While the sharp declines in the shares of Credit Suisse, one of the largest banks in Switzerland, strengthen the concerns that a new global financial crisis has started, the bank will borrow $ 54 billion from the central bank to restore investor confidence.
Losses in the markets decreased
While the concern that the depositors will withdraw their money from the banks at the same time has led to severe losses in the markets in recent days, the losses in the markets decreased after the announcement of Credit Suisse.
Earlier, Credit Suisse said it would borrow up to 50 billion francs, or $54 billion, from the central bank.
Prior to the bank’s announcement, Swiss authorities also confirmed that Credit Suisse “required capital and liquidity conditions for systemically important banks” They stated that they provide access to the liquidity in the central bank if needed.
Credit Suisse thus became the first major global bank to seek financial assistance from the central bank since the 2008 financial crisis.
The bank’s shares rose 32% after the sharp losses in recent days. CDSs, which show the cost of insuring the bank’s debts against bankruptcy, also fell 128 basis points to 1,016 basis points.
The problems that started in medium and large-scale banks after the US seized two banks last week created doubts as to whether central banks will continue their aggressive interest rate hikes, which are their main tools in the fight against high inflation.
Damien Boey, chief economist for equity strategy at Sydney-based investment bank Barrenjoey, said: “(Lending) has eliminated the first problem the bank faced. But it has brought us to another crossroads. As we take such steps, we will be reducing the effectiveness of monetary policy and the longer We will have to live with high inflation for a while. Which one will we choose?” said.
Credit Suisse will provide cash using the Swiss National Bank’s (SNB) secured loan facility and short-term liquidity facility. All money will be given in return for collateral. The bank will also repurchase up to 3 billion francs of previously issued bonds.
Ulrich Koerner, CEO of Credit Suisse, tried to reassure investors yesterday by saying that the bank’s liquidity is strong.
Speaking to the media, Koerner said: “Our capital, our liquidity base is very, very strong. We meet all the conditions in the regulations, and even stay above them” said.
Eyes on Europe
Problems in the 167-year-old Credit Suisse, after the US took over the mid-sized Silicon Valley Bank (SVB) and Signature Bank last week, turned investors’ attention from the USA to Europe.
Before Credit Suisse borrowed from the central bank, the bank’s largest shareholder stated that it could not raise capital due to industry regulations. After the major shareholder announced that he would not be able to support the bank, losses in its shares increased.
Investors are now watching the steps that central banks and regulators will take to restore confidence in the banking system.
Australian and South Korean officials emphasized that the banks in their countries are solid and their capital is strong.
Global banking stocks have been volatile this week after the US seized SVB last week and Signature Bank two days later. After the bankruptcies, investors worried that a situation similar to Lehman Brothers would be seen, which triggered the global financial crisis by going bankrupt in 2008.
Why is the Credit Suisse shock important to investors?
Norwegian Wealth Fund cuts its stake in Credit Suisse
$54 billion liquidity facility from Swiss National Bank to Credit Suisse
Credit Suisse seeks assistance from the Swiss National Bank
30 percent depreciation in Credit Suisse