Credit Suisse will borrow up to nearly $54 billion from Swiss central bank in bid to calm fears

Shares of Credit Suisse jumped as much as 30 percent on Thursday after it announced it would shore up its finances by borrowing about $54 billion from the Swiss central bank, boosting confidence as the banking system in the U.S. Fears of moving to Europe have increased.

That was a massive swing from a day earlier, when shares in Switzerland’s second-biggest commercial bank plunged 30 percent on the Six Stock Exchange after its largest shareholder said it would not. Put more money into Credit Suisse..

It dragged down other European banks after the collapse of some US banks, raising concerns about the health of global banks. European bank shares edged up slightly on Thursday, with the Euro Stoxx banks index of 21 leading lenders up 1.6 percent, after a sharp 8.4 percent drop on Wednesday. Bank stalwarts such as Commerzbank, Santander, Unicredit and Raiffaisen rose more than 2%.

Credit Suisse, which was troubled long before the U.S. bank failed, said on Thursday it would exercise an option to borrow up to 50 billion francs ($53.7 billion) from the Swiss National Bank.

“This additional liquidity will support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank that meets client needs,” the bank said.

The European Central Bank’s meeting on Thursday has been overshadowed by the banking crisis. Before the chaos began, ECB chief Christine Lagarde said it was “very likely” the bank would raise rates by half a percentage point to tackle stubbornly high inflation.

After European bank shares fell on Wednesday, analysts said the outcome of the meeting was hard to predict, with some saying the central bank could return to a quarterly hike. Higher rates combat inflation, but have fueled concerns in recent times that they could lead to hidden losses on bank balance sheets.

Speaking at a financial conference in the Saudi capital Riyadh on Wednesday, Credit Suisse Chairman Axel Lehman defended the bank, saying “we had already taken medicine to reduce the risks”.

Asked if he would rule out government aid in the future, he said: “It’s a non-issue. … We’re regulated. We have strong capital ratios, a very strong balance sheet. We’re all on deck, so it’s not. Any subject.”

fueling fresh concerns about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank In the US, Credit Suisse shares hit record lows on Wednesday.

It came as the Saudi National Bank told news agencies it would not be putting any more money into the Swiss lender. The Saudi bank is seeking to avoid regulations that apply with stakes above 10%, having invested about 1.5 billion Swiss francs to get holdings below that threshold.

The turmoil triggered a self-imposed pause in trading in Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. The stock has suffered a long, steady decline: It now trades at 2.10 Swiss francs, while in 2007, it was more than 80 francs ($86.71) each.

Switzerland’s central bank announced late Wednesday that it was ready to take action, and said it would help Credit Suisse if needed. Regulators said they were confident the bank had enough cash to meet its obligations.

Credit Suisse reported earlier this week that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting as of the end of last year. This raised fresh doubts about the bank’s ability to weather the storm.

Credit Suisse’s “internal control over financial reporting was not effective because it did not design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements,” the bank said in its annual report. said in the statement. ReportsReleased on Tuesday.

“Great Concern”

Concerns about the accuracy of Credit Suisse’s financial reporting and its relationship with investors came under scrutiny after the 2021 meltdown. Greencell Capital And Archigos Capital Management. Credit Suisse posted a net loss of $8 billion in 2022, its biggest annual loss ever.

Andrew Cunningham, chief Europe economist at Capital Economics, said Credit Suisse was a “huge concern for the global economy” given the collapse of mid-sized US banks.

It has a number of subsidiaries outside Switzerland and handles hedge fund trading.

“Credit Suisse is not just a Swiss problem but a global problem,” he said.

However, he noted that the bank’s “problems were well known so investors or policymakers were not completely shocked.”

The concerns “once again raise questions about whether this is the start of a global crisis or just another ‘deprivation’ case,” Cunningham said in a note. “Credit Suisse was widely seen as the weakest link among Europe’s big banks, but it is not the only bank that has struggled with weak profitability in recent years.”

Leaving a Credit Suisse branch in Geneva, Fidi Rachid said he and his wife were worried about the bank’s health. He planned to transfer some of the money to UBS.

“I find it hard to believe that Credit Suisse will be able to get rid of these problems and get out,” said Dr. Ratched, 56.

Sascha Steffen, professor of finance at the Frankfurt School of Finance and Management, said investors responded to “a broader structural problem” in banking after a long period of low interest rates and “very, very loose monetary policy”.

To get some yield, banks “needed to take on more risk, and some banks did it more wisely than others.”

European finance ministers said this week that US bank failures have no direct impact on their banking system.

Europe strengthened its banking safeguards by transferring oversight of the biggest banks to the central bank after the global financial crisis following the collapse of US investment bank Lehman Brothers in 2008, analysts said.

Credit Suisse’s parent bank is not part of EU supervision, but it has subsidiaries in several European countries. Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.

The Swiss bank is urging investors to come up with a new strategy to raise money and overcome headwinds, including bad bets on hedge funds, frequent changes in its top management and involvement in Zurich rival UBS. Spy scandals are involved.

In an annual report released Tuesday, Credit Suisse said consumer deposits at the end of last year fell 41 percent, or 159.6 billion francs ($172.1 billion), from a year earlier.