Credit Suisse shares rise after central bank offers lifeline

GENEVA (AP) – Credit Suisse shares rose Thursday after the Swiss central bank agreed to lend the bank up to 50 billion francs ($54 billion) to boost confidence in the country’s second-biggest lender and blunted concerns about the international financial system after the collapse of two American banks.

Credit Suisse announced the deal before the Swiss stock market opened, sending shares up as much as 33% before settling up 25% at 2.13 francs in midday trading. It was a massive reversal from a day earlier, when news that the bank’s biggest shareholder will not inject more money into Credit Suisse sent its shares tumbling 30%, dragging down other European banks..

European bank shares also rose modestly on Thursday.

The Swiss National Bank said on Wednesday it was prepared to support Credit Suisse as it meets the higher capital and liquidity requirements imposed on “systemically important banks”, adding that the problems that have hit some US banks do not “pose a direct risk of infection” to Switzerland.

In short, it is an attempt to create trust.

“Regulators will certainly hope in Switzerland that this is enough,” Russ Mould, investment director at AJ Bell, an online investment platform. “They don’t want someone to be that person sitting in a darkened room or darkened movie theater yelling fire, because that’s what prompts a rush for the exits.”

“So what they’re trying to do is say to depositors, ‘Your money is safe, we’ll stop you, we’ll stop the bank, supply it with liquidity,'” he said. “They’re trying to say, move on. Nothing to see here.”

Credit Suisse, which was marked by problems long before the US banking crash, said Thursday that the loans from the central bank would give it time to complete a reorganization designed to create a “simpler and more focused bank.”

“These moves represent a decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” CEO Ulrich Koerner said in a statement.

Despite the banking crisis, the European Central Bank has went ahead with a big rise in interest rates of half a percentage point to tackle stubbornly high inflation and said Europe’s banking sector is “resilient” with strong finances.

Higher interest rates fight inflation but in recent days have raised concerns that they may have caused hidden losses on bank balance sheets.

Central banks in the US and Europe have moved quickly to restore confidence in the banking system after last week’s collapse of Silicon Valley Bank, the second largest bank failure in US history.

U.S. authorities said Sunday they would guarantee all deposits from California-based Silicon Valley Bank and the smaller Signature Bank of New York, making sure people would not be hurt by the banks’ collapse. The US Federal Reserve also announced additional funding to ensure other banks could meet depositors’ needs.

The British government and the Bank of England said on Monday they had facilitated the sale of Silicon Valley Bank’s UK arm to HSBC, one of Europe’s biggest banks, to ensure the bank’s customers would have access to their money.

John Gieve, a former deputy governor of the Bank of England, said the quick response is different from what happened at the start of the global financial crisis 15 years ago. At that time, the US authorities allowed the investment banking giant Lehman Brothers to collapse.

“That’s what spooked the markets as a whole because they weren’t behind it,” Gieve told the BBC. “So what we’ve seen overnight is the Swiss central bank saying, ‘No, we’re not going to let this get into a disorderly collapse.’

“I don’t know what the future holds for a Credit Suisse, but for now they are still standing,” he added. “And it appears that the Swiss central bank will ensure that it stands long enough to reorganize its affairs for the future.”

The banks are under pressure after interest rates rose rapidly after an extended period of historically low interest rates.

To increase returns on their investments, banks had to take more risks, and some “did this more cautiously than others,” said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.

As a result, some banks now face a shortage of “liquidity”, meaning they cannot sell assets quickly enough to meet depositors’ demands.

Credit Suisse shares had fallen to a record low on Wednesday after Saudi Arabia’s national bank said it would not put more money into the Swiss lender to avoid rules that kick in if an investor’s stake rises above 10%.

Credit Suisse also reported on Tuesday that executives had identified “material weaknesses” in the bank’s internal controls over financial reporting at the end of last year. This gave rise to new doubts about the bank’s ability to weather the storm.

Its stock has suffered a long, sustained decline: Now trading at just over 2 francs, the stock was valued at more than 80 francs ($86.71) in 2007.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome a number of problems, including bad bets on hedge fundsrepeated shake-ups by its top management and a spy scandal involving Zurich competitor UBS.

Credit Suisse is “a much bigger concern for the global economy” than the mid-sized US banks that collapsed, said Andrew Kenningham, Europe chief economist for Capital Economics.

It has several subsidiaries outside Switzerland and handles trading with hedge funds.

The problems “once again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse was widely seen as the weakest link among Europe’s big banks, but it is not the only bank to struggle with weak profitability in recent years.”

European finance ministers said this week that their banking system has no direct exposure to the US bank failures.

Europe strengthened its bank guarantees after the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 by transferring supervision of the biggest banks to the central bank, analysts said.

The Credit Suisse parent bank is not part of EU supervision, but it has units in several European countries that are. Credit Suisse is subject to international rules that require it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.


Kirka reported from London. AP reporters David McHugh in Frankfurt, Germany, Colleen Barry in Milan and Joseph Krauss in Ottawa, Ontario contributed.

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