Swiss central bank steps in to assist Credit Suisse with $54bn loan

Credit Suisse secures massive $54bn loan from Swiss National Bank

The financially troubled Credit Suisse says it would borrow up to 50 billion francs ($54 billion; £44.5 billion) from the Swiss central bank.

The institution declared that as part of its effort to become a simpler bank, it was acting decisively to increase its liquidity.

Following the announcement that it had discovered “weakness” in its financial reporting, shares of Credit Suisse dropped 24% on Wednesday.

Credit Suisse secures up to $54bn loan from Swiss central bank
Swiss central bank provides Credit Suisse with $54bn in emergency funding

Fears of an expanding financial crisis resulted from this, which caused a major sell-off on European markets.

According to Credit Suisse, the bank’s borrowing actions showed “decisive steps to strengthen [the bank]”.

Ulrich Koerner, CEO of Credit Suisse, said in a statement, “My team and I are resolved to move forward swiftly to offer a simpler and more focused bank structured around client demands.

The failure of Silicon Valley Bank, the 16th-largest bank in the nation, and the failure of Signature Bank two days later revealed issues in the banking system in the US last week.

After the share price of Credit Suisse fell on Wednesday, a significant shareholder, the Saudi National Bank, announced it would stop investing in the Swiss company.

Concerns extended throughout the financial markets, causing a severe decline in all major indices.

According to Capital Economics’ Andrew Kenningham, “The issues at Credit Suisse once again raise the question of whether this is the start of a worldwide catastrophe or just another ‘idiosyncratic‘ episode.

The Swiss National Bank, which serves as Switzerland’s central bank, and the Swiss Financial Market Supervisory Authority made statements assuring investors that they would support Credit Suisse if necessary in an effort to allay investor concerns.

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In order to “guarantee their stability,” strict regulations are applied to Swiss financial institutions. According to the regulators, Credit Suisse satisfies the criteria for systemically important banks.

In a joint statement, they stated that there were “no signs of a direct danger of contagion” for Swiss banks as a result of the recent instability in the US banking system.

According to the BBC, the Bank of England has communicated with Credit Suisse and the Swiss government to keep tabs on the issue.

Credit Suisse, which was established in 1856, has recently dealt with a number of crises, including accusations of money laundering and other problems.

It experienced losses in 2021 and 2022, its worst years since the 2008 financial crisis, and has warned that it does not anticipate turning a profit until 2024.

Before this week, the company’s shares had already taken a beating, with their value dropping by almost two thirds as a result of customers withdrawing money.

Investor worries were rekindled by the bank’s Tuesday admission of “material weaknesses” in its financial reporting controls.

Tensions grew more intense after the head of Credit Suisse’s largest shareholder, the Saudi National Bank, declared that the bank would refrain from purchasing additional shares for regulatory reasons.

Credit Suisse maintained at the time that its financial situation was unimportant. But, as other banks hurried to minimise their exposure to the company and prime ministers in Spain and France attempted to allay anxieties, shares in the lender finished Wednesday down 24%.

The greatest failure of a US bank since 2008, Silicon Valley Bank (SVB), which specialised in lending to technology companies, was shut down by US regulators on Friday. The UK division of SVB was purchased by HSBC for £1.

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Following the SVB failure, the New York-based Signature Bank similarly failed, with all deposits at both institutions being guaranteed by US regulators.

But, worries that other banks may experience similar problems have persisted, and this week’s trade in bank shares has been erratic.

On Wednesday, the Stoxx Europe Banking Share Index fell 7%.

In the US, shares of both small and major banks suffered, which contributed to the Dow’s down of over 0.9% and the S&P 500’s decline of 0.7%.

The largest one-day decline since the early days of the epidemic in 2020 occurred when the UK’s FTSE 100 plummeted by 3.8%, or 293 points.

“This financial catastrophe originated in America. People are now observing how the situation could also result in issues in Europe “Robert Halver, head of capital markets at the Baader Bank in Germany, stated.

“Of course a tale is being presented where many investors say we want to get out if a bank has had even the slightest trouble in the past, if large investors say we don’t want to invest any more and don’t want to let new money come into this bank.”

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