Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Thursday, March 16. In today's briefing, we talk about how Credit Suisse was in free fall, dragging major banks' shares down, before Swiss regulators committed to a lifeline to the lender hard hit by concerns over its financial health. Goldman Sachs’ plan to shore up Silicon Valley Bank had a fatal flaw: It underestimated the danger that a deluge of bad news could spark a crisis of confidence, a development that can quickly fell a bank.

And in the latest creditor-on-creditor violence, a group of minority lenders to Mitel Networks Corp. is suing Apollo Global Management Inc., Anchorage Capital Group and other rival creditors, alleging the Canadian communication company’s private-equity owner favored the interests of its majority lenders in a restructuring deal.

Credit Suisse shares plunge. Swiss regulators said they would provide liquidity to Credit Suisse Group AG, if necessary, offering a lifeline to the lender hard hit by concerns over its financial health.

Investor confidence in Credit Suisse crumbled Wednesday, unleashing worries that a banking crisis centered among U.S. regional banks had spread across the Atlantic and was poised to unleash substantial damage to markets and the economy.

Before the regulator’s announcement, shares in the Swiss bank had slid 24% to a new low. Prices on its bonds fell to distressed levels, indicating investors were pricing in the possibility the bank could default. Credit Suisse’s U.S.-listed shares jumped in the minutes after the announcement, closing 14% lower, then recovered some of those losses in after-hours trading.

The selloff in Credit Suisse had quickly spread to European banks and sparked a furious and destabilizing rush toward the safety of government bonds. Traders reported difficulties buying and selling government bonds in the worst episode of market dysfunction since the panicky days when Covid-19 hit the world economy exactly three years ago.

Other big banks shed billions. First Republic Bank dropped more than 20% after the bank was downgraded by S&P Global and Fitch Ratings, which both pointed to the risk of deposit outflows at the bank. The stock closed at its lowest level since 2012 and is down more than 70% from a week ago. U.S. Bancorp and Synchrony Financial each fell more than 5%, and PNC Financial Services Group Inc. and Fifth Third Bancorp declined around 4%. Capital One Financial Corp. closed down about 3%. 

• First Republic was downgraded by four notches. S&P Global Ratings downgraded the bank’s rating by four notches to BB+ on Wednesday. The change gave the bank speculative grade, or “junk” status. Before the move, First Republic was deemed an A- credit, or solidly investment-grade. The ratings agency said First Republic faces elevated risk of deposit outflows and faces pressure to its profitability if it needs to use more costly funding options than deposits, such as wholesale borrowing. Moody’s Investors Service placed the bank under review for a possible downgrade on Monday. Moody’s rates First Republic Baa1, which is investment-grade status.

Moody’s Investors Service was preparing for a downgrade. The bank had to reset its finances to avoid a funding squeeze that would badly dent profits.

The conversations—held over the course of about 10 days—culminated in a March 8 announcement of a nearly $2 billion loss and a planned stock sale that badly spooked investors. SVB Financial Group shares tanked the next morning. Startup and venture-capital customers with big uninsured balances panicked, attempting to pull $42 billion out of the bank in a single day.

While few could have predicted the market’s violent reaction to the SVB disclosures, Goldman’s plan for the bank had a fatal flaw. It underestimated the danger that a deluge of bad news could spark a crisis of confidence, a development that can quickly fell a bank.

• Why Silicon Valley loved SVB. Silicon Valley Bank used financial sweeteners and strategic networking to attract both venture capitalists and their nascent tech companies. That strategy powered spectacular growth for decades–and left the sector extraordinarily vulnerable when the bank collapsed.
• A timeline of Silicon Valley Bank’s collapse. As the Federal Reserve began raising rates last year, venture capital dried up, leading startups to burn cash. To meet accelerating withdrawals, SVB was forced to sell off some of its government bonds at steep losses as yields on new bonds were much higher. Here’s a timeline of the events so far.
• SVB merch is hot. Silicon Valley Bank has collapsed, but branded company gear such as socks, hats and wine tumblers are selling like crazy.

Rise of the APEs. Tuesday was a lousy day to be an ape and a pretty decent one for some of their sworn enemies.

To be clear, the primates involved are all humans. “Apes” are social-media-inspired retail shareholders who took their nickname from the “Planet of the Apes” films—the remakes, not the 1968 original starring Charlton Heston. They are lovers of meme stocks like AMC Entertainment Holdings Inc. and haters of hedge funds.

Some of the sophisticated investment vehicles reaped a bonanza on Tuesday when the movie-theater chain said its shareholders had voted to allow it to sell more common shares to avoid financial distress. Last August, after two previous attempts to gain approval from its retail shareholder base had failed, the company decided to issue a stock dividend to each holder of its common shares, ticker symbol AMC, in the form of a preferred share with identical economic value, ticker symbol APE. The difference was that it could sell more of the latter, which it has been doing to shore up its finances. But the apes didn’t embrace APE, despite the cute ticker symbol, and its market value was inexplicably much lower. On Monday, AMC closed at $5.46 and APE at $1.73.

