Negative global market sentiment against Swiss bank Credit Suisse meant Europe’s banking sector was under fire again on Wednesday, leading up to a evening statement by Swiss supervisors saying that they will commit liquidity to the bank. The bank then said it plans to move swiftly to create “a smaller and more focused bank”.
“If necessary, the SNB will provide CS with liquidity,” the Swiss National Bank and regulator Finma said last night.
Credit Suisse subsequently said it plans to exercise an option to borrow up to 50 billion Swiss francs (50.8 billion euro) from the Swiss central bank and that it will buy back about 3 billion francs of its debt in an attempt to boost its liquidity and calm investors a day after the bank’s share price plummeted.
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders. We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” CEO Ulrich Koerner said in a statement.
Lost a quarter of market value Wednesday
Credit Suisse on Wednesday lost almost a quarter of its stock market value after its largest shareholder said it could not increase its 10 per cent stake due to regulatory problems.
Credit Suisse, which has long given the impression of being run-of-the-mill, dipped below the symbolic limit of 2 Swiss francs for the first time on Wednesday; in 2020, its shares were still above 12 Swiss francs. The reason for the latest share price fall is that shareholder Saudi National Bank said it cannot expand its stake. Trading in Credit Suisse shares was halted several times. The market did question why this shareholder, Saudi National Bank, came out with that news at this very moment.
Credit Suisse on Wednesday had asked the Swiss central bank SNB to issue a public statement in support, the Financial Times reported earlier. SNB did so, reporting that Credit Suisse “meets all the higher capital and liquidity requirements imposed on systemically important banks”. It added that SNB will provide liquidity to the global bank if needed.
European banks following lower
The damage was not limited to Credit Suisse. European bank indices were at their lowest in year. The SX7P index is 14 per cent below its highest point this year, representing a loss in market value of more than 120 billion euros. The reason is that investors fear contagion risk following the collapse of US lender SVB late last week.
“Markets are wild. We are going from the problems of US banks to those of European banks, primarily Credit Suisse,” Carlo Franchini, head of institutional clients at Milan-based Banca Ifigest, told Reuters news agency. Banca Ifigest thinks the damage will be limited for now.
“The markets are haunted following the news about Credit Suisse,” said Richard McGuire, head of interest rate strategy at Rabobank in London. Besides falling prices of bank shares, gold prices were also on the rise and investors fled into government bonds, such as German ones, with short, two-year maturities.
ECB asks for exposure in market
According to the Wall Street Journal, the European Central Bank asked European banks about their exposure to Credit Suisse. The ECB would neither confirm nor deny that news to news agencies.
Reuters cited a number of European supervision officials as stating that European banks are in good shape thanks to liquidity and lower interest rate risk. That was also the opinion of Rabobank’s McGuire. He does not think this is a trend that will last(er) long.
Luxembourg’s top banking supervisor at the CSSF, Claude Wampach, on Tuesday spoke to Investment Officer and made clear Luxembourg banks, as well as other banks subject to supervision in the EU’s Single Supervisory Mechanism, are solvent and not at risk from the sharp increases in interest rates.
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- Amundi on US bank crisis: ‘This is not a systemic risk’
- Pace of rate hikes seen slowing after SVB collapse