After a decline in its share price heightened concerns of a global banks crisis, Credit Suisse (CSGN.S) attempted to bolster its liquidity and win back market confidence on Thursday by borrowing up to $54 billion from Switzerland’s central bank.
The Credit Suisse shares initially recovered from Wednesday’s 25% loss following the bank’s statement, which occurred in the middle of the night in Zurich, but lost some ground by late morning.
Following the intervention, the European banking index (.SX7P) initially increased but was almost unchanged by 1130 GMT, following days of significant losses due to investor concerns over potential bank pressures around the world.
Since the Global banks financial crisis of 2008, Credit Suisse is the first large bank to receive an emergency lifeline, and its problems have cast considerable doubt on the ability of central banks to continue aggressive interest rate increases.
Authorities have emphasized that because banks are now better capitalized and money, which almost instantly dried up in 2008, is more readily available, the situation is different from the Global banks financial crisis more than ten years ago.
The Swiss National Bank stated that it would lend liquidity to Credit Suisse in exchange for adequate collateral when the country’s second-largest bank announced it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion).
Following Wednesday’s assurances from Swiss authorities that Credit Suisse complied with “the capital and liquidity standards imposed on systemically important banks,” the action was taken.
Ulrich Koerner, the company’s chief executive, promised to swiftly implement a strategy to optimize processes while advising Credit Suisse personnel in a memo to concentrate on the facts.
Using an increased liquidity coverage ratio and recent capital increases as examples, Koerner stated that Credit Suisse would continue to concentrate on the change from a position of strength.
According to analysts, the actions will buy Credit Suisse some time to carry out its intended reorganization, albeit there may be other steps taken to reduce the size of the Swiss institution.
The majority of the worries surrounding the company before the recent events are still relevant (poor profitability),” Thomas Hallett of KBW wrote in a note to investors. “A liquidity injection reduces some near-term pressure. “We wouldn’t rule out the prospect of additional management restructuring pronouncements intended to further streamline the bank.”
The cost of insuring exposure to Credit Suisse debt fell from record highs as its shares made up some of the ground they lost on Wednesday when they fell by as much as 30%.
Bonds issued by BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE), and UBS also saw a little decrease in insurance protection.
The crisis at Credit Suisse would be discussed at an emergency meeting of the Swiss cabinet, according to Swiss media. The government opted not to respond.
Over the majority of the Asian day, stocks had been mired in the red as investors fled to the relative “safe havens” of gold, bonds, and the dollar. Even though Credit Suisse’s announcement caused some losses to be reduced, trade remained erratic and the sentiment was shaky.
There are no indications that a crisis of confidence in Credit Suisse is having an impact on the Japanese financial system, according to the head of Japan’s banking lobby.
After the most recent inflow of funds, Credit Suisse bankers in Asia phoned clients to reassure them.
We’ve been advising them to study the statements and consider the fact that we are purchasing bonds worth 3 billion francs because they are so inexpensive, according to a top banker in Hong Kong who declined to be identified.
EPICENTRE EUROPEAN
Due to the 167-year-old bank’s issues, investors and regulators have shifted their attention from the United States to Europe. Credit Suisse spearheaded a selloff of bank shares after the bank’s largest shareholder announced that it was unable to provide additional funding due to regulatory restrictions.
As investors anticipated a repeat of Lehman Brothers, the Wall Street behemoth whose fall precipitated the Global banks financial crisis, the failure of SVB last week, followed by that of Signature Bank two days later, sent bank stocks on a roller-coaster.
Two regulatory sources told Reuters that the European Central Bank had contacted banks under its supervision to question them about their exposure to Credit Suisse after the exit of the doors sparked concerns about a wider hazard to the financial system.
The U.S. Treasury added that it was keeping an eye on the circumstances surrounding Credit Suisse and in contact with its international counterparts.
NEXT ACTIONS
For some businesses, servicing or repaying loans has become more difficult as a result of rapidly rising interest rates, increasing the likelihood of losses for lenders who are already concerned about a recession.
Traders are currently wagering that the Federal Reserve, which was anticipated last week to speed up interest rate increases in response to persistent inflation, may stall or change course.
Increased skepticism surrounds the extent to which the European Central Bank will apply the brakes when it meets to discuss rates later on Thursday.
Investors are currently concentrating on Credit Suisse.
In order to calm the markets, the company’s CEO needs to take the next crucial step and reveal its new strategy to the public as soon as possible, according to Tareck Horchani, head of prime brokerage trading at Maybank Securities in Singapore.
