Credit Suisse shares soar after central bank offers lifeline

GENEVA (AP) — Shares of Credit Suisse rose Thursday after the Swiss central bank agreed to lend the bank up to 50 billion francs ($54 billion) to bolster confidence in the country’s second-biggest lender after the collapse from two US banks.

Credit Suisse announced the deal before the Swiss stock market opened, sending shares up as much as 33% before settling around a 17% gain, to 2 francs ($2.15), in late afternoon trading. That was a huge turnaround from the day before, when news that the bank’s largest shareholder would stop injecting more money into Credit Suisse sent its shares down 30%. The fall in prices dragged other European banks down and deeper concerns about the international financial system.

European bank shares also rose slightly on Thursday.

The Swiss National Bank on Wednesday said it was ready to support Credit Suisse as it meets higher financial requirements imposed on “systemically important banks”, adding that the problems at some US banks do not pose a “direct risk of contagion” to Switzerland.

Regulators try to reassure savers that their money is safe. They “don’t want anyone to be the person who sits in a darkened room or darkened movie theater and yells fire, because that’s what causes a rush to the exit,” said Russ Mould, investment director at online investment platform AJ Bell.

Credit Suisse, which was plagued by problems long before U.S. banks went bust, said the central bank’s loans would give it time to complete a reorganization designed to create a “simpler and more focused bank.”

“These actions demonstrate a bold move to strengthen Credit Suisse as we continue our strategic transformation,” CEO Ulrich Koerner said in a statement.

Despite the banking turmoil, the European Central Bank approved a large rate hike of half a percentage point to try to curb stubbornly high inflation, saying the European banking sector is “resilient” with strong finances.

Luis de Guindos, Vice President of the European Central Bank, said at a press conference that European banks’ exposure to Credit Suisse is “quite limited”.

Higher rates fight inflation but recent days have fueled concerns that banks may have caused hidden losses on their balance sheets.

Central banks in the US and Europe have moved quickly to restore confidence after the collapse of Silicon Valley Bank last week, the second largest bank failure in US history.

US authorities moved quickly to guarantee all deposits held by the California-based bank and the smaller Signature Bank of New York. The US Federal Reserve also announced additional funding to ensure other banks could meet depositor needs.

Similarly, the UK government and the Bank of England facilitated the sale of Silicon Valley Bank’s UK arm to HSBC, one of Europe’s largest banks, to ensure customers would have access to their money.

The rapid response differs from what happened at the onset of the global financial crisis 15 years ago, when US authorities collapsed the investment banking giant Lehman Brothers.

The loans to Credit Suisse “should prevent a Lehman moment, much to the relief of markets and investors,” said Victoria Scholar, chief investment officer at the online investment service known as Interactive Investor. “This is a bank that has been around since 1865 and has played an important role in supporting the growth of the Swiss economy.”

ECB President Christine Lagarde said that during the financial crisis, banks are “in a totally different position than they were in 2008”.

After that crisis, Europe strengthened its banking guarantees by transferring supervision of the largest banks to the central bank.

“Crises are never exactly the same,” she said, “but the architecture of our banking system, the framework within which they operate, the oversight that is exercised over the banking system have all improved significantly.”

Banks are under pressure after interest rates rose rapidly after a long period of historically low interest rates.

To increase returns on their investments, banks had to take on more risks, and some “did so more cautiously than others,” said Sascha Steffen, a professor of finance at the Frankfurt School of Finance & Management.

As a result, some banks are now experiencing a shortage of “liquidity”, meaning they cannot sell assets fast enough to meet depositors’ demands.

Shares of Credit Suisse fell to a record low on Wednesday after the Saudi National Bank said it would not put more money into the Swiss lender to circumvent regulations that take effect if an investor’s holding rises above 10%.

Credit Suisse also reported that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting late last year. That sparked new doubts about the bank’s ability to weather the storm.

The stock has had a long, sustained decline: now trading for just over 2 francs ($2.15), the stock was valued at more than 80 francs ($86.71) in 2007.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to solve a range of problems, including bad bets on hedge fundsrepeated shake-ups from top management and a spy scandal involving Zurich rival UBS.

Outside a Credit Suisse branch, accountant David Glaus said on Thursday it was unlikely the Swiss government would allow such a major bank to fail, if only to protect the Swiss banking sector.

“It remains a Swiss bank. In the background, there are people who will support and protect it, because I don’t think it’s in our best interest if it goes bankrupt,” he said.

But he thinks the country has a fallback position to keep up appearances in the event of the worst.

“We still have chocolate and cheese anyway to keep up our image,” he said.


Kirka reported from London. AP reporters David McHugh in Frankfurt, Germany, Colleen Barry in Milan, and Joseph Krauss in Ottawa, Ontario, contributed.


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