Swiss central bank throws financial lifeline to Credit Suisse after shares pummelled

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  • Credit Suisse said it would borrow up to $54 billion from Switzerland’s central bank to shore up liquidity and investor confidence.
  • Credit Suisse is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis.
  • JP Morgan analysts said that the measures will buy the Swiss lender time to carry out its restructuring.
  • 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.
  • Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high quality assets.

Credit Suisse said it would borrow up to $54 billion from Switzerland’s central bank to shore up liquidity and investor confidence, after a slump in its shares intensified fears about a global banking crisis. The bank’s announcement prompted a 24% rise in Credit Suisse shares and helped reverse some of the heavy losses on stock markets driven by investor fears over potential bank runs across the world.

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 their fight against inflation with aggressive interest rate hikes.

Switzerland’s second-largest bank said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the central bank. That followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and that it could access central bank liquidity if needed.

JP Morgan analysts said that the measures will buy the Swiss lender time to carry out its restructuring. “The combination of measures should be sufficient to stem the negative moves across the capital structure as the market priced in the potential impact of liquidity pressures,” it said. The head of Japan’s banking lobby said that there were no signs at the moment of the Japanese financial system being affected by a crisis of confidence in Credit Suisse, as Japanese banks are well-capitalised.

Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.

Credit Suisse would continue to focus on the transformation from a position of strength, citing an improved liquidity coverage ratio and recent capital raisings, Koerner said. Meanwhile, Credit Suisse bankers in Asia contacted clients to reassure them after the latest inflow of funds.

The 167-year-old bank’s problems have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a selloff in bank shares after its largest investor said it could not provide more financial assistance because of 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.

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.

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