Axel Lehmann, chairman of Credit Suisse, claims that the bank has already taken “the medicine” to lower risks. As a result of bank failures in the U.S., Swiss bank Credit Suisse said it will borrow up to $54 billion from the central bank to shore up its finances.
The Swiss bank Credit Suisse announced that it would borrow as much as $53.7 billion from the government’s reserve bank.
As Credit Suisse seeks to create a simpler and more focused bank built around client needs, this additional liquidity will support its core businesses and clients.
On Wednesday, Credit Suisse shares lost more than a quarter of their value at one point following the collapse of Silicon Valley Bank and Signature Bank in the US.
After the Saudi National Bank, the bank’s biggest shareholder announced that it would not invest more money in the Swiss lender which suffered problems long before the US banks collapsed the share price hit a record low. After investing 1.5 billion Swiss francs in acquiring a stake of just under 10 percent the Saudi bank hopes to avoid regulations that kick in with a stake above 10 percent.
Credit Suisse shares on the Swiss market were automatically halted and shares of other European banks tumbled, some by double digits as a result of the turmoil.
Axel Lehmann, chairman of Credit Suisse, defended the firm during a finance conference in Riyadh Saudi Arabia, by declaring “We already took the medicine.”
“That’s not an issue,” he responded when asked if he would rule out receiving government support in the future. We follow rules. Both our balance sheet and capital ratios are good. That is absolutely not a topic because we have all hands on deck.
Switzerland’s central bank announced late on Wednesday that it was prepared to act and that it would support Credit Suisse if necessary. The bank did not specify in a statement if the assistance will take the form of cash, loans, or other forms of assistance. The bank was deemed to have sufficient funds to meet its obligations by the regulators.
After Credit Suisse reported “material weaknesses” in its financial reporting controls at the end of last year, new doubts arose about the bank’s ability to stay afloat.
At its lowest point, the stock price of Credit Suisse was down more than 85 percent since February 2021, to about 1.6 Swiss francs at the close of trading on the SIX stock exchanges.
Stocks on Wall Street also rose following the announcement from the Swiss National Bank and the Swiss financial markets regulator.
There has been a long, sustained decline in the stock price: in 2007, it traded at more than 80 francs a share.
Investors sold bank stocks due to concerns about hidden problems in the banking system.
At one point, Society General SA fell 12 percent. BNP Paribas of France decreased by more than 10% Germany’s Deutsche Bank fell eight percent, and Britain’s Barclays Bank was down nearly eight percent.
Following Tuesday’s relative calm in the markets, the STOXX Banks index fell 8.4 percent.
The NASDAQ composite ended 0.1 percent higher on Wednesday while the S&P 500 fell 0.7 percent. The Dow Jones Industrial Average ended 0.9 percent lower after earlier posting bigger losses.
Resona Holdings, the nation’s fifth largest bank, fell 5 percent, while other major banks fell more than 3 percent.
There was unrest the day before the European Central Bank meeting. According to Christine Lagarde the bank wills most likely raise interest rates by a half percentage point to combat inflation before the US failures. Despite the latest turmoil, markets were paying close attention to see if the bank would carry out.
Credit Suisse is “a considerably bigger problem for the global economy,” according to Andrew Kenningham, head economist for Europe at Capital Economics than the midsized US banks that failed.
The company has multiple subsidiaries outside Switzerland and handles hedge fund trading.
He claimed that Credit Suisse is a global issue, not simply a Swiss one.
Nevertheless, he noted that investors and policymakers should not be surprised by the bank’s problems.
According to Cunningham, the troubles “remind us of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case.” Among Europe’s large banks, Credit Suisse is regarded as the weakest but it is not the only one that has struggled to make money in recent years.”
Fady Rachid said he and his wife are concerned about Credit Suisse’s health. He was going to send some money to UBS.
“I don’t believe Credit Suisse will be able to resolve these issues,” said 56 year old Rachid.
Following a long period of low-interest rates and “very, very loose monetary policy,” investors responded to “a broader structural problem” in banking, said Frankfurt School of Finance & Management professor Sascha Steffen.
More risks had to be assumed by banks in order to produce a return. More cautiously than others some banks handled this.”
This week, the European finance ministers said that their banking systems are not directly impacted by the failures of US banks.
Analysts say Europe strengthened its banking safeguards following the collapse of the US investment bank Lehman Brothers in 2008 by transferring supervision of the biggest banks to the central bank.
The parent bank of Credit Suisse is not part of EU supervision, but it has subsidiaries in several European countries that are. One of 30 globally systemically important banks or G SIBs Credit Suisse must maintain financial buffers against losses under international rules.
To overcome an array of troubles, including bad hedge fund bets, shake-ups of its top management and a spying scandal involving Zurich rival UBS the Swiss bank is trying to get funding from investors and implement a novel plan.
At the end of last year, Credit Suisse reported 159.6 billion francs in customer deposits down 41 percent from a year earlier.