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Credit Suisse’s $54Bn  Lifeline Gives Global Banks Tentative Respite

 

 Credit Suisse (CSGN.S) sought to shore up its liquidity and restore investor confidence on Thursday by borrowing up to $54 billion from Switzerland’s central bank, after a slide in its shares intensified fears of a global banking crisis.

Shares in Credit Suisse briefly bounced from a 25% fall on Wednesday after its statement, which came in the middle of the night in Zurich, but then faded and last traded 20% higher.

Europe’s banking index (.SX7P) initially rose, but was down 0.3% by 1306 GMT, after days of heavy losses on investor fears over potential bank stresses across the world, which have also prompted calls for action by companies in other sectors.

Since March 8, before last week’s collapse of Silicon Valley Bank (SVB) European banks have lost around $165 billion in market value, Refinitiv data shows.

Credit Suisse is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis and its troubles have raised serious doubts over whether central banks will be able to sustain aggressive interest rate hikes.

However, the European Central Bank (ECB) raised interest rates by 50 basis points on Thursday as promised, underscoring the resilience of the euro area banking sector while assuring it had plenty of tools to offer liquidity support if needed.

The ECB said it was “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area”.

Policymakers have stressed that the situation now is different to the global financial crisis as banks are better capitalised and funds more easily available.

Allianz (ALVG.DE) one of Europe’s biggest financial firms, said that authorities were “well equipped” to deal with any liquidity crisis, “unlike what happened during” the global financial crisis of 2007 and 2008.

Switzerland’s second-largest bank said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank, which confirmed it would provide liquidity to Credit Suisse against sufficient collateral.

The move followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks”.

Chief Executive Ulrich Koerner told Credit Suisse staff in a memo they should focus on facts as he pledged to rapidly move forward with a plan to streamline operations.

Credit Suisse would continue to focus on the transformation from a position of strength, Koerner said, citing an improved liquidity coverage ratio and recent capital increases.

The bank’s stock market value has fallen by 90% since its peak in February 2007 of around $91 billion, to around $8.66 billion following a prolonged slide in its shares.

Analysts said that the measures will buy Credit Suisse time to carry out its planned restructuring, although there could well be further moves to pare back the Swiss lender.

“We would not exclude the possibility of further restructuring statements from management designed to further simplify the bank,” Thomas Hallett at KBW said in a note.

As its shares regained some ground, the cost of insuring exposure to Credit Suisse debt tumbled from record highs, while insurance protection on bonds issued by BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE) and UBS also inched back down.

Swiss media reported that Switzerland’s cabinet would hold an extraordinary meeting to discuss the situation. The government declined to comment.

Stocks had wallowed in the red as investors rushed to the relative “safe havens” of gold, bonds and the dollar through most of the Asian day. While Credit Suisse’s announcement helped trim some losses, trade was volatile and sentiment fragile.

Credit Suisse bankers contacted clients in Asia to reassure them after the latest inflow of funds.

“We’ve been telling them to read the statements and look at the fact that we are buying 3 billion francs worth of bonds because they are so cheap,” said a Hong Kong-based senior banker, who declined to be named.

The 167-year-old bank’s problems have shifted the focus for investors and regulators from the U.S. to Europe, where Credit Suisse led a bank share sell-off after its largest investor said it could not provide more funds due to regulatory constraints.

The concerns about Credit Suisse added to broader fears sparked by last week’s collapse of Silicon Valley Bank (SVB) (SIVB.O) and Signature Bank, two U.S. mid-size firms.

Investors are focused too on any action by central banks and other regulators elsewhere to restore confidence.

Policymakers in Australia and South Korea sought to reassure markets that banks in their jurisdictions were well-capitalised.

SVB’s demise last week, followed by that of Signature Bank two days later, sent bank stocks on a roller-coaster ride as investors feared another collapse like Lehman Brothers, the Wall Street giant whose failure sparked the global financial crisis.

The exit for the doors raised fears of a broader threat to the financial system, and two supervisory sources told Reuters that the ECB had contacted banks on its watch to quiz them about their Credit Suisse exposures.

The U.S. Treasury also said it was monitoring the situation around Credit Suisse and was in touch with global counterparts.
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Rapidly rising interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders already worried about a recession.

Traders are now betting that the Federal Reserve, which last week was expected to accelerate its interest rate hikes in the face of persistent inflation, may hit pause or reverse course.

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