Credit Suisse To Borrow $54 Billion From Swiss Central Bank

FILE - Grey clouds cover the sky over a building of the Credit Suisse bank in Zurich, Switzerland, on Feb. 21, 2022. (Ennio Leanza/Keystone via AP, File)

GENEVA (AP) — Swiss bank Credit Suisse said Thursday it will move to shore up its finances, borrowing up to $54 billion from the central bank after its shares plunged, dragging down other major European lenders in the wake of bank failures in the United States.

Credit Suisse said would exercise an option to borrow up to 50 billion francs ($53.7 billion) from the central bank.

“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,” the bank said.

Fanning new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the U.S., at one point, Credit Suisse shares lost more than a quarter of their value on Wednesday.

Advertisement

The share price hit a record low after the bank’s biggest shareholder — the Saudi National Bank — told news outlets that it would not put more money into the Swiss lender, which was beset by problems long before the U.S. banks collapsed. The Saudi bank is seeking to avoid regulations that kick in with a stake above 10%, having invested some 1.5 billion Swiss francs to acquire a holding just under that threshold.

AP23074550755529
A sign displays the name of Credit Suisse on the floor at the New York Stock Exchange in New York, Wednesday, March 15, 2023. (AP Photo/Seth Wenig)

The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits.

Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying, “We already took the medicine” to reduce risks.

When asked if he would rule out government assistance in the future, he said: “That’s not a topic. … We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”

Switzerland’s central bank announced late Wednesday that it was prepared to act, saying it would support Credit Suisse if needed. A statement from the bank did not specify whether the support would come in the form of cash or loans or other assistance. The regulators said they believed the bank had enough money to meet its obligations.

Possibility of more hidden troubles

A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.

Credit Suisse stock dropped about 30%, to about 1.6 Swiss francs ($1.73), before clawing back to a 24% loss at 1.70 francs ($1.83) at the close of trading on the SIX stock exchange. At its lowest, the price was down more than 85% from February 2021.

After the joint announcement from the Swiss National Bank and the Swiss financial markets regulator, the shares also made up some ground on Wall Street.

The stock has suffered a long, sustained decline: In 2007, the bank’s shares traded at more than 80 francs ($86.71) each.

With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.

AP23074636801098
FILE – The logo at a building of the Credit Suisse bank in Zurich, Switzerland, on Nov. 23, 2022.  (Michael Buholzer/Keystone via AP)

A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.

Credit Suisse stock dropped about 30%, to about 1.6 Swiss francs ($1.73), before clawing back to a 24% loss at 1.70 francs ($1.83) at the close of trading on the SIX stock exchange. At its lowest, the price was down more than 85% from February 2021.

After the joint announcement from the Swiss National Bank and the Swiss financial markets regulator, the shares also made up some ground on Wall Street.

The stock has suffered a long, sustained decline: In 2007, the bank’s shares traded at more than 80 francs ($86.71) each.

With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.

France’s Societe Generale SA dropped 12% at one point. France’s BNP Paribas fell more than 10%. Germany’s Deutsche Bank tumbled 8%, and Britain’s Barclays Bank was down nearly 8%. Trading in the two French banks was briefly suspended.

The STOXX Banks index of 21 leading European lenders sagged 8.4% following relative calm in the markets Tuesday.

Asian stocks fall after Wall St sinks

Asian stock markets tumbled Thursday after Wall Street sank as a plunge in Credit Suisse shares reignited worries about a possible bank crisis following the failure of two U.S. lenders.

Shanghai, Tokyo, Hong Kong and Sydney all dropped, reversing Wednesday’s gains. Oil prices edged higher.

Wall Street’s benchmark S&P 500 lost 0.7% on Wednesday after being down as much as 2.1% at one point following a 30% plunge in Credit Suisse’s share price. That fueled jitters about the strength of global banks that are under strain from interest rate hikes to cool inflation.

The Credit Suisse fall “shakes already fragile investor sentiment,” said Venkateswaran Lavanya of Mizuho Bank in a report.

Major banks in Asia were hit by heavy selling. Shares in Japan’s Mizuho Bank were down 3.9& while Resona Holdings, Japan’s No. 5 bank, fell 4.8%. In Hong Kong, Standard Chartered Plc lost 2.5% and HSBC was 2.5% lower.

Advertisement

The Shanghai Composite Index lost 0.4% to 3,250.63 after government data Wednesday showed the Chinese economy is recovering more slowly than expected following the lifting of anti-virus controls.

The Nikkei 225 in Tokyo retreated 0.9% to 26,974.39 and the Hang Seng in Hong Kong shed 1.3% to 19,297.81.

The Kospi in Seoul was 0.2% lower at 2,375.12 and Sydney’s S&P-ASX 200 sank 1.5% to 6,964.80.

Not just a Swiss problem

The turbulence came a day ahead of a meeting by the European Central Bank. President Christine Lagarde said last week, before the U.S. failures, that the bank would “very likely” increase interest rates by a half percentage point to fight against inflation. Markets were watching closely to see if the bank carries through despite the latest turmoil.

Credit Suisse is “a much bigger concern for the global economy” than the midsize U.S. banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.

It has multiple subsidiaries outside Switzerland and handles trading for hedge funds.

“Credit Suisse is not just a Swiss problem but a global one,” he said.

He noted, however, that the bank’s “problems were well known so do not come as a complete shock to either investors or policymakers.”

The troubles “once more raise the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. ”Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”

International rules

The Credit Suisse parent bank is not part of EU supervision, but it has entities in several European countries that are. Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.

Share prices plunged after Saudi National Bank Chairman Ammar Al Khudairy told Bloomberg and Reuters that the bank has ruled out further investments in Credit Suisse to avoid regulations that kick in with a stake above 10%.

The Saudi National Bank has invested some 1.5 billion Swiss francs to acquire a holding just under that threshold.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving Zurich rival UBS.

In an annual report released Tuesday, Credit Suisse said customer deposits fell 41%, or by 159.6 billion francs ($172.1 billion), at the end of last year compared with a year earlier.

___

McHugh reported from Frankfurt, Germany. Associated Press writers Joseph Krauss in Ottawa, Ontario, and Angela Charlton in Paris also contributed.