Credit Suisse will borrow up to $54 billion from Switzerland’s central bank to calm fears

Credit Suisse shares rose as much as 30% on Thursday after it said it would shore up its finances by investing up to $54 billion.

It was a massive reversal from a day earlier, when shares of Switzerland’s second-largest commercial bank on the SIX Stock Exchange plummeted 30% after its largest shareholder said it would stop investing money in Credit Suisse.

That dragged other European banks lower after the collapse of some US banks raised fears over the health of global banks. European bank stocks recovered somewhat on Thursday, with the Euro Stoxx Banks index, which includes 21 top lenders, gaining 1.6% after falling 8.4% on Wednesday. Loyal banks like Commerzbank, Santander, Unicredit and Raiffeisen were all up more than 2%.

Credit Suisse, which was plagued by problems long before the US banking collapse, said Thursday it would exercise an option to pledge up to 50 billion francs ($53.7 billion) from the Swiss National Bank lend.

“This additional liquidity would support Credit Suisse’s core business and clients as Credit Suisse takes the necessary steps to create a simpler and more client-centric bank,” the bank said.

The banking crisis overshadowed the meeting of the European Central Bank on Thursday. Before the chaos erupted, ECB President Christine Lagarde had said it was “very likely” that the bank would make a big half-point rate hike to tackle stubbornly high inflation.

Stock market slump after Credit Suisse price crash 08:30

After European bank shares slumped on Wednesday, analysts said the outcome of the meeting was difficult to predict, with some saying the central bank could return to a quarter-point rise. Higher interest rates are fighting inflation but in recent days have raised concerns that they may have caused hidden losses on banks’ balance sheets.

At a financial conference in the Saudi capital Riyadh on Wednesday, Credit Suisse chairman Axel Lehmann defended the bank, saying, “We’ve already taken the medicine” to reduce risk.

When asked if he would rule out government aid in the future, he said: “It’s not an issue. … We are regulated. We have strong capital ratios, a very strong balance sheet is an issue at all.”

Following the recent collapse of Silicon Valley Bank and Signature Bank in the US, Credit Suisse stock price stoked fresh fears about the health of financial institutions, hitting a record low on Wednesday.

It came after the Saudi National Bank told news outlets it would not be injecting any more money into the Swiss lender. The Saudi bank is trying to avoid regulations that apply to stakes above 10% and has invested around 1.5 billion Swiss francs to acquire a stake just below that threshold.

The turbulence led to an automatic trading pause in Credit Suisse shares on the Swiss market and caused the shares of other European banks to fall by double digits in some cases. The stock has endured a long, prolonged decline: it is now trading at 2.10 Swiss francs, while in 2007 it was over 80 francs ($86.71) a share.

The Swiss central bank announced its readiness to act late Wednesday, saying it would support Credit Suisse if needed. Regulators said they believed the bank had enough money to meet its obligations.

Credit Suisse reported earlier this week that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting at the end of last year. That fueled new doubts about the bank’s ability to weather the storm.

“Credit Suisse’s internal control over financial reporting was not effective because it failed to develop and maintain an effective risk assessment process to identify and analyze the risk of material misstatement in its financial statements,” the bank said in its annual report released on Tuesday.

“Much Bigger Concern”

Concerns about the accuracy of Credit Suisse’s financial reporting and its relationship with investors came under scrutiny following the 2021 Greensill Capital and Archegos Capital Management meltdown. Credit Suisse posted $8 billion in net losses in 2022, its largest annual loss ever.

Credit Suisse is “a much bigger concern for the global economy” than the collapsed mid-tier US banks, said Andrew Kenningham, chief economist for Europe at Capital Economics.

It has several subsidiaries outside of Switzerland and trades for hedge funds.

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

However, he noted that the “bank’s problems are well known and therefore do not come as a complete shock to investors or policymakers”.

The issues “raise again the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse has been widely viewed as the weakest link among Europe’s big banks, but it’s not the only bank that has struggled with weak profitability in recent years.”

Leaving a Credit Suisse branch in Geneva, Fady Rachid said he and his wife were worried about the health of the bank. He wanted to transfer some money to UBS.

“I can’t believe that Credit Suisse can get rid of these problems and overcome them,” said Rachid, a 56-year-old doctor.

Investors were reacting to “a broader structural problem” in banking after a long period of low interest rates and “very, very loose monetary policy,” said Sascha Steffen, a finance professor at the Frankfurt School of Finance & Management.

In order to generate some return, “banks had to take on more risk, and some banks did so more prudently than others.”

Former FDIC Chair Sheila Bair on turmoil in the banking sector 06:15

European finance ministers said this week that their banking system would not be directly affected by US bank failures.

Europe has bolstered its bank security in the wake of the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 by handing over supervision of the largest banks to the central bank, analysts say.

Credit Suisse’s parent bank is not part of EU supervision but has branches in several European countries that are. As one of 30 so-called global systemically important banks (G-SIBs), Credit Suisse is subject to international regulations that oblige it to maintain financial buffers against losses.

The Swiss bank has been pushing to raise money from investors and launch a new strategy to overcome a series of problems including bad bets on hedge funds, repeated top management reshuffles and a spy scandal involving Zurich rival UBS .

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

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