Credit Suisse on Thursday said it will borrow as much as $54 billion from the Swiss central bank to shore up liquidity and investor confidence after a slump in its shares intensified fears about a world financial crisis.
The Swiss bank’s announcement helped stem heavy selling in financial markets in Asian morning trade on Thursday, following torrid sessions in Europe and the USA overnight as investors fretted about potential runs on global bank deposits.
In its statement early Thursday, Credit Suisse said it will exercise an choice to borrow from the central bank as much as 54 billion dollars. That followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically necessary banks” and that it could access central bank liquidity if needed.
The Credit Suisse logo on one among the buildings on the North Carolina campus on March 15, 2023.REUTERS
Credit Suisse is the primary major global bank to be given an emergency lifeline for the reason that 2008 financial crisis and its problems have raised serious doubts over whether central banks will find a way to sustain their fight against inflation with aggressive rate of interest hikes.
Asian stocks followed Wall Street’s tumble on Thursday and investors bought gold, bonds and the dollar. While the bank’s announcement helped trim a few of those losses, trade was volatile and sentiment fragile.
“It does help. It removes a right away risk. Nevertheless it confronts us with one other alternative. The more we do that, the more we blunt monetary policy, the more now we have to live with higher inflation — and what’s it going to be?” said Damien Boey, chief equity strategist at Barrenjoey in Sydney.
“Do bailouts make things higher? On the one hand, you’re removing a source of risk to the markets which is a transparent and present danger. Then again we’re feeding into this paradigm of monetary policy bucking inside itself.”
Credit Suisse’s borrowing shall be made under the covered loan facility and a short-term liquidity facility, fully collateralised by top quality assets. It also announced offers for senior debt securities for money of as much as 3.2 billion dollars.
“This extra liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the vital steps to create a less complicated and more focused bank built around client needs,” the bank said.
Credit Suisse Chief Executive Ulrich Koerner had earlier on Wednesday sought to reassure investors concerning the lender’s strong liquidity.
“Our capital, our liquidity basis may be very, very strong,” Koerner told media. “We fulfill and overshoot mainly all regulatory requirements.”
Credit Suisse Group AG, CEO Ulrich Koerner at an interview in London on March 14, 2023Bloomberg via Getty Images
EUROPEAN EPICENTER
The 167-year-old bank’s problems have shifted the main focus for investors and regulators from the USA to Europe, where Credit Suisse led a selloff in bank shares after its largest investor said it couldn’t provide more financial assistance due to regulatory constraints.
The concerns about Credit Suisse added to broader banking sector fears sparked by last week’s collapse of Silicon Valley Bank and Signature Bank, two U.S. mid-size firms.
Investor focus can be on any motion by central banks and other regulators elsewhere to revive confidence within the banking system in addition to any exposure businesses could have to Credit Suisse.
Silicon Valley Bank’s demise last week, followed by that of Signature Bank two days later, sent global bank stocks on a roller-coaster ride this week, with investors discounting assurances from U.S. President Joe Biden and emergency steps giving banks access to more funding.
On Wednesday, Credit Suisse shares led a 7% fall within the European banking index, while five-year credit default swaps for the flagship Swiss bank hit a recent record high.
The investor exit for the doors raised fears of a broader threat to the economic system, and two supervisory sources told Reuters that the European Central Bank had contacted banks on its watch to quiz them about their exposures to Credit Suisse.
The U.S. Treasury also said it’s monitoring the situation around Credit Suisse and is in contact with global counterparts, a Treasury spokesperson said.
‘FLIGHT TO SAFETY’
Rapid rises in rates of interest have made it harder for some businesses to pay back or service loans, increasing the possibilities of losses for lenders who’re also fearful a couple of recession.
Traders are now betting that the Federal Reserve, which just last week was expected to speed up its interest-rate-hike campaign within the face of persistent inflation, could also be forced to hit pause and even reverse course.
Bets on a big European Central Bank interest-rate hike at Thursday’s meeting also evaporated quickly on growing fears concerning the health of Europe’s banking sector. Money market pricing suggested traders now saw lower than a 20% likelihood of a 50 basis point rate hike on the ECB meeting.
The Credit Suisse campus in Research Triangle Park in Morrisville, North Carolina. REUTERS
Unease sparked by SVB’s demise has also prompted depositors to hunt down recent homes for his or her money.
Ralph Hammers, CEO of Credit Suisse rival UBS said market turmoil has steered extra money its way and Deutsche Bank CEO Christian Sewing said that the German lender has also seen incoming deposits.
