Credit Suisse’s stock rose 30% on Thursday as the company announced plans to shore up its finances by borrowing up to $54 billion from the Swiss central bank, boosting confidence as concerns about the financial system shifted from the United States to Europe. It was a sharp contrast to the day before, when shares of Credit Suisse, Switzerland’s second-largest commercial bank, fell 30% on the SIX stock exchange after its top shareholder declared it would not put more money into the business.
Credit Suisse announced that it will exercise an option to borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank
This brought down other European banks after the failure of some US banks raised concerns about the health of the global banking system. Following huge dips the day before, shares of France’s Societe Generale SA and BNP Paribas, Germany’s Deutsche Bank, and Britain’s Barclays Bank all rose on Thursday. Credit Suisse, which has been plagued by issues long before the bank failures in the United States, announced on Thursday that it will exercise an option to borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank.
“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.
The European Central Bank’s meeting on Thursday has been overshadowed by the banking crisis
The European Central Bank’s meeting on Thursday has been overshadowed by the banking crisis. Prior to the upheaval, ECB President Christine Lagarde stated that a hefty, half-point rate increase was “quite likely” to combat stubbornly high inflation. When European bank shares fell on Wednesday, experts said the conclusion of the meeting was difficult to predict, with some predicting the central bank will stick to a quarter-point rise. Higher interest rates combat inflation, but in recent days there has been fear that they may have resulted in hidden losses on bank balance sheets.
Credit Suisse Chairman Axel Lehmann defended the bank on Wednesday at a finance conference in Riyadh, Saudi Arabia, saying, “We already took the medicine” to reduce risks. When asked if he would rule out government support in the future, he replied, “That’s not a topic. We’re governed. We have good capital ratios and a very robust balance sheet. We’re all hands on deck, so that’s not a topic.” With the recent failures of Silicon Valley Bank and Signature Bank in the United States, Credit Suisse’s share price hit a record low on Wednesday.
It happened after the Saudi National Bank notified news agencies that it would not be injecting additional funds into the Swiss institution. The Saudi bank is attempting to skirt laws that apply when a shareholding exceeds 10%, having spent 1.5 billion Swiss francs to purchase a stake just below that level. The turbulence forced an immediate halt in trading of Credit Suisse shares on the Swiss market, sending shares of rival European banks down by double digits in certain cases. The stock has been steadily declining: it is now worth 2.10 Swiss francs, compared to more than 80 francs ($86.71) in 2007.
Credit Suisse disclosed earlier this week that as of the end of last year, managers had detected “significant vulnerabilities” in the bank’s internal controls
Switzerland’s central bank said late Wednesday that it was ready to act and that it would assist Credit Suisse if necessary. Authorities stated that they believed the bank had sufficient funds to meet its obligations. Credit Suisse disclosed earlier this week that as of the end of last year, managers had detected “significant vulnerabilities” in the bank’s internal controls on financial reporting. This raised fresh concerns about the bank’s ability to weather the storm.
According to Andrew Kenningham, chief Europe economist at Capital Economics, Credit Suisse is “a lot bigger problem for the global economy” than the failed midsize US banks. It has several subsidiaries outside of Switzerland and handles hedge fund trading. “Credit Suisse is a global problem, not simply a Swiss one,” he remarked. Nonetheless, he highlighted that the bank’s “issues were widely recognized and do not come as a complete surprise to either investors or policymakers.”
The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. ”Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”
Fady Rachid, leaving a Credit Suisse branch in Geneva, expressed concern about the bank’s health. He intended to send money to UBS. “I find it difficult to imagine that Credit Suisse would be able to overcome these challenges,” said Rachid, a 56-year-old doctor. During a lengthy period of low-interest rates and “very, very lax monetary policy,” investors responded to “a deeper structural problem” in banking, according to Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.
Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses
Banks “ought to take additional risks in order to generate any profit, and some banks did this more sensibly than others.” This week, European finance ministers stated that their banking system is not directly exposed to bank collapses in the United States. Analysts say that after the global financial crisis that followed the 2008 bankruptcy of US investment bank Lehman Brothers, Europe reinforced its banking safeguards by moving supervision of the largest banks to the central bank.
The parent bank of Credit Suisse is not subject to EU inspection, although it has subsidiaries in numerous European countries that are. Being one of 30 so-called globally systemically important banks, or G-SIBs, Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses.
The Swiss bank has been urging investors to fundraise and implement a new strategy in order to overcome a slew of problems, including disastrous bets on hedge funds, recurrent shake-ups of its top management, and an espionage scandal involving Zurich competitor UBS. Credit Suisse said in an annual report released Tuesday that customer deposits declined 41%, or 159.6 billion francs ($172.1 billion), at the end of last year compared to the previous year.