London (CNN) Hours after the Swiss central bank said it was ready to provide financial support to Credit Suisse, the beleaguered megabank took up the offer, hoping to reassure investors it had the cash it needed 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 in the country’s second-biggest lender down as much as 30% on Wednesday.
The bank called the loan a “decisive action to advance liquidity.”[ads1];
“This additional liquidity will support Credit Suisse’s core businesses and customers as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around the needs of its customers,” the bank said in a statement.
In addition to the loan from the central bank, Credit Suisse also said it was buying back billions of dollars of its own debt to deal with its obligations and interest expenses. The offering covers $2.5 billion of US dollar bonds and €500 million ($529 million) of Eurobonds.
The venerable but troubled bank, founded in 1856, is one of the largest financial institutions in the world and categorized as a “global systemically important bank”, along with only 30 others, including JP Morgan Chase, Bank of America and Bank of China.
Asian shares fell sharply to start the day on Thursday, but bounced well off the bottom 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) met the “stringent capital and liquidity requirements” imposed on banks of importance to the wider financial system.
“If necessary, the SNB will provide CS with liquidity,” they said.
Already reeling from the failure of Silicon Valley Bank in the US last week, investors dumped shares in the troubled Swiss bank earlier in the day, sending them to a new record low after its biggest backer appeared to rule out providing more funding.
In its statement, Swiss authorities said the problems of “certain banks in the United States do not pose a direct risk of contagion for the 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 statement continued.
Saudi backers ‘uninclined’ to increase funding
The chairman of Saudi National Bank – Credit Suisse’s largest shareholder, after a capital increase last autumn – said earlier on Wednesday that it would not increase its stake in Credit Suisse.
“The answer is absolutely not, for many reasons,” Ammar Al Khudairy told Bloomberg on the sidelines of a conference in Saudi Arabia. “I will mention 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 come in, whether it’s by our regulator or the European regulator or 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 failures in recent years that have damaged its reputation with clients and investors and cost several top executives their jobs.
Clients withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year – the most in the fourth quarter – and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion), the biggest since the global the financial crisis of 2008.
In October, the lender launched a “radical” restructuring plan which involves cutting 9,000 full-time positions, spinning off the investment bank and focusing on asset management.
Al Khudairy said he was satisfied with the restructuring, adding that he did not think the Swiss lender would need additional cash. Others are not so sure.
Johann Scholtz, a European banking analyst at Morningstar, said Credit Suisse may no longer have enough capital to absorb losses in 2023 because funding costs were becoming prohibitive.
“In order to stem client outflows and ease concerns for wholesale finance providers, we believe Credit Suisse needs other rights [share] problem,” he commented on Wednesday. “We think the alternative would be a breakup … with healthy businesses — the Swiss bank, asset management and wealth management and possibly some parts of the investment banking business — being sold off or separated. listed.”
“Not just a Swiss problem”
The bank’s shares were last down 24% in Zurich on Wednesday, and the cost of buying insurance against the risk of a Credit Suisse default hit a new record, according to S&P Global Market Intelligence.
The crash spilled over into 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 fell.
Two supervisory sources told Reuters that the ECB had contacted banks to ask them about their exposures to Credit Suisse. The ECB declined to comment.
While the problems at Credit Suisse were widely known, with assets of about 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 US,” wrote Andrew Kenningham, chief economist for Europe at Capital Economics. “Credit Suisse is not just a Swiss problem, but a global one.”
The blows keep coming for Switzerland’s second largest bank. On Tuesday, it acknowledged “material weakness” in its financial reporting and scrapped bonuses for top executives.
Credit Suisse said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to the financial statements.
The bank is in the process of developing a “remediation plan” to strengthen control.
Speaking to Bloomberg TV on Tuesday, Credit Suisse CEO Ulrich Körner said the bank saw “materially good inflows” of money on Monday, even as markets were spooked by the collapse of SVB and Signature Bank in the US.
Overall, outflows from the bank had “moderated significantly” 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 at the end of last year.
— Olesya Dmitracova and Livvy Doherty contributed to this article.