Credit Suisse – Another big issue has developed following the failure of Silicon Valley Bank last week.
The Swiss National Bank announced its willingness to lend money to Credit Suisse in a letter.
Hours later, the megabank accepted the offer in order to persuade investors that it had enough money to be sustainable.
The news
Credit Suisse received a 50 billion Swiss franc ($53.7 billion) loan from the Swiss National Bank.
Investors in the collapsed megabank decreased their stakes by 30% on Wednesday.
The loan was made with the purpose of progressively expanding liquidity, according to Credit Suisse.
They released the formal statement below:
“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.”
In addition to the central bank loan, Credit Suisse indicated that it repurchased billions of dollars in debt in order to reduce commitments and interest payments.
The financing package includes $2.5 billion in American bonds and €500 million (or $529 million) in euro bonds.
The bank
Credit Suisse, founded in 1856, is usually regarded as one of the most powerful financial institutions.
It is one of 30 companies certified as a “globally systemically significant bank,” including Bank of America, Bank of China, and JP Morgan Chase.
Asian equities fell significantly early Thursday.
They have rebounded from the lows brought about by Credit Suisse’s actions thus far, encouraged by the bank’s tenacity and commitment to repair public trust.
According to a joint statement published early Wednesday by the Swiss National Bank and Swiss financial market regulator FINMA, Credit Suisse met the strict capital and liquidity standards for banks critical to the broader financial system.
“If necessary, the SNB will provide CS with liquidity,” the statement said.
SVB’s impact
With the demise of Silicon Valley Bank in the United States late last week, investors were on alert.
Investors then dumped Credit Suisse stock, driving the bank to a new low as its largest shareholder appeared to rule out further investment.
According to Swiss officials, the issues of “certain” US banks do not pose an urgent risk to Swiss financial markets.
“There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” the authorities said.
No stake increase
After a capital increase in October, the Saudi National Bank has become Credit Suisse’s largest shareholder.
On Wednesday, Saudi National Bank Chairman Ammar Al Khudairy announced that the bank’s stake will not be raised.
“The answer is absolutely not, for many reasons,” said Al Khudairy. “I’ll cite the simplest reason, which is regulatory and statutory.”
“We now own 9.8% of the bank – if we go above 10% all kinds of new rules kick in, whether it be by our regulator or the European regulator or the Swiss regulator.”
“We’re not inclined to get into a new regulatory regime.”
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What happened?
Credit Suisse was a big Wall Street participant prior to recent blunders and compliance issues.
As a result of the errors, the bank’s image among clients plummeted, and many key employees were let go.
In the fourth quarter of 2022, customers withdrew 123 billion Swiss francs ($133 billion) from the bank.
Credit Suisse later revealed a net loss of around 7.3 billion Swiss francs ($7.9 billion), signaling that the corporation was experiencing its greatest financial crisis since 2008.
In October, the bank announced a drastic reorganization plan that would result in the loss of 9,000 full-time employment.
Within its investment bank, the proposal also includes a wealth management branch.
Others questioned the restructuring, with the exception of Al Khudairy, who stated that the bank did not need any more cash.
Credit Suisse may not have enough capital to bear losses in 2023, according to Morningstar banking analyst Johann Scholtz, as funding costs rise.
“To stem client outflows and ease the concern of providers of wholesale funding, we believe Credit Suisse needs another rights [share] issue,” said Scholtz.
“We believe the alternative would be a break-up… with the healthy business – the Swiss bank, asset management, and wealth management and possibly some parts of the investment banking business – being sold off or separately listed.”
Impact
S&P Global Market Intelligence reported that the bank’s shares plunged 24% in Zurich on Wednesday.
In addition, they stated that the cost of getting credit Suisse default insurance had reached an all-time high.
The downturn expanded to other European financial equities, producing issues for some of the following banks in France, Germany, Italy, and the United Kingdom, among others.
- BNP Paribas
- Societe Generale
- Commerzbank
- Deutsche Bank
The stock is down 8% to 12%.
Regardless of Credit Suisse’s problems, its assets of around 530 billion Swiss francs ($573 billion) pose a higher risk.
Andrew Kenningham, Capital Economics’ chief European economist, wrote:
“[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the US. Credit Suisse is not just a Swiss problem but a global one.”
More problems
Despite its many problems, the Swiss bank is still being investigated.
On Tuesday, Credit Suisse suspended top executive pay after admitting to “serious errors” in financial reporting.
According to the bank’s annual report, the group’s internal control over financial reporting was deficient owing to a failure to anticipate potential risks to financial statements.
The bank is putting together a regulatory tightening plan.
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