Credit Suisse – With the demise of Silicon Valley Bank last week, another big issue has surfaced.
The Swiss National Bank wrote to Credit Suisse to express its willingness to provide financial assistance.
Hours later, the megabank accepted the offer in order to persuade investors that it had enough money to be sustainable.
The news
Credit Suisse obtained a loan of 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank.
Investors in the failing megabank decreased their stakes by 30% on Wednesday.
The loan was made with the purpose of progressively expanding liquidity, according to Credit Suisse.
They made the following official statement:
“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.”
Credit Suisse said it repurchased billions of dollars in debt in addition to the central bank loan to limit commitments and interest payments.
The loan package includes $2.5 billion worth of US bonds and €500 million (or $529 million) in euro bonds.
The bank
Credit Suisse, founded in 1856, is usually regarded as one of the most prominent financial institutions.
It is one of 30 organizations identified as a “globally systemically significant bank,” including Bank of America, Bank of China, and JP Morgan Chase, to name a few.
Asian stocks fell dramatically early Thursday.
They have rebounded from the lows produced by Credit Suisse’s behavior so far, encouraged by the bank’s perseverance and determination to restore public trust.
According to a joint statement published early Wednesday by the Swiss National Bank and Swiss financial market regulator FINMA, Credit Suisse met the strict capital and liquidity standards for banks critical to the broader financial system.
“If necessary, the SNB will provide CS with liquidity,” the statement said.
SVB’s impact
After the collapse of Silicon Valley Bank in the United States late last week, investors were on edge.
Credit Suisse shares were then sold by investors, driving the bank to a new low as its most prominent sponsor appeared to rule out further investment.
According to Swiss officials, the troubles of “some” US banks do not pose an urgent threat to Swiss financial markets.
“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” the authorities said.
No stake increase
After a capital increase in October, the Saudi National Bank has become Credit Suisse’s largest shareholder.
On Wednesday, Saudi National Bank Chairman Ammar Al Khudairy announced that the bank’s stake will not be raised.
“The answer is absolutely not, for many reasons,” said Al Khudairy. “I’ll cite the simplest reason, which is regulatory and statutory.”
“We now own 9.8% of the bank – if we go above 10% all kinds of new rules kick in, whether it be by our regulator or the European regulator or the Swiss regulator.”
“We’re not inclined to get into a new regulatory regime.”
Read also: Silicon Valley Bank collapse kicks off blame game
What happened?
Credit Suisse was a big Wall Street participant prior to recent blunders and compliance issues.
As a result of the errors, the bank’s image among clients weakened, and many key employees lost their jobs.
In the fourth quarter of 2022, customers withdrew 123 billion Swiss francs ($133 billion) from the bank.
Credit Suisse later announced a net loss of around 7.3 billion Swiss francs ($7.9 billion), suggesting that the firm was experiencing its biggest financial crisis since 2008.
In October, the bank announced a drastic reorganization plan that would result in the loss of 9,000 full-time employment.
The concept also included a part of its investment bank devoted to wealth management.
Others were suspicious of the reorganization, with the exception of Al Khudairy, who argued that the bank did not require extra cash.
Credit Suisse may not have enough capital to bear losses in 2023, according to Morningstar banking analyst Johann Scholtz, as funding costs rise.
“To stem client outflows and ease the concern of providers of wholesale funding, we believe Credit Suisse needs another rights [share] issue,” said Scholtz.
“We believe the alternative would be a break-up… with the healthy business – the Swiss bank, asset management, and wealth management and possibly some parts of the investment banking business – being sold off or separately listed.”
Impact
S&P Global Market Intelligence reported that the bank’s shares plunged 24% in Zurich on Wednesday.
They also said that the cost of acquiring credit Suisse default insurance had hit all-time highs.
The downturn expanded to other European financial equities, producing issues for banks in France, Germany, Italy, and the United Kingdom, among others.
- BNP Paribas
- Societe Generale
- Commerzbank
- Deutsche Bank
The stock fell 8% to 12%.
Although Credit Suisse’s problems are widely known, its assets of almost 530 billion Swiss francs ($573 billion) pose a higher risk.
Andrew Kenningham, Capital Economics’ chief European economist, wrote:
“[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the US. Credit Suisse is not just a Swiss problem but a global one.”
More problems
Despite its many problems, the Swiss bank is still being investigated.
On Tuesday, Credit Suisse suspended top executives’ bonuses after admitting to “material weaknesses” in financial reporting.
According to the bank’s annual report, the group’s internal control over financial reporting was unsatisfactory owing to a failure to anticipate potential risks to financial statements.
The bank is putting together a regulatory tightening plan.
Image source: CNBC
