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Credit Suisse borrows £44.5billion [53,724,850,000 in U.S. dollars] from Swiss central bank to stem crisis

Swiss bank acts to strengthen liquidity after jitters over its financial health

Thursday, March 16, 2023

By Ben Martin, Callum Jones

Reprinted from The Times [London]

Credit Suisse will borrow up to 50 billion Swiss francs (£44.5 billion) from the country’s central bank in a bid to quell anxiety over its financial health.

The Zurich-based lender said it was taking “decisive action to pre-emptively strengthen liquidity” in a statement issued in the early this morning.

It came a day after its shares tumbled by as much as 30 per cent as heightened fears of a global financial crisis sent banking shares across Europe and the United States suffered big declines, reminiscent of the 2008 financial crisis.

The bank said that exercising an option to borrow up to SwFr50 billion from the Swiss National Bank “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”.

Credit Suisse was at the centre of yesterday’s market rout after its biggest shareholder, Saudi National Bank, signalled that it was unprepared to put more money into the lender. This unnerved markets already reeling from the failures of three American lenders last week — the technology-focused Silicon Valley Bank, Signature Bank and Silvergate.

While the Biden administration unveiled a rescue package on Sunday that ensured SVB and Signature depositors could access their money, their failure raised concern over the prospect of contagion throughout the wider banking system.

To further shore up confidence in the bank, Credit Suisse also announced offers to buy back up to SwFr3 billion (£2.7 billion) worth of debt securities.

Ulrich Koerner, chief executive of Credit Suisse, 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 regulator] 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.”

The Bank of England was last night on alert after investors’ fears about the financial health of Credit Suisse sent panic through markets.

Before Credit Suisse announced that it would borrow money from the The Swiss National Bank, the central bank and Finma, the country’s financial regulator, had sought to stabilise the situation with a joint statement. They insisted that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks” and said the central bank stood ready to provide liquidity to Credit Suisse “if necessary”.

Credit Suisse, Switzerland’s second biggest lender, has suffered years of scandals and setbacks and investors fear that these have left it vulnerable to market contagion from the American banking collapses. The Zurich-based group suffered its worst annual loss since the 2008 crisis last year and expects further losses in 2023. This week it revealed it had found “material weaknesses” in its internal financial reporting controls.

Any problems at the Swiss group would have repercussions for the City of London, where the bank has more than 5,000 staff at Canary Wharf.

Officials at the Bank of England are understood to be monitoring the situation and to be engaging with both Credit Suisse and Finma. The news comes after regulators at Threadneedle Street spent last weekend thrashing out a rescue deal for Silicon Valley Bank’s UK subsidiary with government ministers amid concern that its insolvency would cause turmoil for the 3,300 technology and venture capital firms that were its customers. HSBC bought the lender’s British division for a symbolic £1 on Monday.

Credit Suisse’s operations in the UK are considerably larger than those of Silicon Valley Bank and are mainly focused on its investment banking business. Its main subsidiary in Britain is Credit Suisse International, which had $62 billion of risk-weighted assets as of last June.

Axel Lehmann, Credit Suisse’s group chairman, had sought to calm markets by insisting that state aid was “not a topic” for the bank. Ulrich Körner, the chief executive, said the lender’s capital and liquidity positions were “very, very strong”. Nevertheless, Credit Suisse shares closed down 24 per cent at a record low to leave the group valued at about SwFr6.8 billion, while the cost of insuring its bonds against default also hit an all-time high.

Officials at the European Central Bank were contacting eurozone lenders to gauge their exposure, underscoring the seriousness of regulators’ concerns. The US Treasury also said it was monitoring the situation.

Andrew Kenningham, of Capital Economics, warned that “Credit Suisse is not just a Swiss problem but a global one. Credit Suisse is in principle a much bigger concern for the global economy than the regional US banks which were in the firing line last week.”

Panic-selling gripped global stock markets and the Stoxx Europe 600 index slumped by 6.9 per cent, knocking almost €57 billion from the value of European and British lenders.

The Bank of England declined to comment.

Swiss lender defined by blunders and scandal

The very fact that the Credit Suisse chairman was yesterday denying that the bank was considering state aid underscores the seriousness of the crisis facing it (Ben Martin writes).

Even before the collapse of Silicon Valley Bank had sparked concerns about wider stresses in the banking industry, market confidence in Credit Suisse was languishing at rock-bottom levels. The worry now is that the Swiss bank’s weakened state has left it vulnerable as strains in the financial system mount.

The list of crises that have plagued Credit Suisse in recent years is extensive. There was a corporate espionage scandal that erupted in 2019 and culminated in the departure of Tidjane Thiam, the bank’s chief executive, in 2020.

In 2021, the lender was hit by the twin collapses of Greensill, the London-based supply chain finance firm, and Archegos, an investment group. The bank was embroiled in the Greensill debacle because it had managed $10 billion of funds linked to the failed firm that were subsequently wound down. Archegos was a big client of the Swiss bank and its implosion resulted in Credit Suisse suffering a $5.5 billion loss.

Other controversies involving the bank have included the “tuna bond” scandal, which centred on the financing of a state tuna fishing fleet for Mozambique that resulted in the lender being fined $475 million by American and British regulators in October 2021 after its executives had pleaded guilty to taking kickbacks.

Last year, Credit Suisse was found guilty in Switzerland of failing to prevent money laundering by Bulgarian cocaine traffickers. The bank is appealing against the ruling.

Axel Lehmann, the Credit Suisse chairman, and Ulrich Körner, the chief executive, are trying to turn around the group with a drastic restructuring that was unveiled in October.

However, even if it is successful, the fruits of this overhaul will take time to materialise. Credit Suisse warned in February that it expected to suffer another “substantial loss” this year, having already slid SwFr7.29 billion (£6.5 billion) into the red for 2022.

Markets fall as Credit Suisse woes raise concerns over sector

Shares in the Zurich-based lender to plunge and send panic through the market in falls reminiscent of the 2008 crisis.