March 16 (Reuters) – Credit Suisse (CSGN.S) said on Thursday it would borrow up to $54 billion from the Swiss central bank to bolster liquidity and investor confidence after a slump in its shares raised fears of a global banking crisis .
The Swiss bank’s announcement on Thursday helped counter heavy selling in financial markets during morning trading in Asia following torrid sessions in Europe and the United States overnight as investors worried about possible runs on global markets. bank deposits.
In its Thursday statement, Credit Suisse said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the central bank. That followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and that it would have access to central bank liquidity if needed.
Credit Suisse is the first major world bank to bail out since the 2008 financial crisis, and the troubles have cast serious doubts on whether central banks can continue their fight against inflation with aggressive rate hikes.
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Asian stocks followed the fall of Wall Street on Thursday and investors bought gold, bonds and the dollar. While the bank’s announcement helped reduce some of those losses, trading was volatile and sentiment fragile.
“It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we bump monetary policy, the more we have to live with higher inflation – and what will it be? ?” said Damien Boey, chief equity strategist at Barrenjoey in Sydney.
“Do bailouts make things better? On the one hand, you remove a source of risk for the markets, which is a clear and present danger. On the other hand, we’re fueling this paradigm of monetary policy that’s colliding with itself.”
Credit Suisse’s borrowings will be made under the secured loan facility and a short-term liquidity facility, fully backed by high-quality assets. It also announced offers of senior debt securities for cash of up to 3 billion francs.
“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.
Credit Suisse Chief Executive Ulrich Koerner had earlier on Wednesday sought to reassure investors about the lender’s strong liquidity.
“Our capital, our liquidity base is very, very strong,” Koerner told media. “We meet and exceed virtually all regulatory requirements.”
EUROPEAN EPIC CENTRE
The 167-year-old bank’s troubles have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a sell-off of bank shares after its largest investor said it could no longer provide financial assistance due to regulatory restrictions.
Concerns about Credit Suisse added to fears in the wider banking sector, sparked last week by the collapse of Silicon Valley Bank (SVB) (SIVB.O) and Signature Bank, two mid-sized US companies.
Investors are also focusing on any actions by central banks and other regulators elsewhere to restore confidence in the banking system, as well as potential corporate exposures to Credit Suisse.
Australian treasurer Jim Chalmers said on Thursday that the country’s banks were well capitalized and that he had called a meeting of key regulators and the central bank this week to discuss the collapse of the SVB. He did not specifically mention Credit Suisse.
The demise of SVB last week, followed by that of Signature Bank two days later, sent global banking stocks this week as investors feared another Lehman Brothers moment, the Wall Street giant whose failure has fueled the global financial crisis for more than a year. had caused. ten years ago.
Nervous markets had also discounted guarantees from US President Joe Biden and emergency measures that gave banks access to more funding.
On Wednesday, Credit Suisse stocks led to a 7% drop in the European banking index (.SX7P) as five-year credit default swaps for the flagship Swiss bank hit a new all-time high.
The investors’ departure for the doors sparked fears of a broader threat to the financial system, and two regulatory sources told Reuters that the European Central Bank had contacted banks during its watch to question them about their exposure to Credit Suisse.
The US Treasury Department also said it is monitoring the situation around Credit Suisse and is in contact with global counterparts, a Treasury Department spokesman said.
‘FLIGHT TO SAFETY’
Rapid increases in interest rates have made it more difficult for some companies to repay or repay loans, increasing the likelihood of losses for lenders who are also worried about a recession.
Traders are now betting that the Federal Reserve, which last week was expected to accelerate its rate hike campaign in the face of ongoing inflation, could be forced to pause and even reverse course.
Bets on a big rate hike from the European Central Bank at Thursday’s meeting also quickly evaporated amid growing fears about the health of the European banking sector. Money market prices suggested that traders now saw less than a 20% chance of a rate hike of 50 basis points at the ECB meeting.
Unrest after the demise of the SVB has also prompted savers to look for a new home for their money.
Ralph Hammers, CEO of Credit Suisse rival UBS, said the market turmoil has sent more money his way and Christian Sewing, CEO of Deutsche Bank (DBKGn.DE), said the German lender has also seen deposits coming in.
Additional reporting by Akriti Sharma in Bengaluru, Rae Wee in Singapore Written by Deepa Babington and Sam Holmes Edited by Matthew Lewis and Shri Navaratnam
Our Standards: The Thomson Reuters Principles of Trust.
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