London (CNN) Hours after the Swiss central bank announced its willingness to provide credit to Credit Suisse, the beleaguered megabank accepted the offer, hoping to reassure investors that it had the money it needed to stay afloat.
Credit Suisse said it would borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank. Investors sent shares in the country’s second largest lender up as much as 30% on Wednesday.
The bank called the loan a “decisive action to pre-emptively strengthen liquidity”.
“This additional liquidity would support Credit Suisse’s core businesses and customers as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around customer needs,” the bank said in a statement.
In addition to the central bank loan, Credit Suisse also said it was buying back billions of dollars of its own debt to manage its debt and interest payments. The offer includes $2.5 billion in US dollar notes and €500 million ($529 million) in euro notes.
Founded in 1856, the venerable but troubled bank is one of the largest financial institutions in the world and categorized as a “Global Systemically Important Bank” along with just 30 others including JP Morgan Chase, Bank of America and the Bank of China.
Asian stocks fell sharply early Thursday, but recovered well from their lows following Credit Suisse’s move, encouraged by the bank’s determination to restore confidence in its business.
Earlier Wednesday, the Swiss National Bank (SNB) said in a joint statement with Swiss financial market regulator FINMA that Credit Suisse (CS) met the “strict capital and liquidity requirements” imposed on banks of importance to the broader financial system .
“If necessary, the SNB will provide CS with liquidity,” they said.
Already tense after the bankruptcy of Silicon Valley Bank in the United States last week, investors dumped shares in the embattled Swiss bank earlier in the day, plummeting to a new all-time low after the largest lender appeared to be ruling out providing any more funding .
In their statement, the Swiss authorities said the problems of “certain banks in the US do not pose a direct risk of contagion to Swiss financial markets”.
“There is no evidence of an immediate contagion risk for Swiss institutions as a result of the current turmoil in the US banking market,” the statement continued.
Saudi lenders ‘not inclined’ to increase funding
The chairman of the Saudi National Bank — Credit Suisse’s largest shareholder following a capital increase last fall — said earlier Wednesday that it would not increase its stake in Credit Suisse.
“The answer is definitely not for many reasons,” Ammar Al Khudairy told Bloomberg, on the sidelines of a conference in Saudi Arabia. “I will mention the simplest reason, which is regulatory and legal. We now own 9.8% of the bank – if we get above 10%, all sorts of new regulations kick in, be it by our regulator or the European regulator or the Swiss regulator,” he said. “We are not inclined to step into a new regulatory regime.”
Once a major player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance failures in recent years that have damaged its reputation with clients and investors and cost several top executives their jobs.
Customers withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year — mainly in the fourth quarter — and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion), its largest since the 2008 global financial crisis.
In October, the lender began a “radical” restructuring plan that includes cutting 9,000 full-time jobs, spun off the investment bank and focusing on asset management.
Al Khudairy said he was happy with the restructuring and added that he did not think the Swiss lender would need additional money. Others are not so sure.
Johann Scholtz, a European banking analyst at Morningstar, said Credit Suisse may no longer have enough capital to absorb losses in 2023 as funding costs became prohibitive.
“In order to counter customer outflows and address the concerns of wholesale finance providers, we believe that Credit Suisse needs another right [share] “We believe the alternative would be a breakup … with the healthy businesses – the Swiss bank, asset management and wealth management and possibly some parts of the investment banking business – sold off or listed separately.”
‘Not just a Swiss problem’
Shares of the bank last fell 24% on Wednesday in Zurich and the cost of buying insurance against the risk of Credit Suisse bankruptcy hit a new all-time high, according to S&P Global Market Intelligence.
The crash spilled over to other European banking stocks, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8% and 12%. Italian and British banks also collapsed.
Two regulatory sources told Reuters the ECB had contacted banks to question them about their exposure to Credit Suisse. The ECB declined to comment.
While Credit Suisse’s troubles were well known, with assets of about 530 billion Swiss francs ($573 billion), it presents a much bigger potential headache.
“[Credit Suisse] is much more globally connected, with multiple subsidiaries outside of Switzerland, including in the US,” wrote Andrew Kenningham, chief economist for Europe at Capital Economics. “Credit Suisse is not just a Swiss problem, but a global problem.”
The blows continue to come for Switzerland’s second largest bank. On Tuesday, it acknowledged “material weakness” in its financial reporting and cut bonuses for top executives.
Credit Suisse said in its annual report that it had determined that “the group’s internal control over financial reporting was ineffective” because it had not adequately identified potential risks to the financial statements.
The bank is urgently developing a “remediation plan” to strengthen its controls.
Speaking to Bloomberg TV on Tuesday, Ulrich Körner, CEO of Credit Suisse, said the bank saw “materially good inflows” of money on Monday even as markets were shaken by the collapse of SVB and Signature Bank in the United States.
Overall, the bank’s outflows were “significantly subdued” after customers withdrew 111 billion francs ($122 billion) in the three months to December, Körner added. In its annual report, the bank said that the outflow had not yet turned around at the end of last year.
— Olesya Dmitracova and Livvy Doherty contributed to this article.
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