Credit Suisse Plunges Hard Putting Market Rally At Risk; What's Going On With The Swiss Bank

Credit Suisse Group AG CS shares were plunging in premarket trading on Wednesday after its biggest shareholder ruled out continued financing support.

What Happened: Shares of the Swiss lender fell 1.18% on Tuesday despite the broader market recovery after it said it found material weaknesses in its financial reporting over the past two years due to ineffective internal controls.

The weakness is continuing into Wednesday, with the stock shedding about 20.7% and falling to a fresh low of $1.99 in premarket trading, according to Benzinga Pro data.

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The renewed selling came on the back of its biggest investor — Saudi National Bank — stating that it would not buy additional shares in Credit Suisse, Reuters reported. The Saudi bank reportedly said regulatory guidelines do not allow it to invest in over 10% of an entity. Reuters reported that the Middle East bank's stake in Credit Suisse is tantalizingly close to the mark.

Credit Suisse’s Swiss-listed shares traded down 22.19% and its credit default swap, which otherwise is the cost of insuring its bonds against potential default, has plummeted.

Weakness Spreads To Broader Market: Following the development, the European markets fell sharply and the U.S. index futures, which were showing modest losses, dropped precipitously.

The negative headline could spread panic in the market, which is already grappling with the collapse of a trio of banks in the U.S. The U.S. government’s decision to backstop deposits of the failed banks infused optimism and fueled a recovery on Tuesday.