Credit Suisse shares soar after announcing $87 billion central bank aid

Credit Suisse shares soared 30 per cent after it announced it will move to shore up its finances by borrowing up to nearly $87 billion from the Swiss central bank, bolstering confidence as fears about the banking system moved from the US to Europe.

It was a massive swing from a day earlier, when shares of Switzerland’s second-largest commercial bank plunged 30 per cent on the SIX stock exchange after its biggest shareholder said it would not put more money into the Swiss lender.

That dragged down other European banks after the collapse of some US banks stirred fears about the health of the global banks.

Credit Suisse, which was beset by problems long before the US bank failures, said Thursday that it would exercise an option to borrow up to 50 billion francs ($87 billion) from the central bank.

“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.

Fanning new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the US, at one point, Credit Suisse shares lost more than a quarter of their value Wednesday.

The share price hit a record low after the Saudi National Bank told news outlets that it would not inject more money into the Swiss lender. The Saudi bank is seeking to avoid regulations that kick in with a stake above 10 per cent, having invested some 1.5 billion Swiss francs to acquire a holding just under that threshold.

The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. The stock has suffered a long, sustained decline: Now it’s trading at 2.10 Swiss francs, while in 2007, it was at more than 80 francs each.

Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying, “We already took the medicine” to reduce risks.

The headquarters of Swiss bank Credit Suisse in Zurich, Switzerland. Photo / AP

When asked if he would rule out government assistance in the future, he said: “That’s not a topic. ... We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”

Switzerland’s central bank announced late Wednesday that it was prepared to act, saying it would support Credit Suisse if needed. A statement from the bank did not specify whether the support would come in the form of cash or loans or other assistance. The regulators said they believed the bank had enough money to meet its obligations.

A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.

With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.

The turbulence came a day ahead of a meeting by the European Central Bank. President Christine Lagarde said last week, before the US failures, that the bank would “very likely” increase interest rates by a half percentage point to fight against inflation. Markets were watching closely to see if the bank carries through despite the latest turmoil.

Credit Suisse is “a much bigger concern for the global economy” than the midsize US banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.

It has multiple subsidiaries outside Switzerland and handles trading for hedge funds.

“Credit Suisse is not just a Swiss problem but a global one,” he said.

He noted, however, that the bank’s “problems were well known so do not come as a complete shock to either investors or policymakers”.

The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case”, Kenningham said in a note. “Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”

Leaving a Credit Suisse branch in Geneva, Fady Rachid said he and his wife are worried about the bank’s health. He planned to transfer some money to UBS.

“I find it hard to believe that Credit Suisse is going to be able to get rid of these problems and get through it,” said Rachid, a 56-year-old doctor.

Investors responded to “a broader structural problem” in banking following a long period of low interest rates and “very, very loose monetary policy,” said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.

In order to earn some yield, banks “needed to take more risks, and some banks did this more prudently than others”.

European finance ministers said this week that their banking system has no direct exposure to the US bank failures.

Europe strengthened its banking safeguards after the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 by transferring supervision of the biggest banks to the central bank, analysts said.

The Credit Suisse parent bank is not part of EU supervision, but it has entities in several European countries that are. Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving Zurich rival UBS.

In an annual report released Tuesday, Credit Suisse said customer deposits fell 41 per cent, or by 159.6 billion francs, at the end of last year compared with a year earlier.