Credit Suisse borrows more than $50 billion from Swiss National Bank after shares crash 30%

Jun 25, 2023

Hours after the Swiss central bank said it was ready to provide financial support to Credit Suisse, the beleaguered megabank took it up on the offer, hoping to reassure investors that it had the necessary cash to stay afloat.

Credit Suisse said it would borrow up to 50 billion Swiss Francs ($53.7 billion) from the Swiss National Bank. Investors sent shares in the country's second biggest lender crashing by as much as 30% Wednesday.

The bank called the loan a "decisive action to pre-emptively strengthen its liquidity."

"This additional liquidity would support Credit Suisse's core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs," the bank said in a statement.

In addition to the loan from the central bank, Credit Suisse also said it repurchased billions of dollars of its own debt to manage its liabilities and interest payment expenses. The offer covers $2.5 billion of US dollar bonds and €500 million ($529 million) of euro bonds.

The venerable but troubled bank, founded in 1856, is one of the biggest financial institutions in the world and categorized as a "global systemically important bank," along with just 30 others, including JP Morgan Chase, Bank of America and the Bank of China.

Asian stocks fell sharply to start the day Thursday but bounced way off their lows after Credit Suisse's action, cheered by the bank's determination to restore confidence in its operations.

Earlier Wednesday, in a joint statement with the Swiss financial market regulator FINMA, the Swiss National Bank (SNB) said Credit Suisse (CS) met the "strict capital and liquidity requirements" imposed on banks of importance to the wider financial system.

"If necessary, the SNB will provide CS with liquidity," they said.

Already on edge after the failure of Silicon Valley Bank in the United States last week, investors dumped shares in the embattled Swiss bank earlier in the day, sending them plummeting to a new record low after its biggest backer appeared to rule out providing any more funding.

In their statement, the Swiss authorities said that the problems of "certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets."

"There are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market," the statement continued.

The chairman of the Saudi National Bank — Credit Suisse's biggest shareholder, following a capital increase last fall — said earlier Wednesday it would not increase its stake in Credit Suisse.

"The answer is absolutely not, for many reasons," 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% of the bank — if we go above 10% 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."

Once a big player on Wall Street, Credit Suisse has been hit by a series of missteps and compliance failures over the past few years that have damaged its reputation with clients and investors, and cost several top executives their jobs.

Customers withdrew 123 billion Swiss francs ($133 billion) from Credit Suisse last year — mostly in the fourth quarter — and the bank reported an annual net loss of nearly 7.3 billion Swiss francs ($7.9 billion), its biggest since the global financial crisis in 2008.

In October, the lender embarked on a "radical" restructuring plan that entails cutting 9,000 full-time jobs, spinning off its investment bank and focusing on wealth management.

Al Khudairy said he was pleased with the restructuring, adding that he didn't think the Swiss lender would need extra money. Others are not so sure.

Johann Scholtz, a European banking analyst at Morningstar, said Credit Suisse might no longer have enough capital to absorb losses in 2023 because its funding costs were becoming prohibitive.

"To stem client outflows and ease the concern of providers of wholesale funding, we believe Credit Suisse needs another rights [share] issue," he commented Wednesday. "We believe the alternative would be a break-up … with the healthy businesses — the Swiss bank, asset management and wealth management and possibly some parts of the investment banking business — being sold off or separately listed."

The bank's shares were last down 24% in Zurich on Wednesday, and the cost of buying insurance against the risk of a Credit Suisse default hit a new record high, according to S&P Global Market Intelligence.

The crash spilled over into other European banking shares, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank and Deutsche Bank falling between 8% and 12%. Italian and UK banks also slumped.

Two supervisory sources told Reuters that the ECB had contacted banks to quiz them about their exposures to Credit Suisse. The ECB declined to comment.

While the problems at Credit Suisse were widely known, with assets of about 530 billion Swiss francs ($573 billion) it presents a much bigger potential headache.

"[Credit Suisse] is much more globally interconnected, with multiple subsidiaries outside Switzerland including in the US," wrote Andrew Kenningham, chief Europe economist at Capital Economics. "Credit Suisse is not just a Swiss problem but a global one."

The blows keep coming for Switzerland's second biggest bank. On Tuesday, it acknowledged "material weakness" in its financial reporting and scrapped bonuses for top executives.

Credit Suisse said in its annual report that it had found "the group's internal control over financial reporting was not effective" because it failed to adequately identify potential risks to financial statements.

The bank is urgently developing a "remediation plan" to strengthen its controls.

Speaking to Bloomberg TV on Tuesday, Credit Suisse CEO Ulrich Körner said the bank saw "material good inflows" of money on Monday, even as markets were spooked by the collapse of SVB and Signature Bank in the United States.

Overall, outflows from the bank had "significantly moderated" after customers withdrew 111 billion francs ($122 billion) in the three months to December, Körner added. In its annual report, the bank said outflows had not yet reversed by the end of last year.

— Olesya Dmitracova and Livvy Doherty contributed to this article.