Credit Suisse gets $50bn emergency finance from central bank
Credit Suisse has secured financing worth 50bn francs (US$54bn), briefly easing concerns about the state of the beleaguered Swiss bank.
Earlier this week, it reportedly found "material weaknesses" in internal controls around its financial reporting. Its biggest investor, Saudi National Bank, refused to provide assistance because of regulatory implications involved in increasing its 9.9% stake in Credit Suisse.
This caused the bank’s share price to plummet, with Credit Suisse now trading more than 25% lower than this time last month. The share price rebounded slightly after news of the facility, arranged with the Swiss National Bank (SNB), was announced. But shares have fallen by another 5% this morning as investor sentiment cools off.
As part of the financing, Credit Suisse will also repurchase around US$3bn’s worth of its own debt as part of financial restructuring.
But the organisation potentially faces legal action from investors in the US, who claim that the bank gave “materially false and misleading statements” about its prospects before this week’s turmoil.
The organisation was already implicated in a number of legal and compliance-related issues that prompted nervous customers to withdraw 110bn francs (US$133bn) in the fourth quarter of 2022, such as a criminal conviction in Bulgaria for enabling drug dealers to launder money.
Credit Suisse ‘resolved to deliver a more focused bank’
Announcing news of the emergency funding, Credit Suisse CEO Ulrich Körner said: “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.
“We thank the SNB and the Swiss Financial Market Supervisory Authority (FINMA) as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”
Whether the markets will give the bank enough room to complete that task remains to be seen. Some commentators are already claiming that the US$54bn loan will only serve as a sticking plaster that will buy Credit Suisse a small amount of additional time.
It follows the collapse of California’s Silicon Valley Bank this time last week. The bank’s collapse, which unfolded over the course of just 48 hours, sent shockwaves through the international banking community and briefly left account holders in a state of limbo. The favourite of tech startups faced a ‘hole’ in its finances, after rising interest rates impacted its investments in US government bonds and left it unable to honour customer withdrawals.
As we reported at the beginning of this week, regulators are racing to salvage parts of the collapsed bank. The UK was the first to act, with regulators there expediting a £1 sale of SVB’s UK business to HSBC.
A bad start to 2023 following stock price upheaval
It is not the ideal start to 2023 that the financial services sector would have hoped for. The collapse of Silicon Valley Bank and the plummeting share price at Credit Suisse compound a problem that began in 2022.
According to new data from the World Federation of Exchanges, the industry group for exchanges and central clearing counterparties, US$25tn was wiped off global stock markets last year.
Factors that caused last year’s slump include the aftermath of the COVID-19 pandemic, which caused inflationary trends fuelled by strong consumer demand and supply bottlenecks exacerbated by the war in Ukraine and the sanctions against Russia, which increased energy prices, especially for European countries.
China’s renewed lockdown, with stringent measures enforced for most of the year, strained the global supply chain, increasing prices of imported goods. Investment cooled down in the equity market as a result of the high inflation environment, alongside the tightening of monetary policies which included raising interest rates across most economies, WFE says.
Nandini Sukumar, Chief Executive Officer at the WFE, explains: “We witnessed a perfect storm in 2022 of so many negative pressures culminating to bring immense pressure on global stock markets, as our report highlights."