Credit Suisse provides $54 billion lifeline as authorities rush to avert global banking crisis

Credit Suisse on Thursday said it would borrow up to $54 billion from the Swiss central bank to bolster liquidity and investor confidence after the fall in its shares heightened fears of a global financial crisis.

The Swiss bank’s statement helped stem strong selling in financial markets in Asian morning trading on Thursday after a torrid session in Europe and the US the day before, when investors worried about a potential run on deposits from global banks.

In a statement early Thursday, Credit Suisse said it would exercise an option to borrow up to $54 billion from the central bank. This follows assurances from Swiss authorities on Wednesday that Credit Suisse has met “capital and liquidity requirements for systemically important banks” and that it can access central bank liquidity if needed.


The Credit Suisse logo on a campus building in North Carolina on March 15, 2023.
The Credit Suisse logo on a campus building in North Carolina on March 15, 2023.
REUTERS

Credit Suisse was the first major global bank to receive bailouts since the 2008 financial crisis, and its troubles have raised serious doubts that central banks can sustain their fight against inflation with aggressive rate hikes.

Asian equities followed Wall Street’s fall on Thursday as investors bought gold, bonds and the dollar. While the bank’s announcement helped cut some of those losses, trading was volatile and sentiment fragile.

“It really helps. This eliminates the immediate risk. But it presents us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation – and what will that be?” said Damien Boy, chief equities strategist at Barrenjoey in Sydney.

“Do rescue measures improve the situation? On the one hand, you remove a source of risk to the markets, which is a clear and present danger. On the other hand, we are feeding this self-contradictory monetary policy paradigm.”

Credit Suisse loans will be provided under a secured credit line and a short-term credit line fully collateralized by high-quality assets. It also announced cash offerings of up to $3.2 billion in senior debt securities.

“This additional liquidity will support Credit Suisse’s core business and customers as Credit Suisse takes the necessary steps to create a simpler and more focused bank that is customer-focused,” the bank said.

Credit Suisse chief executive Ulrich Kerner tried earlier Wednesday to reassure investors of the lender’s high liquidity.

“Our capital, our liquidity base is very, very strong,” Kerner told the media. “We meet and exceed virtually all regulatory requirements.”


Credit Suisse Group AG CEO Ulrich Koerner in an interview in London on 14 March 2023
Credit Suisse Group AG CEO Ulrich Koerner in an interview in London on 14 March 2023
Bloomberg via Getty Images

EUROPEAN EPICENTER

The 167-year-old bank’s troubles have shifted the attention of investors and regulators from the US to Europe, where Credit Suisse led the sell-off of the bank’s shares after its biggest investor said it could not provide additional bailouts due to regulatory restrictions.

Concerns about Credit Suisse have added to broader banking sector fears following last week’s collapses of Silicon Valley Bank and Signature Bank, two mid-sized US companies.

Investor attention is also focused on any action by central banks and other regulators in other countries to restore confidence in the banking system, as well as any risks businesses may have to Credit Suisse.

The demise of Silicon Valley Bank last week, and Signature Bank two days later, sent global banking stocks on a rollercoaster ride this week as investors discounted reassurances from US President Joe Biden and emergency measures to give banks access to more funding.

On Wednesday, Credit Suisse shares fell 7% in the European banking index, while 5-year credit default swaps for the flagship Swiss bank hit a new record high.

Investors walking out the door raised concerns about a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank has contacted banks to inquire about their risks to Credit Suisse.

The US Treasury Department also said it is monitoring the Credit Suisse situation and is in touch with global counterparts, a Treasury Department spokesman said.

“FLIGHT TO SAFETY”

Rapidly rising interest rates have made it harder for some businesses to repay or service loans, increasing the chance of losses for lenders who are also worried about the recession.

Traders are now betting that the Federal Reserve, which was expected to accelerate its rate hike campaign last week in the face of sustained inflation, may be forced to pause and even reverse course.

Betting on a large European Central Bank interest rate hike also quickly evaporated at Thursday’s meeting on growing concerns about the health of Europe’s banking sector. Money market pricing suggested that traders now see less than a 20% chance of a 50 basis point rate hike at the ECB meeting.


Credit Suisse campus at Research Triangle Park in Morrisville, North Carolina.
Credit Suisse campus at Research Triangle Park in Morrisville, North Carolina.
REUTERS

The anxiety caused by the demise of the SVB also prompted savers to look for new homes for their money.

Ralph Hammers, CEO of Credit Suisse competitor UBS, said the market turmoil had attracted more money, while Deutsche Bank CEO Christian Scheuing said the German lender had also seen deposits coming in.

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