GENEVA – Credit Suisse stated Thursday that it will loan up to $54 billion from the Swiss central bank to help bolster its finances after its shares fell, negatively impacting other large European bankers in the aftermath of banking crises in the U. S. Credit Suisse seeks $54 billion lending from the Swiss Central Bank.
Credit Suisse announced that it would activate an option to receive up to 50 billion Swiss francs ($53.7 billion) from the central bank.
“This extra liquidity will strengthen Credit Suisse’s core operations and clients as Credit Suisse undertakes the required steps towards developing a simpler and much more streamlined bank centered around customer needs,” according to the bank.
Following the recent failures of Silicon Valley Bank as well as Signature Bank in the United States, Credit Suisse faced increased concerns about the soundness of financial institutions. Credit Suisse shares dropped by a quarter of their value on Wednesday.
The bank’s main shareholder, the Saudi National Bank, warned news agencies that it was not going to invest additional funds into the Swiss lender, which had been plagued by issues long before the collapse of the US banks. The Saudi bank is attempting to skirt laws that apply when a shareholding exceeds 10%, having spent 1.5 billion Swiss francs to purchase a stake just below that level.
The turbulence forced an immediate halt in trade of Credit Suisse stocks on the Swiss market, sending shares of rival European banks down by double digits in certain cases. Credit Suisse seeks $54 billion lending from the Swiss Central Bank.
Credit Suisse Chair Axel Lehmann backed the bank Wednesday at a finance conference in Riyadh, Saudi Arabia, saying, “We have absorbed the risk.”
“That’s not an issue,” he answered when questioned whether he’d rule out further government support. We are regulated. We have excellent capital ratios and a very robust balance sheet. We’re all hands on deck, so that’s not even a topic.”
Switzerland’s central bank said Wednesday Evening that it was ready to act and was willing to assist Credit Suisse if necessary. The bank’s announcement did not indicate whether the help would be in the form of money, loans, or other forms of aid. The regulators stated that they thought the bank had sufficient funds to meet its commitments.
Credit Suisse announced a day earlier that managers had discovered “significant deficiencies” in the bank’s financial reporting internal controls as of the end of last year casting further doubts about longevity.
Credit Suisse stock fell almost 30% to around 1.6 Swiss francs ($1.73) before recovering to a 24% loss at 1.70 Swiss francs ($1.83) at the closing of business on the SIX stock market. At its lowest point, the price has dropped by more than 85% since February 2021.
Following the joint announcement by the Swiss National Bank as well as the Swiss Financial Markets Authority, the shares recovered some ground on Wall Street.
The stock has been steadily declining: in 2007, the bank’s shares were worth more than 80 Swiss francs ($86.71).
Concerned about the likelihood of more concealed problems in the financial sector, investors sold bank equities quickly.
At one point, Societe Generale SA in France fell 12%. BNP Paribas of France plummeted more than 10%. Deutsche Bank in Germany fell 8%, and Barclays Bank in the United Kingdom fell roughly 8%. Trade in the two French banks got temporarily halted.
Following a day of relative quiet in the markets, the STOXX Banks index of 21 big European lenders fell 8.4%.
On Wednesday, stocks in the United States were uneven, also with the Nasdaq composite rising 0.1% while the S&P 500 fell 0.7%. The Dow Jones Industrial Average for the day finished 0.9% lower after suffering significant losses earlier in the afternoon.
Japanese banks maintained their downward trend, as Resona Holdings, the country’s fifth largest bank, plunged 5% and other big banks lost more than 3%.
The turmoil occurred just one day before the European Central Bank’s meeting. President Christine Lagarde stated last week, prior to the failures in the United States, that the bank would “very likely” raise interest rates by a half percent to combat inflation. Investors were watching to see if the bank would make it despite the recent turbulence.
According to Andrew Kenningham, chief Europe economist at Capital Economics, Credit Suisse is “a lot bigger problem for the global economy” than the failed midsize US banks.
It has several subsidiaries outside of Switzerland and conducts hedge fund trading.
“Credit Suisse is a global problem, not simply a Swiss one,” he remarked.
He did observe, though, that the bank’s “issues were widely recognized and do not come as a surprise to policymakers and investors.”
The difficulties “raise the question as to whether this represents the start of a worldwide catastrophe or merely another ‘eccentric’ case,” Kenningham wrote in a note. “Credit Suisse was widely regarded as Europe’s weak point, but it is hardly the only bank that has battled with low-profit margins in recent times.”
Exiting a Credit Suisse location in Geneva, Fady Rachid expressed concern regarding the bank’s stability. He intended to send money to UBS.
“I find it difficult to imagine that Credit Suisse would be able to overcome these challenges,” stated Rachid, a 56-year-old physician.
During a long time of low-interest rates as well as “very, very lax fiscal policy,” investors reacted to “a deeper structural problem” in banking, according to Sascha Steffen, a finance professor at the Frankfurt School of Finance and Management.
Banks “ought to take additional risks in order to generate any profit, and some banks conducted this much more sensibly than others.”
This week, European finance ministers stated that their banking system is not directly exposed to bank collapses in the United States.
Analysts say that after the international economic meltdown that followed the 2008 bankruptcy of US investment bank Lehman Brothers, Europe reinforced its banking safeguards by moving supervision of the largest banks to the central bank.
The parent bank of Credit Suisse is not subject to EU inspection, although it has subsidiaries in numerous European countries which are. Being one of 30 so-called globally systemically essential banks, or G-SIBs, Credit Suisse is bound by global regulations that require it to ensure economic buffers against losses.
The Swiss bank has also been urging investors to fundraise and implement a new strategy in order to overcome a slew of problems, including disastrous bets on hedge funds, recurrent shake-ups of its upper executives, and an espionage scandal involving Zurich competitor UBS.
Credit Suisse stated in their annual report released Tuesday that customer deposits declined 41%, or 159.6 billion francs ($172.1 billion), at the close of last year when compared to the prior year.
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