The announcement by Credit Suisse that it would borrow up to $54 billion from the Swiss central bank to support its finances saw its shares surge 30% on Thursday. This boosted confidence as concerns about the banking sector moved from the United States to Europe.
The shares of Switzerland’s second-largest commercial bank fell 30% in value on the SIX stock exchanges the day before after Credit Suisse’s largest shareholder announced it would stop investing in the company.
Once concerns about the stability of international banks were raised by the failure of some U.S. banks, this led to the collapse of other European banks. Following a significant 8.4% decline on Wednesday, European bank shares slightly recovered on Thursday, with the Euro Stoxx Banks index of 21 top lenders up 1.6%. Commerzbank, Santander, Unicredit, and Raiffaisen are all bank giants that saw their shares rise by more than 2%.
Credit Suisse announced on Thursday that it would exercise an option to borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank. Credit Suisse was plagued by issues even before the U.S. bank crises.
As Credit Suisse takes the required steps to establish a simpler and more focused bank built around client needs, the additional liquidity would support the company’s core businesses and clients, according to the statement.
The European Central Bank meeting on Thursday has been overshadowed by the financial turbulence. Christine Lagarde, the president of the ECB, had predicted that the bank would raise rates significantly—by half a percentage point—to combat persistently high inflation before the mayhem broke out.
Analysts said it was difficult to predict the meeting’s result after European bank shares fell sharply on Wednesday, with some speculating that the central bank would scale back its rate increase to a quarter-point. While higher rates work to combat inflation, recent days have seen an increase in worry that they might have resulted in undetected losses on bank balance sheets.
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.
With the recent failures of Silicon Valley Bank and Signature Bank in the United States, Credit Suisse’s share price fell to a record low on Wednesday, stoking further concerns about the stability of financial institutions.
It happened after the Saudi National Bank informed media outlets that it would not provide the Swiss lender with more funding. 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. The stock has had a lengthy, steady slide; it is currently trading at 2.10 Swiss francs, down from almost 80 francs ($86.71) in 2007.
Late on Wednesday, Switzerland’s central bank declared that it was ready to take action and that it would assist Credit Suisse if necessary. Authorities stated that they thought the bank had enough capital to cover its debts.
Credit Suisse stated earlier this week 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.
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 to trade 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 skepticism 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 maintains 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’s 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 by 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.
