A major shareholder’s skepticism about further aid for the ailing bank Credit Suisse sent its shares plummeting. Now the central bank intervenes and provides billions in loans.
The Swiss central bank has stopped the recent price losses of the share with a billion-euro aid package for the ailing Credit Suisse. The Swiss National Bank (SNB) is providing the ailing institute with loans of up to CHF 50 billion (almost EUR 51 billion), as Credit Suisse announced in Zurich.
The second-largest Swiss bank wants to regain lost trust in the financial market with this step. For the central bank, financial regulators and governments, it is also about preventing a general banking crisis. The measures had an effect on the stock exchange.
After the measures, Credit Suisse shares recovered a good bit from the previous day’s fall. At the start of trading, its price rose by almost a third to 2.25 Swiss francs (2.28 euros). In the afternoon, the share was still up a good 18 percent at CHF 2.01. The day before it had fallen to a record low of 1.56 francs and ultimately went out of trading at a discount of almost a quarter to 1.697 francs.
The rest of the banking sector also recovered somewhat on Thursday. The Stoxx Europe 600 Banks industry index recently rose by around half a percent after losing almost seven percent in the middle of the week.
Saudi major shareholder: Panic “completely unjustified”
The collapse of several regional US banks triggered uncertainty in the banking sector at the end of last week. On Wednesday, investors reacted with shock to a statement by Credit Suisse’s major shareholder, the Saudi National Bank: In an interview with Bloomberg TV, its President Ammar Al Khudairy ruled out further support for the Swiss bank, which has suffered billions in losses over the past two years is. The price of Credit Suisse shares plummeted. During the night, Khudairy described the panic on the US broadcaster CNBC as “completely unjustified”. Accordingly, he does not believe that Credit Suisse needs more capital.
Eurogroup boss Paschal Donohoe was confident that Europe’s banks are prepared for the turbulence. “We are aware of the risks that currently exist in our banking and our global financial system. But the level of the capital buffer gives us the certainty that we are able to manage these risks,” he told the “Frankfurter Allgemeine Zeitung”. “.
Lindner: “German credit system stable”
Federal Finance Minister Christian Lindner (FDP) emphasized the stability of the German credit system on Wednesday evening. “The federal government is in constant and intensive exchange with everyone involved,” said the FDP chairman on the ARD program “Maischberger”. “With the Bafin, we have an efficient financial supervisory authority, and we have the Bundesbank, which also has a tradition of political stability. We can therefore say very clearly: the German credit system – private banks, savings banks, cooperative institutes – is stable. And we also ensure that further.”
The Swiss central bank does not simply grant Credit Suisse the billions in loans. The credit line is fully secured with first-class assets, the bank wrote in its statement. She described the steps as “determined measures to preventively strengthen” liquidity. In addition, Credit Suisse announced the repurchase of certain euro and dollar bonds with a volume of three billion francs.
On Wednesday evening, the SNB and the Swiss financial market supervisory authority Finma announced that Credit Suisse was meeting the increased requirements for systemically important banks in terms of capital cover and liquidity. At the end of 2022, the bank had a common equity ratio of 14.1 percent, well above the minimum requirement. It was also said that the recent problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial market.
Industry representatives remain critical
Experts assessed the support from the central bank as positive. But even with the loan from the SNB, Credit Suisse will not have solved all its problems in a week, explained Sergio Rossi, Professor of Macroeconomics and Monetary Economics at the University of Fribourg. The big bank is faced with a loss of confidence.
The banking analyst Kian Abouhossein from the US bank JPMorgan attested to Credit Suisse an ongoing problem of trust with regard to their investment bank. In addition, there are concerns about ongoing outflows of funds. In his view, the capital cushion is not a problem.
Credit Suisse was founded in 1856 and claims to have more than 50,000 employees. It is the second largest bank in Switzerland after UBS and has been in crisis for some time. In 2021, she had lost billions because of the bankruptcy of the hedge fund Archegos and the collapse of the supply chain fund of the financial conglomerate Greensill. Last year, the deficit grew to CHF 7.3 billion, also due to risky transactions in investment banking. Only in the financial crisis of 2008 was the minus even higher.
Rumors of possible financial difficulties at the bank had real consequences for ongoing business in 2022: customers withdrew more than CHF 123 billion net from Credit Suisse, especially in the fourth quarter. Most recently, the supervisor also criticized the risk management and parts of the financial reporting of the group.
Source: Stern