A Chinese businessman’s trek to fraud suspect. Chinese businessman Guo Wengui, who gained attention by lobbing corruption allegations at Beijing from a Manhattan penthouse and later launched a media company with Trump confidant Steve Bannon, was arrested Wednesday and accused of orchestrating a $1 billion fraud.

Mr. Guo took advantage of the hundreds of thousands of followers he amassed online, prosecutors alleged, by soliciting investments in his cryptocurrency, media and other companies. Instead, he used the money to buy a $26 million home in New Jersey, a yacht, a Ferrari and a $36,000 mattress, among other items, said the indictment, which charged Mr. Guo with 11 counts of fraud and money laundering. Prosecutors said they seized $634 million in criminal proceeds and assets that included a Lamborghini.

Mr. Guo pleaded not guilty at his arraignment in court on Wednesday afternoon and consented to his detention in a federal jail but is expected to make a bail application for his release at a later date. A lawyer for Mr. Guo declined to comment. Mr. Guo said on his official social-media account on Wednesday morning that Federal Bureau of Investigation agents had raided his home at roughly 5 a.m. Hours later the New York City Fire Department responded to a fire inside his home, a New York City official said. Fire marshals were investigating the cause of the blaze, the official said.

Mr. Guo’s prosecution, if successful, might ease an irritant in U.S.-China relations, which have been increasingly tense as the nations jockey for economic and military advantages.

Mr. Guo filed for personal bankruptcy in 2022 after a New York judge ordered him to pay $134 million in fines for having moved the Lady May out of state in violation of a court order.

Mitel creditors sue over debt deal. A group of minority lenders to Mitel Networks Corp. is suing Apollo Global Management Inc., Anchorage Capital Group and other rival creditors, alleging the Canadian communication company’s private-equity owner favored the interests of its majority lenders in a restructuring deal.

The plaintiffs, which include Bardin Hill Investment Partners LP, Benefit Street Partners LLC and other investment firms, allege they were “gutted” when Mitel improperly amended its credit agreements without their consent to push their loans down in the restructuring deal’s creditor pecking order behind $857 million in newly issued debt.

The firms filed their lawsuit Tuesday in the Supreme Court of New York in Manhattan. They are seeking an order voiding the restructuring deal as well as damages from other lenders, Mitel, and its owner, Searchlight Capital Partners LP.

Catholic Diocese of Albany files for bankruptcy. The Roman Catholic Diocese of Albany filed for bankruptcy on Wednesday, becoming the fifth diocese in New York state to seek chapter 11 protection to settle litigation involving childhood sex abuse.

All New York Catholic Diocese bankruptcy cases have been filed since the 2019 enactment of a New York state law opening a window to file time-barred civil cases over childhood sexual abuse. These bankruptcy cases have languished in courts, with survivors, the churches and their insurance companies at loggerheads over how much compensation victims should get.

The Albany Diocese has settled 50 out of 450 cases, but it doesn’t have the resources to resolve the rest outside of chapter 11, Bishop Edward Scharfenberger said in a video posted on the Diocese’s website Wednesday.

Bank collapses spotlight chapter 11 rules. A government lawyer faced questions in bankruptcy court about the rules for ensuring that bank deposits stay safe in chapter 11 after the recent failures of Signature Bank and Silicon Valley Bank.

Signature Bank was on the list of court-approved depository institutions available for use by  businesses in chapter 11, according to Judge Sean Lane of the U.S. Bankruptcy Court in New York, who asked in a court hearing Thursday if any changes were warranted in light of the bank’s failure.

The judge asked if the Justice Department’s Office of the U.S. Trustee “has any wisdom about what recent events tell us…about the adequacy of the system going forward, or tweaks to the system.”

“I don't expect you to have a comprehensive answer available right now, but I wanted to at least raise it,” Judge Lane said.

Justice Department lawyer Greg Zipes said that Signature Bank was indeed an authorized depository, which allows his office to monitor accounts held by bankruptcy estates. He said he wasn’t prepared to fully answer the judge’s question just yet, but his office is “monitoring and concerned about those issues.” — Akiko Matsuda

Fed rate increases less likely after bank failures, market turmoil. More investors anticipate that the Federal Reserve’s rate increase cycle could be over due to broader financial turmoil from the failure of two U.S. regional banks in the past week.

Investors in interest-rate futures markets on Wednesday saw a nearly 50% chance that the Fed won’t increase rates at their March 21-22 meeting, up from 30% on Tuesday, according to data compiled by CME Group. That would leave the federal-funds rate between 4.5% and 4.75%.

Officials have raised rates at each of their last eight policy meetings, spanning 12 months, in what has marked the most rapid series of increases since the early 1980s to combat inflation that last year touched a 40-year high. But the bank collapses and resulting turbulence have added a complicating additional factor for the Fed to weigh as it debates its next move on inflation.

• Retail sales slow. A drop in retail sales and easing price pressures in February offered preliminary signs of a cooling economy as the spread of financial turmoil on Wall Street called into question whether the Federal Reserve would continue raising interest rates.
• U.S. supplier prices fall. The producer-price index, which generally reflects supply conditions across the economy, fell 0.1% in February from the prior month, compared with a downwardly revised 0.3% increase in January, the Labor Department said Wednesday.

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