Credit Suisse – With the collapse of Silicon Valley Bank last week, another major concern has emerged.
The Swiss National Bank wrote to Credit Suisse to announce its willingness to lend money.
The megabank accepted the offer hours later in order to persuade investors that it had enough money to be viable.
The news
The Swiss National Bank granted Credit Suisse a loan of 50 billion Swiss francs ($53.7 billion).
On Wednesday, investors in the failed megabank reduced their holdings by 30%.
According to Credit Suisse, the loan was made with the intention of gradually increasing liquidity.
They issued the following formal statement:
“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.”
Credit Suisse stated that, in addition to the central bank loan, it repurchased billions of dollars in debt in order to decrease commitments and interest payments.
The financing package comprises American bonds worth $2.5 billion and euro bonds worth €500 million (or $529 million).
The bank
Credit Suisse, which was formed in 1856, is widely recognized as one of the most influential financial firms.
It is one of 30 corporations designated as a “globally systemically significant bank,” including, among others, Bank of America, Bank of China, and JP Morgan Chase.
Early Thursday, Asian equities plummeted precipitously.
They have recovered from the lows caused by Credit Suisse’s actions thus far, buoyed by the bank’s resilience and willingness to reestablish public trust.
Credit Suisse satisfied the tight capital and liquidity rules for banks vital to the broader financial system, according to a joint statement issued early Wednesday by the Swiss National Bank and Swiss financial market regulator FINMA.
“If necessary, the SNB will provide CS with liquidity,” the statement said.
SVB’s impact
Investors were on edge following the failure of Silicon Valley Bank in the United States late last week.
Investors then dumped Credit Suisse shares, sending the bank to a new low as its most important sponsor appeared to rule out additional investment.
The problems of “certain” American institutions, according to Swiss officials, do not constitute an imminent risk to Swiss financial markets.
“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” the authorities said.
No stake increase
The Saudi National Bank has become Credit Suisse’s largest shareholder following a capital increase in October.
Saudi National Bank Chairman Ammar Al Khudairy declared on Wednesday that the bank’s share will not be increased.
“The answer is absolutely not, for many reasons,” said Al Khudairy. “I’ll cite the simplest reason, which is regulatory and statutory.”
“We now own 9.8% of the bank – if we go above 10% all kinds of new rules kick in, whether it be by our regulator or the European regulator or the Swiss regulator.”
“We’re not inclined to get into a new regulatory regime.”
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What happened?
Prior to recent mistakes and compliance concerns, Credit Suisse was a major Wall Street player.
As a result of the mistakes, the bank’s reputation among customers suffered, and many important staff lost their jobs.
Customers withdrew 123 billion Swiss francs ($133 billion) from the bank in the fourth quarter of 2022.
Credit Suisse later disclosed a net loss of around 7.3 billion Swiss francs ($7.9 billion), implying that the company was in the midst of its worst financial crisis since 2008.
The bank revealed a radical reorganization plan in October, resulting in the loss of 9,000 full-time jobs.
The plan also includes a wealth management division within its investment bank.
Others were skeptical of the restructure, with the exception of Al Khudairy, who said that the bank did not require any additional funds.
According to Morningstar banking expert Johann Scholtz, Credit Suisse may not have enough capital to absorb losses in 2023 as funding costs rise.
“To stem client outflows and ease the concern of providers of wholesale funding, we believe Credit Suisse needs another rights [share] issue,” said Scholtz.
“We believe the alternative would be a break-up… with the healthy business – the Swiss bank, asset management, and wealth management and possibly some parts of the investment banking business – being sold off or separately listed.”
Impact
According to S&P Global Market Intelligence, the bank’s shares fell 24% in Zurich on Wednesday.
They also said that the cost of obtaining credit Suisse default insurance had reached an all-time high.
The decline spread to other European financial stocks, causing problems for banks in France, Germany, Italy, and the United Kingdom, among other countries, such as:
- BNP Paribas
- Societe Generale
- Commerzbank
- Deutsche Bank
The shares dropped 8% to 12%.
Notwithstanding Credit Suisse’s issues, its assets of about 530 billion Swiss francs ($573 billion) constitute a greater danger.
Capital Economics’ chief European economist, Andrew Kenningham, wrote:
“[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the US. Credit Suisse is not just a Swiss problem but a global one.”
More problems
Despite its numerous issues, the Swiss bank is still under investigation.
Credit Suisse halted top executive pay on Tuesday after admitting to “material shortcomings” in financial reporting.
The group’s internal control over financial reporting was inadequate, according to the bank’s annual report, due to a failure to anticipate possible risks to financial statements.
The bank is developing a regulatory tightening strategy.
