Credit Suisse is taking “decisive measures” to boost its liquidity and for this purpose will borrow up to 50 billion Swiss francs from the Swiss National Bank (SNB), the bank’s management announced. It was also pointed out that this loan is fully secured by prime property values. In addition, the bank offered to issue documents for a cash payment of up to three billion francs.
The announced measures came after Switzerland’s financial watchdog pledged help for Credit Suisse to preserve liquidity as the bank’s share price fell 30 percent on Wednesday (March 15th). In this way, Credit Suisse became the first globally systematically relevant bank to receive such assistance after the great financial crisis.
Just hours after it was announced that Credit Suisse would lend money, the value of the bank’s shares rose again. It first jumped to almost 33 percent, and then stabilized at plus 18 percent.
Bank of wealthy clients
Credit Suisse is a global Swiss bank and one of the largest banks in the world. She is particularly known for doing business with very wealthy clients. The bank was founded in the 19th century and plays a major role in the Swiss economy, but also in the global financial system. In recent years, however, she has lost quite a bit of her reputation due to various scandals and losses.
In addition, Credit Suisse is currently in the midst of an extensive restructuring costing billions and including the elimination of 9,000 jobs. In the future, the bank wants to focus primarily on doing business with millionaires and billionaires and no longer intends to engage in venture investment banking.
The Swiss National Bank and the financial market supervision agency Finma previously announced in a joint statement that Credit Suisse meets all requirements for systemically relevant banks in terms of capital and liquidity. It is also pointed out that so far there are no indications that the problems of the American banks could also affect the Swiss ones.
The drop in value has caused concern around the world
The collapse of several regional US banks in recent days has caused uncertainty in the banking sector. This particularly affected Credit Suisse, which was already volatile.
Investors also began to pull back as a major Saudi shareholder, the Saudi National Bank, announced on Wednesday (March 15th) that it could not make additional financing available to the Swiss bank. Credit Suisse posted a loss of 7.3 billion francs last year, and customers withdrew 123 billion francs worth of deposits during that period.
The dramatic drop in the value of the shares of that bank, which is the second largest in Switzerland, also caused a drop in the securities of other European banks. The Stoxx Europe 600 Banks banking sector index fell 6.9 percent. In Germany, the shares of Commerzbank lost 8.7 percent – but today those values have recovered again.
Financial supervisory agencies around the world, governments and other financial institutions try to assess the risks. Some governments behind the scenes asked Switzerland to take the necessary measures – which it then did. “FINMA and the SNB are following the development in detail and are in close contact with the Ministry of Finance to ensure financial stability,” the two institutions said in a statement.
What was going on Credit Suisse before this meltdown?
Credit Suisse has been struggling for years.
It was widely seen as the weakest link among Europe’s large banks, according to Kenningham.
The company has been plagued by a series of missteps and compliance failures in recent years that cost it billions and led to several overhauls of top management. And over the past decade, the Swiss bank has been hit with fines and penalties related to tax evasion, misplaced bets and other issues.
In 2014, Credit Suisse pleaded guilty to federal charges that it illegally allowed some U.S. clients to evade their taxes. The bank paid a total of $2.6 billion to the federal government and New York financial regulators as part of the settlement.
The bank’s reputation was damaged by an accounting scandal at Luckin Coffee. Credit Suisse acted as an underwriter when the company went public on the Nasdaq in 2019. The Chinese firm was pulled off the US exchange after it fraudulently inflated sales.
In 2020, Credit Suisse CEO Tidjane Thiam resigned after two high-profile spying scandals involving top bank officials.
A year later, the collapse of the US hedge fund Archegos Capital cost Credit Suisse $5.5 billion and damaged the bank. An independent external investigation later found that Credit Suisse allowed Archegos Capital to take “voracious” and “potentially catastrophic” risks that culminated in the US hedge fund’s spectacular collapse.
In 2022, the bank was hit by social media speculation that it was on the brink of collapse, leading customers to withdraw billions of dollars. That has made profitability a near impossibility for the bank, which has been hemorrhaging money for years.
And last month, Credit Suisse’s stock plunged to record lows after it posted its biggest annual loss since the financial crisis in 2008 and a report surfaced that regulators were reviewing comments the lender’s chairman made about the health of its finances.