to 375,000, according to the median estimate in a Bloomberg News survey.

Swatch, the world’s largest watchmaker, fell 2.4 percent to 356 francs, while Richemont, the owner of the Cartier brand, retreated 1.7 percent to 52.05 francs.

Holcim Ltd. (HOLN) lost 1.4 percent to 49.53 francs.

Sika AG, Europe’s biggest maker of chemicals used in construction, slid 4.9 percent to 1,778 francs on its first day trading on the 30-company Swiss Leader Index.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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