To strengthen its finances, Credit Suisse has announced it will borrow up to 50 billion Swiss francs (£44.5 billion) from the nation’s central bank.
The struggling banking behemoth declared that it is taking “decisive measures” to improve and streamline its operations.
Following the announcement that it had discovered “weakness” in its financial reporting, shares of Credit Suisse dropped 24% on Wednesday.
Sharp drops in stock markets, led by a decline in Asian shares, were spurred by worries of a bigger banking crisis.
Yet, Thursday’s market opening in Europe is predicted to be higher.
According to the BBC, the Bank of England has communicated with Credit Suisse and the Swiss government to keep tabs on the issue.
The nation’s national bank, the Swiss National Bank, affirmed that Credit Suisse had the funds it needed but emphasized that it was prepared to step in and provide more assistance if necessary.
The shocking fall of Silicon Valley Bank, the 16th-largest lender in the US, and the failure of New York’s Signature Bank two days later revealed problems in the banking system in the US last week.
As panic spread, the US central bank was compelled to intervene to stop a run on bank accounts.
Former Bank of England deputy governor Sir John Gieve told the BBC that central banks were “messaging” that such issues would be handled locally.
In the case of Credit Suisse, he continued, this would probably be sufficient to prevent the problem from getting worse.
He said on the BBC’s Today programme: “What we’ve witnessed overnight is the Swiss central bank saying no, we will not let this develop into a disorderly collapse.
“I’m not sure what the future holds for Credit Suisse, but so far, they’ve managed to stay afloat, and it appears that the Swiss central bank will make sure they do so for a while so they can reorganize their affairs for the future.”
In late afternoon trade, the Nikkei 225 index in Japan fell 1.1%, while markets in Sydney and Hong Kong fell more than 1.5%. Shanghai Composite decreased by 0.5%.
According to Stephen Innes, managing partner at SPI Asset Management, there are now few concerns about banking extending to Asia because “banks are so much more funded.”
Since its founding in 1856, Credit Suisse has been involved in a number of scandals, including accusations of money laundering, spying, and high-profile exits.
“Material deficiencies”
It has cautioned that it does not anticipate becoming profitable until 2024 after losing money in 2021 and again in 2022.
Investor worries were stoked by the bank’s Tuesday announcement of a “material vulnerability” in its financial reporting.
When Credit Suisse’s largest shareholder, the Saudi National Bank, announced it would not purchase additional shares of the Swiss bank for regulatory reasons, these got worse.
Credit Suisse maintained at the time that its financial situation was unimportant.
Yet when other banks rushed to withdraw their money from the banking, shares in the company fell, and prime ministers in Spain and France intervened to allay concerns.
The failure of Silicon Valley Bank has also fuelled concerns about the value of assets owned by banks, as rising interest rates rendered such bonds less valuable.
In an effort to slow the rate of price increases, or inflation, central banks around the world, particularly the US Federal Reserve and the Bank of England, have substantially raised interest rates.
Banks frequently have sizable bond portfolios, which means they are sitting on sizable potential losses.
Until banks are obliged to sell them, value drops in bonds they hold are not necessarily an issue.
The largest failure of a US bank since 2008 occurred when Silicon Valley Bank, which specialized in lending to technology companies, was shut down by US regulators on Friday.
