As a decline in its share price heightened concerns about a worldwide banking crisis, Credit Suisse announced on Thursday (Mar 16) that it had received a US$54 billion lifeline from to promote investor trust and liquidity, the Swiss National Bank.
In premarket trading on Thursday, the Zurich-based bank’s shares increased by more than 35%, and the value of its bonds also increased as a result of obtaining the US$54 billion lifeline.
The announcement assisted in reversing some of the significant share market losses and restored confidence in broader financial markets, which had been severely damaged on Wednesday and into Thursday’s Asia trading as investors worried about potential runs on global bank accounts.
Credit Suisse announced that it would exercise a right to borrow from the government’s main bank up to 50 billion Swiss francs ($54 billion). After Wednesday’s assurances from Swiss authorities that Credit Suisse complied with “the capital and liquidity standards placed on systemically significant banks” and could, at any time, access central bank liquidity, those statements came on Thursday.
Since the global financial crisis of 2008, Credit Suisse is the first significant institution to receive an emergency lifeline. As a result of this, there are now severe concerns about whether central banks will be able to continue their aggressive interest rate hike campaign to combat inflation.
In pre-open trade during early European hours, the bank’s shares increased by 21%. The most of the Asian day saw equities wallowing in the red as investors flocked to gold, bonds, and the dollar. Although Credit Suisse’s announcement assisted in limiting some initial losses, trade was erratic and sentiment was shaky.
“An immediate risk is eliminated. But it provides us a different choice to think about. The more we do this and the more our monetary policy is relaxed, the more we will have to put up with more inflation, and what will that inflation be? “The statement was made by Damien Boey, the chief equity strategist at Barrenjoey in Sydney.
“Are bailouts better than nothing? On the one hand, you are removing a clear and present risk that was a source of risk for the markets. On the other hand, we are contributing to this paradigm of self-defeating monetary policy.”
The borrowing by Credit Suisse will take place via a covered loan facility and a short-term liquidity facility, both of which are completely collateralized by high-quality assets. Moreover, offers for senior debt securities worth up to 3 billion Swiss francs in cash were made public.
As Credit Suisse takes the required steps to build a simpler and more focused bank oriented around client needs, the firm claimed that the additional liquidity would support its core businesses and clients.
Earlier on Wednesday, Credit Suisse CEO Ulrich Koerner made an effort to reassure investors about the lender’s strong liquidity.
Our capital and liquidity basis is very, very substantial, claims Koerner. We generally comply with and exceed all regulatory requirements.
After the most recent inflow of funds, Credit Suisse bankers in Asia contacted clients to reassure them.
We’ve been advising them to read the accounts and consider the fact that we are purchasing bonds worth 3 billion francs because they are so inexpensive, according to a Hong Kong based senior banker. All we can say is that and attempt to keep working.
Because they were not authorized to speak to the media, the banker declined to give their identity.
THE EUROPEAN EPICENTRE
The 167-year-old bank’s issues have turned the attention of investors and regulators from the United States to Europe, where Credit Suisse orchestrated a selloff of bank shares after its biggest shareholder stated it had no choice but to give additional financial support due to legal restrictions.
Concerns over Credit Suisse added to larger banking sector concerns that were brought on by the failures of Silicon Valley Bank (SVB) and Signature Bank, two mid-sized US businesses, last week.
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