After its shares crashed, dragging down other large European lenders in the wake of bank collapses in the United States, the Swiss bank Credit Suisse announced Thursday that it will take steps to strengthen its finances by borrowing up to $54 billion from the central bank.
Credit Suisse announced that it would use a choice to borrow from the central bank up to 50 billion francs ($53.7 billion).
The bank stated that “this increased liquidity will assist Credit Suisse’s core operations and clients” while it took the required steps to transform into a more straightforward and client-centered institution.
The recent failures of Silicon Valley Bank and Signature Bank in the United States have stoked fresh concerns about the stability of financial institutions, and at one point on Wednesday, shares of Credit Suisse lost more than a quarter of their value.
The Saudi National Bank, the bank’s largest shareholder, warned news organisations that it would not invest more money in the Swiss lender, which was plagued by issues before the collapse of the U.S. banks, causing the share price to reach a record low. The Saudi bank spent almost 1.5 billion Swiss francs to acquire a holding just below the 10% threshold, and is now attempting to evade laws that apply to holdings over that level.
The unrest caused the trade of Credit Suisse shares on the Swiss market to automatically halt and sent shares of other European banks plummeting, sometimes by double digits.
Axel Lehmann, chairman of Credit Suisse, defended the bank in remarks made on Wednesday at a finance conference in Riyadh, the capital of Saudi Arabia. He said, “We already took the medicine” to lower risks.
When asked if he would rule out future government aid, he responded, “That’s not a discussion. We are governed. We have a very healthy balance sheet and strong capital ratios. That’s not even a topic because we are all on deck.
Late on Wednesday, Switzerland’s central bank declared that it was ready to take action and that it would assist Credit Suisse if necessary. The bank did not say in a statement if the support will be in the form of money, loans, or other kinds of help. The regulators stated that they thought the bank had sufficient funds to fulfil its obligations.
A day earlier, Credit Suisse disclosed that as of the end of the previous year, managers had discovered “significant deficiencies” in the bank’s internal controls over financial reporting. That stoked fresh concerns about the bank’s resilience in the face of the crisis.
Before recovering to a 24% loss at 1.70 Swiss francs ($1.83) at the closing of trading on the SIX stock exchange, Credit Suisse stock fell around 30%, to roughly 1.6 Swiss francs ($1.73). The price was more than 85% lower at its lowest point compared to February 2021.
The shares also gained some ground on Wall Street following the joint announcement from the Swiss National Bank and the Swiss financial markets regulator.
The share price has dropped steadily and over a lengthy period of time; in 2007, the bank’s shares were trading at more than 80 francs ($86.71) per.
With concerns about the prospect of additional concealed turmoil in the banking sector, investors were quick to liquidate bank equities.
Societe Generale SA of France saw a brief 12% decline. BNP Paribas in France decreased by more than 10%. Both the British Barclays Bank and the German Deutsche Bank had declines of around 8%. The two French banks’ trading was briefly halted.
Following Tuesday’s rather tranquil market conditions, the 21 top European lenders’ STOXX Banks index fell 8.4%.
On Wednesday, shares in US markets were mixed, with the Nasdaq composite edging up 0.1% while the S&P 500 fell 0.7%. After suffering greater losses earlier in the session, the Dow Jones Industrial Average finished 0.9% lower.
Resona Holdings, the fifth-ranked bank in Japan, slumped 5% while other significant banks fell by more than 3% as the country’s banks began their downward trend.
A day before the European Central Bank meeting, there was instability. Prior to the U.S. failings, President Christine Lagarde stated last week that the bank would “very likely” raise interest rates by a half percentage point to combat inflation. Investors were eagerly monitoring to see if the bank will continue despite the most recent unrest.
The midsize U.S. banks that failed were “a lot bigger risk for the global economy” than Credit Suisse, according to Andrew Kenningham, head economist for Europe at Capital Economics.
It manages trading for hedge funds and has several operations outside of Switzerland.
He declared, “Credit Suisse is not only a Swiss problem; it is a global problem.
Nonetheless, he pointed out that neither investors nor policymakers should be completely surprised by the bank’s issues because they were widely known.
According to a letter from Kenningham, the problems “again raise the question about whether this is the start of a worldwide crisis or just another ‘idiosyncratic’ occurrence. Yet, Credit Suisse is not the only bank that has battled with low profitability in recent years. Credit Suisse was largely seen as the weakest link among Europe’s large banks.
Fady Rachid expressed his concerns about the state of the bank as he and his wife left a Credit Suisse location in Geneva. He intended to send some cash to UBS.
The 56-year-old doctor Rachid expressed his scepticism that Credit Suisse would be able to overcome these issues.
After a protracted era of low interest rates and “very, very loose monetary policy,” investors reacted to “a deeper structural problem” in banking, according to Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.
Banks “needed to take more risks, and some banks did this more intelligently than others” in order to earn some yield.
This week, European finance ministers claimed that their banking systems are not directly impacted by the failures of American banks.
After the global financial crisis that followed the failure of the American investment bank Lehman Brothers in 2008, Europe tightened its banking safeguards by giving the central bank control over the largest banks, according to analysts.
The parent bank of Credit Suisse is not subject to EU inspection, although it has subsidiaries in a number of European nations that are. Being one of the 30 so-called globally systemically important banks, or G-SIBs, Credit Suisse is bound by international regulations that mandate it maintain financial buffers against losses.
In order to address a number of issues, including failed hedge fund bets, frequent changes to its top management, and an espionage scandal involving Zurich rival UBS, the Swiss bank has been seeking to acquire money from investors and implement a new strategy. According to Credit Suisse’s annual report, customer deposits decreased 41%, or by 159.6 billion francs ($172.1 billion), at the end of the previous year compared to the same period the previous year.