London (CNN) Hours after the Swiss central bank said it was ready to provide financial support to Credit Suisse, the embattled megabank accepted the offer, hoping to reassure investors that it had the cash to stay afloat.
Credit Suisse said it would borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank. Investors sent shares of the nation’s second-biggest lender down as much as 30% on Wednesday.
The bank called the loan “a decisive action to preemptively strengthen its liquidity.”
“This additional liquidity would support Credit Suisse’s core businesses and customers as Credit Suisse takes the necessary steps to create a simpler, more focused bank built around customer needs,” the bank said in a statement.
In addition to the central bank loan, Credit Suisse also said it bought back billions of dollars of its own debt to manage its liabilities and interest payment costs. The offering is for $2.5 billion in US dollar bonds and 500 million euros ($529 million) in euro bonds.
The venerable but troubled bank, founded in 1856, is one of the largest financial institutions in the world and classified as a “globally systemically important bank”, along with only 30 others, including JP Morgan Chase, Bank of America and the Bank of China. .
Asian stocks fell sharply early in the day on Thursday but rebounded away from their lows after Credit Suisse’s action, buoyed by the bank’s determination to restore confidence in its operations.
Earlier on Wednesday, in a joint statement with Swiss financial market regulator FINMA, the Swiss National Bank (SNB) said Credit Suisse (CS) was complying with “strict capital and liquidity requirements” imposed on significant banks. for the broader financial system.
“If necessary, the SNB will provide liquidity to CS,” they said.
Already nervous after the failure of Silicon Valley Bank in the United States last week, investors dumped shares of the troubled Swiss bank earlier in the day, sending them to a new high after its largest backer funds seemed to rule out providing more funding. .
In their press release, the Swiss authorities indicated that the problems of “certain banks in the United States do not present a direct risk of contagion for the Swiss financial markets”.
“There is no indication of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” the statement continued.
Saudi donors ‘reluctant’ to increase funding
The president of the Saudi National Bank – Credit Suisse’s largest shareholder, following a capital raise last fall – said earlier on Wednesday that he would not increase his stake in Credit Suisse.
“The answer is absolutely no, for many reasons,” Ammar Al Khudairy told Bloomberg on the sidelines of a conference in Saudi Arabia. “I will cite the simplest reason, which is regulatory and statutory. We now own 9.8% of the bank – if we go over 10%, all sorts of new rules come into effect, whether by our regulator or the regulator European or the Swiss regulator,” he said. “We are not inclined to enter a new regulatory regime.”
Once a major player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance lapses in recent years that have damaged its reputation with clients and investors and cost many their jobs. senior executives.
Clients withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year – mostly in the fourth quarter – and the bank posted an annual net loss of almost 7.3 billion Swiss francs (7, $9 billion), its largest since the 2008 global financial crisis.
In October, the lender embarked on a “drastic” restructuring plan that involves cutting 9,000 full-time jobs, splitting up its investment bank and focusing on wealth management.
Al Khudairy said he was happy with the restructuring, adding that he did not believe the Swiss lender would need additional money. Others are not so sure.
Johann Scholtz, European banking analyst at Morningstar, said Credit Suisse may no longer have enough capital to absorb losses in 2023 as its funding costs become prohibitive.
“To stem client outflows and allay concerns from wholesale funding providers, we believe Credit Suisse needs another right [share] question,” he commented on Wednesday. “We think the alternative would be a break … with the healthy businesses – Swiss banking, asset management and wealth management and possibly parts of the business of investment banking – being sold or separately listed.”
“Not just a Swiss problem”
Shares of the bank were last down 24% in Zurich on Wednesday, and the cost of buying default risk insurance from Credit Suisse hit a new record high, according to S&P Global Market Intelligence.
The crash spread to other European banking stocks, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8% and 12%. Italian and British banks also collapsed.
Two prudential sources told Reuters that the ECB had contacted the banks to ask them about their exposures to Credit Suisse. The ECB declined to comment.
While Credit Suisse’s problems were widely known, with assets of around 530 billion Swiss francs ($573 billion), it presents a much bigger potential headache.
“[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside of Switzerland, including in the United States,” wrote Andrew Kenningham, Chief Economist for Europe at Capital Economics. is not just a Swiss problem, but a global problem.”
The blows are linked for the second largest bank in Switzerland. On Tuesday, he acknowledged a “material weakness” in his financial reports and cut bonuses for senior executives.
Credit Suisse said in its annual report that it found “the group’s internal control over financial reporting to be not effective” because it failed to adequately identify potential risks to the financial statements.
The bank is urgently developing a “remediation plan” to strengthen its controls.
Speaking to Bloomberg TV on Tuesday, Credit Suisse CEO Ulrich Körner said the bank saw “good inflows” of money on Monday, even as markets spooked by the collapse of SVB and Signature. Bank in the United States.
Overall, the bank’s outflows have “considerably moderated” after customers withdrew 111 billion francs ($122 billion) in the three months to December, Körner added. In its annual report, the bank said the outflows had not yet reversed as of the end of last year.
— Olesya Dmitracova and Livvy Doherty contributed to this article.