Credit Suisse said it would exercise an option to borrow up to €51 billion from Switzerland's central bank
Credit Suisse said it will move to shore up its finances, borrowing up to €51 billion from the Swiss central bank after its shares plunged, dragging down other major European lenders in the wake of bank failures in the United States.
“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,” the bank said.
Fanning new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the US at one point, Credit Suisse shares lost more than a quarter of their value on Wednesday.
The share price hit a record low after the bank's biggest shareholder, the Saudi National Bank, told news outlets that it would not put more money into the Swiss lender, which was beset by problems long before the US banks collapsed.
The Saudi bank is seeking to avoid regulations that kick in with a stake above 10%, having invested some 1.5 billion Swiss francs to acquire a holding just under that threshold.
The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits.
Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying, “We already took the medicine” to reduce risks.
When asked if he would rule out government assistance in the future, he said: “That’s not a topic. ... We are regulated. We have strong capital ratios, a very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”
Switzerland’s central bank announced late Wednesday that it was prepared to act, saying it would support Credit Suisse if needed. A statement from the bank did not specify whether the support would come in the form of cash or loans or other assistance. The regulators said they believed the bank had enough money to meet its obligations.
A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.
Credit Suisse stock dropped about 30%, to about 1.6 Swiss francs (€1.6), before clawing back to a 24% loss at 1.70 francs (€1.72) at the close of trading on the SIX stock exchange. At its lowest, the price was down more than 85% from February 2021.
After the joint announcement from the Swiss National Bank and the Swiss financial markets regulator, the shares also made up some ground on Wall Street.
The stock has suffered a long, sustained decline: In 2007, the bank's shares traded at more than 80 francs (€81.72) each.
With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks.
France’s Societe Generale SA dropped 12% at one point. France’s BNP Paribas fell more than 10%. Germany's Deutsche Bank tumbled 8%, and Britain's Barclays Bank was down nearly 8%. Trading in the two French banks was briefly suspended.
The STOXX Banks index of 21 leading European lenders sagged 8.4% following relative calm in the markets Tuesday.
Shares in U.S. markets were mixed on Wednesday, with the Nasdaq composite edging 0.1% higher while the S&P 500 dropped 0.7%. The Dow Jones Industrial Average ended 0.9% lower after logging bigger losses early in the session.
Japanese banks resumed their downtrend, with Resona Holdings, the nation's No. 5 bank, falling 5% while other major banks fell more than 3%.
The turbulence came a day ahead of a meeting by the European Central Bank. President Christine Lagarde said last week, before the US failures, that the bank would “very likely” increase interest rates by a half percentage point to fight against inflation. Markets were watching closely to see if the bank carries through despite the latest turmoil.
Credit Suisse is “a much bigger concern for the global economy” than the midsize US banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.
It has multiple subsidiaries outside Switzerland and handles trading for hedge funds.
“Credit Suisse is not just a Swiss problem but a global one,” he said.
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