Strong areas of turbulence for the banking sector after the banking failure of the American bank Silicon Valley Bank (SVB). Eyes – worried – are now turned to Credit Suisse in the aftermath of a nightmarish day for the second bank in the country which collapsed on the stock market. The Swiss banking giant announced on Thursday a short-term loan of up to 50 billion Swiss francs from the country’s central bank, .
“These steps are a decisive move to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” said the bank’s chief executive, Ulrich Körner, quoted in a statement. At the same time, the bank announced a series of debt buyback operations for around 3 billion Swiss francs.
A bank too big to fail
On Wednesday, Credit Suisse shares fell 24.24% at the close. The group, one of 30 banks in the world considered too big to fail, was now worth just under 6.7 billion Swiss francs.
After an astonishing silence, the central bank (SNB) and the policeman of the Swiss financial markets assured the group of their support on Wednesday evening. “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will make liquidity available to Credit Suisse,” said the SNB and Finma in a joint press release issued at the start of the evening.
Earlier in the day, the two most senior executives of Credit Suisse had already tried to reassure on the financial solidity of the banking giant but without succeeding in convincing the investors who inflicted on the action of the bank the worst fall in its history.
“Our liquidity base is very, very solid”
Perceived as the weak link in Switzerland, the establishment saw its share price drop by up to 30% to reach a new historic low at 1.55 Swiss francs despite the intervention of its president, Axel Lehmann and his director. General Ulrich Körner to try to straighten the bar.
For the SNB and Finma, “the current turbulence on the American banking market does not suggest that there is a risk of direct contagion for Swiss establishments”.
In an interview with the Channel News Asia television channel, retweeted by the bank, Ulrich Körner multiplied the reassuring words: “We are a solid bank, we are a bank of global dimension under Swiss regulation”. “We meet and exceed virtually all regulatory requirements,” he added, adding, “our capital, our liquidity base is very, very strong.”
Timid markets
The concern goes beyond the borders of the Alpine country and the US Treasury said “monitor the situation and be in contact with its international counterparts”. Investors remained worried this Thursday morning, the Asian stock markets opening sharply lower in the wake of the unscrewing the day before of the European places – Paris losing Wednesday evening 3.58% and London 3.83%, signing their worst session since March 2022.
The vertiginous fall of the title began after statements by the president of the Saudi National Bank, the largest shareholder of Credit Suisse. The Saudis came to the rescue of the bank by entering its capital in November. But the Saudi National Bank has “absolutely no” plans to inject more money, mainly for regulatory reasons, said Ammar al-Khudairy, its chairman.
The Saudi National Bank holds a 9.8% stake. But under Swiss law, the market policeman, Finma, should decide if it crossed the 10% threshold.
Credit Suisse has been in turmoil since the bankruptcy of the British financial company Greensill, which marked the start of a series of scandals. Since March 2021, the stock has lost more than 83% of its value.
The SVB case
“The pressure on Credit Suisse has hit an already nervous market,” Rabobank analyst Jane Foley told AFP. Investors are worried about the risk of contagion after the bankruptcy of the American bank SVB.
But if Credit Suisse were to face “existential problems”, then “we would be facing something of a whole other dimension”, underlined Neil Wilson, analyst at Finalto in a market commentary.
Unlike SVB, Credit Suisse is one of 30 global banks considered too big to fail, which imposes stricter regulations on it to be able to withstand the shock in the event of difficulty. Credit Suisse launched a restructuring program in October in an attempt to recover. But some shareholders ended up throwing in the towel.
In early February, Credit Suisse disclosed a net loss of 7.3 billion Swiss francs (nearly 7.4 billion euros) for the 2022 financial year and warned that it still expected a “substantial” pre-tax loss in 2023.