Credit Suisse borrows more than $50 billion from the Swiss National Bank after shares plunged 30%
London(CNN) Hours after Switzerland’s central bank said it was ready to provide financial support to Credit Suisse, the struggling megabank accepted the offer, hoping to reassure investors it had the cash needed to stay afloat .
Credit Suisse announced it would borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank. Investors caused shares of the country’s second-largest lender to plunge as much as 30% on Wednesday.
The bank called the loan a “decisive measure to preventively strengthen its liquidity”.
“This additional liquidity would support Credit Suisse’s core business and clients as Credit Suisse takes the necessary steps to create a simpler and more client-centric bank,” the bank said in a statement.
In addition to the loan from the central bank, Credit Suisse also said it has repurchased billions of dollars of its own debt to manage its debt and interest payment expenses. The offering includes US dollar bonds worth US$2.5 billion and euro bonds worth 500 million euros (US$529 million).
The venerable but ailing bank, founded in 1856, is one of the largest financial institutions in the world and is classified as a “global systemically important bank” along with just 30 others, including JP Morgan Chase, Bank of America and Bank of China.
Asian stocks fell sharply early in the day on Thursday but rallied wide off their lows following Credit Suisse’s action, buoyed by the bank’s determination to restore confidence in its operations.
In a joint statement with Switzerland’s financial market regulator FINMA, the Swiss National Bank (SNB) said earlier on Wednesday that Credit Suisse (CS) has met “strict capital and liquidity requirements” imposed on banks that matter to the broader financial system .
“If necessary, the SNB will provide liquidity to CS,” it said.
Earlier in the day, following last week’s collapse of the Silicon Valley bank in the United States, investors tumbled with shares of the ailing Swiss bank, plunging to a new record low after its biggest backer appeared to have stopped providing further funding.
The Swiss authorities said in their statement that the problems “of certain banks in the US do not pose a direct risk of contagion to the Swiss financial markets”.
“There is no evidence of a direct risk of contagion for Swiss institutions due to the current turbulence in the US banking market,” the statement continues.
Saudi backers ‘reluctant’ to increase funding
The chairman of the National Bank of Saudi Arabia – Credit Suisse’s largest shareholder after a capital increase last fall – said earlier Wednesday he would not be increasing his stake in Credit Suisse.
“The answer is absolutely no for many reasons,” Ammar Al Khudairy told Bloomberg on the sidelines of a conference in Saudi Arabia. “I will name the simplest reason, which is regulatory and legal. We now own 9.8% of the bank – if we exceed 10% all sorts of new rules will come into effect, be it from our regulator or the European regulator or the Swiss regulator,” he said. “We’re not inclined to get into a enter into a new regulatory system.”
Credit Suisse, once a big player on Wall Street, has been hit by a series of missteps and compliance violations in recent years that have tarnished its reputation with clients and investors and cost several top executives their jobs.
Clients withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year – mostly in the fourth quarter – and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion ), the largest since the global financial crisis in 2008.
In October, the lender launched a “radical” restructuring plan that includes cutting 9,000 full-time jobs, spinning off its investment bank and focusing on wealth management.
Al Khudairy said he was happy with the restructuring, adding that he didn’t think the Swiss lender needed any extra money. Others are not so sure.
Johann Scholtz, European banking analyst at Morningstar, said Credit Suisse may not have enough capital to absorb losses in 2023 as its funding costs become prohibitive.
“In order to curb client outflow and allay the concerns of wholesale finance providers, we believe Credit Suisse needs more rights [share] he commented on Wednesday. “We believe the alternative would be a break-up…with a sell-off or a separate sale of the healthy businesses – the Swiss bank, asset management and wealth management and possibly some parts of the investment banking business listed. “
“Not just a Swiss problem”
Shares of the bank were last down 24% in Zurich on Wednesday, and the cost of getting insurance against the risk of a Credit Suisse default hit a new record high, according to S&P Global Market Intelligence.
The plunge spilled over into other European banking stocks, with French and German banks including BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8% and 12%. Italian and British banks also collapsed.
Two regulatory sources told Reuters that the ECB had contacted banks to question them about their exposure to Credit Suisse. The ECB declined to comment.
While the problems at Credit Suisse were well known, with assets worth around 530 billion Swiss francs ($573 billion), it poses a much bigger potential concern.
“[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, it’s a global one.”
The second largest bank in Switzerland is repeatedly hit. On Tuesday, it acknowledged “material weaknesses” in its financial reporting and eliminated bonuses for top executives.
Credit Suisse said in its annual report that it found that “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to the financial statements.
The bank is urgently developing a “recovery plan” to strengthen its controls.
Speaking to Bloomberg TV, Credit Suisse CEO Ulrich Körner said the bank saw “materially good cash inflows” on Monday, despite markets being shocked by the collapse of SVB and Signature Bank in the United States.
Overall, outflows from the bank “reduced significantly” after customers withdrew 111 billion francs ($122 billion) in the three months ended December, Körner added. In its annual report, the bank said outflows had not reversed as of late last year.
— Olesya Dmitracova and Livvy Doherty contributed to this article.