Credit Suisse shares jump as Swiss central bank's emergency loan eases confidence crisis - The Globe and Mail

A sign for Swiss bank Credit Suisse is seen in front of an office building in Zurich, Switzerland, on March 16, 2023.DENIS BALIBOUSE/Reuters

Credit Suisse shares soared after the Swiss central bank launched an effective rescue plan that was aimed not just in shoring up confidence in CS itself but instilling confidence among investors who were abandoning financial services companies everywhere.

Shares of Credit Suisse Group AG were up 24 per cent in midday trading Thursday, European time, on the Swiss bourse, though they had opened 40-per-cent higher – the most on record.

The rebound came after an extraordinary series of events, culminating in a 2 a.m. announcement that CS would boost its liquidity position by borrowing up to 50-billion Swiss francs (US$54-billion) from the Swiss National Bank under a covered loan facility as well as short-term liquidity facility, both backed by high-quality collateral.

Six hours earlier, the central bank had said in a statement that it would, “if necessary,” provide CS with ample liquidity. When it became apparent that the reassurances from the central bank were not enough to prevent further deterioration – and a possible bank run – CS went to the next step and stated it would implement the emergency borrowing.

CS, a lender and investment bank that once was once among the world’s most prominent financial services players, had plenty of assets that could be sold to shore up liquidity. But those sales would not have been quick and CS had no time to spare as its shares plummeted, triggering a confidence crisis among investors in market already battered by the collapse a few days earlier of California’s Silicon Valley Bank.

“Credit Suisse is a million miles away from Silicon Valley Bank,” Megan Greene, global chief economist at Kroll Institute, said in an interview with The Globe on Thursday. “It has very healthy levels of liquid assets should they be needed, access to a string of central bank facilities, and less sensitivity to sharp moves in interest rates than many rivals. What matters now is whether the bank can weather this storm without a crisis of faith overtaking the fundamentals of its balance sheet, which are still sound.”

CS also announced plans to buy back some of its beaten-up debt. It will make a cash tender offer for U.S.-dollar senior debt securities worth up to US$2.5-billion and euro-denominated senior debt securities worth up to 500-million euros. Those offers will expire on March 22.

In a statement, CS chief executive Ulrich Koerner, who was appointed last summer, said that “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation…My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank.”

JPMorgan analysts said in a note that the status quo at CS “was no longer an option” and that the “option of a takeover [is] the most likely scenario.” Switzerland’s largest bank, UBS Group, reportedly is seen as a possible buy of some or all of CS.

While the shares of the scandal-ridden CS had been losing ground for at least five years, CS went into crisis mode early this week, at a time when many big banks’ bond portfolios were suffering damage from rising interest rates

On Tuesday, CS reported that PwC, its auditor, had found “material weaknesses” in its financial reporting controls. The next day, Saudi National Bank chairman Ammar Alkhudairy said his bank would “absolutely not” provide extra capital to CS. The Saudi bank had bought 10 per cent of CS last year and saw the value of that investment steadily deteriorate.

That revelation pushed down CS shares by 24 per cent on Wednesday. In spite of Thursday’s rebound, the shares as still down 70 per cent in one year, giving the bank a market value of less than CHF7-billion.

While CS’s immediate crisis appears over, the bank still faces upheaval as it tries to reinvent itself as a smaller, more stable operations. While its strongest business, wealth management, could find a buyer, its assets under management fell by 27 per cent last year. The bank’s deposits fell by 37 per cent in the fourth quarter alone.

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2023-03-16 11:37:13Z
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