London (CNN) Hours after the Swiss central bank said it was ready to provide financial support to Credit Suisse, the beleaguered megabank accepted the offer, hoping to reassure investors it had the cash it needed to stay afloat.
Credit Suisse said it would borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank. Investors sent shares of the nation’s second-largest lender down as much as 30% on Wednesday.
The bank called the loan a “decisive action to proactively strengthen its liquidity.”
“This additional liquidity will support Credit Suisse’s core businesses and customers as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around customer needs,” the bank said in a statement.
In addition to the loan from the central bank, Credit Suisse also said it was buying back billions of dollars of its own debt to manage its liabilities and interest payment expenses. The offering covers $2.5 billion in US dollar bonds and €500 million ($529 million) in Eurobonds.
The venerable but troubled bank, founded in 1856, is one of the largest financial institutions in the world and categorized as a “global systemically important bank” along with just 30 others, including JP Morgan Chase, Bank of America and Bank of China .
Asian shares fell sharply to start the day on Thursday, but bounced well off their lows after Credit Suisse’s action, buoyed by the bank’s willingness to restore confidence in its operations.
Earlier on Wednesday, the Swiss National Bank (SNB) said in a joint statement with Swiss financial market regulator FINMA that Credit Suisse (CS) met the “stringent capital and liquidity requirements” imposed on banks of importance to the wider financial system.
“If necessary, the SNB will provide CS with liquidity,” they said.
Already reeling from the failure of Silicon Valley Bank in the US last week, investors dumped shares in the troubled Swiss bank earlier in the day, sending them plummeting to a new record low after its biggest backer appeared to rule out providing more funding.
In their statement, the Swiss authorities said that the problems with “certain banks in the United States do not pose a direct risk of contagion for the 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 statement continued.
Saudi backers ‘not likely’ to increase funding
The chairman of the National Bank of Saudi Arabia – Credit Suisse’s biggest shareholder after a capital increase last fall – said earlier on Wednesday that it would not increase its stake in Credit Suisse.
“The answer is absolutely not, for many reasons,” Ammar Al Khudairy told Bloomberg on the sidelines of a conference in Saudi Arabia. “I will mention 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 come in, whether it’s our regulator or the European regulator or Swiss regulator,” he said. “We are not inclined to enter into a new regulatory regime.”
Once a major player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance failures over the past few years that have damaged its reputation with clients and investors and cost several top executives their jobs.
Clients withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year – mostly in the fourth quarter – and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion), the biggest since the 2008 global financial crisis .
In October, the lender began a “radical” restructuring plan that involves cutting 9,000 full-time jobs, spinning off its investment bank and focusing on wealth management.
Al Khudairy said he was satisfied with the restructuring, adding that he did not think the Swiss lender would need additional money. Others are not so sure.
Johann Scholtz, a European banking analyst at Morningstar, said Credit Suisse may no longer have enough capital to absorb losses in 2023 because its funding costs were becoming prohibitive.
“To stem client outflows and ease concerns for wholesale finance providers, we believe Credit Suisse needs another rights issue (share),” he commented on Wednesday. “We believe the alternative would be a break-up … with the healthy businesses – the Swiss bank, asset management and wealth management and possibly some parts of the investment banking business – being sold off or separately listed.”
‘Not just a Swiss problem’
The bank’s shares were last down 24% in Zurich on Wednesday, and the cost of buying insurance against the risk of a Credit Suisse default hit a new record, according to S&P Global Market Intelligence.
The crash spilled over into other European banking stocks, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8% and 12%. Italian and British banks also fell.
Two regulatory sources told Reuters that the ECB had contacted banks to ask them about their exposures to Credit Suisse. The ECB declined to comment.
While the problems at Credit Suisse, with assets of about 530 billion Swiss francs ($573 billion), were widely known, it presents a much bigger potential headache.
“(Credit Suisse) is much more globally connected with several subsidiaries outside of Switzerland, including in the US,” wrote Andrew Kenningham, chief economist for Europe at Capital Economics. “Credit Suisse is not just a Swiss problem, but a global problem.”
The blows keep coming for Switzerland’s second-largest bank. On Tuesday, it acknowledged “material weakness” in its financial reporting and scrapped bonuses for top executives.
Credit Suisse said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it did not adequately identify potential risks to accounts.
The bank is developing a “remediation plan” to strengthen its controls.
Speaking to Bloomberg TV on Tuesday, Credit Suisse CEO Ulrich Körner said the bank saw “materially good cash flows” on Monday, even as markets were spooked by the collapse of SVB and Signature Bank in the US.
Overall, outflows from the bank “moderated significantly” after customers withdrew 111 billion francs ($122 billion) in the three months to December, Körner added. In its annual report, the bank said the outflow had not yet reversed at the end of last year.
— Olesya Dmitracova and Livvy Doherty contributed to this article.