Credit Suisse borrows 50 billion Swiss francs from the central bank

Credit Suisse is trying to calm the financial markets. The banking institution announced on Thursday a short-term loan of up to 50 billion Swiss francs (or roughly the euro equivalent) from the country’s central bank. The decision comes a day after a nightmarish day for the country’s second-largest bank, which crashed on the stock market.

At the same time, the bank announced a series of debt buybacks worth around CHF 3 billion. “These steps are a decisive step towards strengthening Credit Suisse as we continue our strategic transformation to benefit our clients and other stakeholders,” said bank chief executive Ulrich Körner.

These decisions had a positive impact on the opening of the exchange. The stock recovered very strongly, from 30.82% to 2.22 Swiss francs. Several other European markets also opened the session in positive territory. Thus, Paris and Frankfurt scored +1.48% and +1.61%, respectively. London opened up 1.4%.

On Wednesday, Credit Suisse shares fell 24.24% by close. The group, one of 30 banks in the world deemed too big to fail, is now worth just under 6.7 billion Swiss francs. After surprising silence, the central bank (SNB) and the Swiss financial markets policeman assured the group of their support on Wednesday evening. “Credit Suisse meets the capital and liquidity requirements for systemically important banks. If necessary, the SNB will provide liquidity to Credit Suisse,” the SNB and Finma (Swiss Financial Markets Authority) said in a joint statement released in the early evening.

The US is “monitoring the situation”

Earlier in the day, two of Credit Suisse’s most senior executives had already tried to reassure the banking giant’s financial strength, but failed to convince investors, who caused the bank’s shares to suffer the worst drop in its history. Perceived as a weak link in Switzerland, establishment shares fell 30% to a new all-time low of 1.55 Swiss francs, despite the intervention of its president Axel Lehmann and Ulrich Körner trying to raise the bar.

For SNB and Finma, “the current instability in the US banking market does not suggest that there is a risk of direct infection of Swiss institutions.” In an interview with Channel News Asia, Ulrich Körner made many encouraging remarks. “We are a reliable bank; we are a global bank under Swiss law. We meet and exceed virtually all regulatory requirements. Our capital, our liquidity base is very, very reliable.” However, the concern transcends borders, with the US Treasury Department saying it is “monitoring the situation and in contact with its international counterparts.”

An institution with structural problems

Investors remain concerned this Thursday morning, Asian stock markets opened sharply lower after falling European markets (-3.58% in Paris on Wednesday and -3.83% in London). The dizzying fall of the title began after the statements of the President of the National Bank of Saudi Arabia, the largest shareholder of Credit Suisse. The Saudis flew in to help the bank, entering its capital in November 2022. But the National Bank of Saudi Arabia has “absolutely no intention” of injecting more money, largely for regulatory reasons. The National Bank of Saudi Arabia owns 9.8% of the shares. But under Swiss law, Finma had to decide if it would exceed the 10 percent threshold.

Credit Suisse is in turmoil following the bankruptcy of British financial firm Greensill, which set off a series of scandals. Since March 2021, the stock has lost over 83% of its value. “The pressure on Credit Suisse has hit an already nervous market,” said Rabobank analyst Jane Foley. Investors are worried about the risk of infection after the bankruptcy of the US bank SVB. But if Credit Suisse were to face “existential issues,” then “we would be facing something from a completely different dimension,” Neil Wilson, an analyst at Finalto, said in a market commentary.

As one of the institutions deemed too big to fail, Credit Suisse is subject to strict rules to withstand shock in the event of difficulties. In October 2022, the bank launched a restructuring program to try to recover. But some shareholders eventually gave up. In early February, Credit Suisse reported a net loss of 7.3 billion Swiss francs (nearly 7.4 billion euros) for fiscal year 2022 and warned that a “significant” pre-tax loss is still expected in 2023.