Credit Suisse shares soar after central bank offers lifeline

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

Credit Suisse announced the deal before the Swiss stock market opened, sending shares up as much as 33% before posting a 25% gain to 2.13 francs in afternoon trading. That was a huge turnaround from the day before, when news that the bank’s largest shareholder will stop injecting more money into Credit Suisse sent its shares down 30%, dragging other European banks with it..

European bank shares also rose slightly on Thursday.

The Swiss National Bank said on Wednesday it was ready to support Credit Suisse as it meets higher capital and liquidity requirements imposed on “systemically important banks”. do not pose a “direct risk of contagion” to Switzerland.

In short, an attempt to build trust.

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

“So what they’re trying to do is tell depositors, ‘Your money is safe, we’ll support you, we’ll support the bank, provide it with liquidity,'” he said. “They’re trying to say, come along. Nothing to see here.”

Credit Suisse, which was plagued by problems long before U.S. banks went bust, Thursday said the central bank’s loans would give it time to complete a reorganization designed to create a “simpler and more focused bank.”

“These actions demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our customers and other stakeholders,” Chief Executive Ulrich Koerner said in a statement.

Despite the banking turmoil, the European Central Bank went with a large rate hike of half a percentage point to tackle stubbornly high inflation, saying the European banking sector is “resilient” with strong finances.

Higher rates fight inflation but recent days have fueled 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 the collapse of Silicon Valley Bank last week, the second largest bank failure in US history.

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

The UK 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 largest banks, to ensure the bank’s clients would have access to their money .

John Gieve, former deputy governor of the Bank of England, said the rapid 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 was what freaked out 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 turn into a disorderly collapse.’

“I don’t know what the future of a Credit Suisse holds, but so far they are still standing,” he added. “And it looks like the Swiss central bank will make sure it holds out long enough to restructure its business for the future.”

Banks are under pressure after interest rates rose rapidly after a long period of historically low interest rates.

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

As a result, some banks are now experiencing a shortage of ‘liquidity’, meaning they cannot sell assets fast enough to meet the demands of depositors.

Shares of Credit Suisse fell to a record low on Wednesday after the Saudi National Bank said it would not put more money into the Swiss lender to circumvent regulations that take effect if an investor’s holding rises above 10%.

Credit Suisse also reported Tuesday that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting late last year. That sparked new doubts about the bank’s ability to weather the storm.

The stock has had a long, sustained decline: now trading for 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 solve a range of problems, including bad bets on hedge fundsrepeated shake-ups from top management and a spy scandal involving Zurich rival UBS.

Credit Suisse is “a much bigger concern for the global economy” than the midsize US banks that failed, said Andrew Kenningham, Europe’s chief economist for Capital Economics.

It has several subsidiaries outside Switzerland and trades for hedge funds.

The issues “again raise the question of whether this is the start of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse has been widely seen as the weakest link among Europe’s big banks, but it’s not the only bank to have struggled with poor profitability in recent years.”

European finance ministers said this week that their banking system is not directly exposed to the US bank failures.

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

The parent bank Credit Suisse is not subject to EU supervision, but it does have branches in several European countries. 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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