Swiss Crisis: Credit Suisse Borrows CHF 50B to Escape Liquidity Troubles

Switzerland-headquartered Credit Suisse confirmed on Thursday its intention to borrow up to CHF 50 billion (about $54 billion) from the Swiss National Bank to support liquidity and investor confidence after shares of the bank continued a steep downward momentum.
Credit Suisse Secures a CHF 50B Loan

The additional liquidity would support the bank’s core businesses and clients as it “takes the necessary steps to create a simpler and more focused bank built around client needs.”

The decision of Credit Suisse came after the Swiss regulators came forward with an emergency liquidity lifeline to pull out the lender from any potential crisis as the <a href=”https://www.financemagnates.com/institutional-forex/credit-suisse-shares-hit-all-time-low-following-silicon-valley-bank-collapse/” target=”_blank” rel=”follow”>bank’s share price dropped</a> up to 30 percent on Wednesday.<blockquote class=”twitter-tweet”>Credit Suisse now has a probability of default of 47%. That is up from 38% just a few hours ago.<a href=”https://twitter.com/search?q=%24CS&src=ctag&ref_src=twsrc%5Etfw”>$CS</a> is also offering crazy deposit rates of 6.5% to attract and retain deposits that are being moved out.Do we see a bailout by this weekend ??? <a href=”https://t.co/URAhvBX6GH”>pic.twitter.com/URAhvBX6GH</a>— Wall Street Silver (@WallStreetSilv) <a href=”https://twitter.com/WallStreetSilv/status/1636002341408186368?ref_src=twsrc%5Etfw”>March 15, 2023</a></blockquote>
“Credit Suisse is taking decisive action to pre-emptively strengthen its liquidity by intending to exercise its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralized by high-quality assets,” the bank stated in its <a href=”https://www.credit-suisse.com/about-us-news/en/articles/media-releases/csg-announcement-202303.html” target=”_blank” rel=”nofollow”>official announcement</a>.

Further, the Swiss bank repurchased $2.5 billion of US dollar bonds and €500 million ($529 million) of euro bonds.

“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” the CEO of Credit Suisse, Ulrich Koerner, said.A Big but Troubled Bank

Credit Suisse, with assets of about CHF 530 billion ($573 billion), is the first major global bank to receive an emergency lifeline since the financial crisis in 2008. The lender was already in trouble after <a href=”https://www.financemagnates.com/institutional-forex/credit-suisse-reports-chf-73-billion-annual-loss-in-2022/” target=”_blank” rel=”follow”>posting a yearly loss of CHF 7.3 billion</a>, its biggest loss since the 2008 crisis. It also <a href=”https://www.financemagnates.com/institutional-forex/credit-suisse-highlights-material-weakness-in-delayed-annual-report/” target=”_blank” rel=”follow”>highlighted “material weaknesses” </a>in its control and reporting processes over the past two years in a delayed report lodged in the United States.

The bank’s share price kept tanking for days now, also taking down the European banking index. The incoming liquidity looks to have <a href=”Credit Suisse share price” target=”_blank” rel=”nofollow”>restored some of the investors’ sentiment</a> toward the bank, as its share price gained more than 5.5 percent in after-hours trading since the borrowing announcement.The potential crisis with Credit Suisse came after two American lenders, <a href=”https://www.financemagnates.com/institutional-forex/svb-financial-executives-share-sales-under-scrutiny-in-ongoing-sec-and-doj-probes/” target=”_blank” rel=”follow”>Silicon Valley Bank</a> and <a href=”https://www.financemagnates.com/cryptocurrency/signature-bank-collapse-coinbase-and-paxos-disclose-massive-exposure/” target=”_blank” rel=”follow”>Signature Bank</a>, collapsed last week and went under the Federal Deposit Insurance Corporation (FDIC) receivership. Another US lender, Silvergate Bank, also entered into voluntary liquidation.

Swiss Regulators to the Rescue

The Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) came out late Wednesday, offering Credit Suisse liquidity “if necessary.” The <a href=”https://www.finma.ch/en/news/2023/03/20230315-mm-statement/” target=”_blank” rel=”nofollow”>joint regulatory statement</a> also highlighted that “Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks.”

Credit Suisse also pointed out that it ended 2022 with a CET1 ratio of 14.1 percent and an average liquidity coverage ratio1 (LCR) of 144 percent, which improved to about 150 by 14 March.

The Swiss authorities also highlighted that the problems of “certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets.”

However, the potential liquidity crisis in Credit Suisse even rattled the international regulators. According to Reuters, the Bank of England held emergency talks with international counterparts on Wednesday night, discussing the situation with the Swiss lender.

Saudi Backers Did Not Step Up

Credit Suisse is a 167-year-old banking institution with a global operation. The bank also went through massive corporate scandals and was even convicted for <a href=”https://www.financemagnates.com/institutional-forex/money-laundering-case-involving-credit-suisse-finds-the-bank-guilty/” target=”_blank” rel=”follow”>facilitating money laundering</a>. There were also talks around a merger of Credit Suisse with its local rival UBS, but those <a href=”https://www.financemagnates.com/fintech/credit-suisse-says-clear-no-to-banks-possible-sale-or-capital-raise/” target=”_blank” rel=”follow”>did not materialize</a>.

The reputational damage of Credit Suisse over the years also hit its operations. Its customers withdrew 123 billion Swiss francs ($133 billion) last year, mostly in the fourth quarter. The bank is also undergoing a <a href=”https://www.financemagnates.com/institutional-forex/credit-suisse-plans-to-raise-4b-as-a-part-of-radical-restructure/” target=”_blank” rel=”follow”>massive restructuring plan</a>, mainly to cut down its costs. It aims to reduce CHF 2.5 billion of its cost base by 2025, while the target is CHF 1.2 billion for 2023.

Meanwhile, the Saudi National Bank, one of the largest shareholders in Credit Suisse, refused to pump more liquidity into the bank at a time of the crisis.<blockquote class=”twitter-tweet”>Credit Suisse plunges to fresh All-Time low as Saudi National Bank rules out assistance. Now down 96.7% below ATH. <a href=”https://t.co/33KDigAlDc”>pic.twitter.com/33KDigAlDc</a>— Holger Zschaepitz (@Schuldensuehner) <a href=”https://twitter.com/Schuldensuehner/status/1635940215624695808?ref_src=twsrc%5Etfw”>March 15, 2023</a></blockquote>
“The answer is absolutely not, for many reasons,” the Chairman of the Saudi National Bank, Ammar Al Khudairy, told Bloomberg on the sidelines of a conference in Saudi Arabia. “I’ll cite the simplest reason, which is regulatory and statutory. We now own 9.8 percent of the bank — if we go above 10 percent, all kinds of new rules kick in, whether be it by our regulator or the European regulator or the Swiss regulator,” he said. “We’re not inclined to get into a new regulatory regime.”