Credit Suisse (SWX: CSGN), Switzerland’s second-largest lender, announced on Thursday that it would borrow up to £44.5bn from the Swiss central bank to reinforce liquidity and investor confidence. The bank’s shares had plummeted, leading to concerns about a potential global banking crisis. Credit Suisse is the first major global bank to receive such a lifeline since the 2008 financial crash. The bank reassured investors by stating that it was taking “decisive action to pre-emptively strengthen its liquidity.”
The announcement from Credit Suisse helped reduce the heavy selling in financial markets, particularly in Asia, that had occurred in the previous sessions in Europe and the United States due to worries about potential runs on global bank deposits. In its statement, Credit Suisse exercised its option to borrow up to 50 billion Swiss francs (£44.5bn) from the central bank. This followed Swiss authorities’ assurances that Credit Suisse met the capital and liquidity requirements imposed on systemically important banks and that it could access central bank liquidity if required.
Credit Suisse stated that this additional liquidity would support its core businesses and clients as it takes the necessary steps to create a simpler and more focused bank built around client needs. On Wednesday, the bank’s shares fell by up to 30% after it announced that it had found “material weaknesses” in its financial reporting processes for 2021 and 2022. The biggest shareholder, Saudi National Bank, said it would not provide further financial assistance because rules prevented it from raising its equity stake above 10%.
Credit Suisse’s market value decline triggered an automatic pause in trading of Credit Suisse shares on the Swiss market and led to a decrease in shares of other European banks. The bank has faced numerous crises in recent years, including a corporate spying scandal, losses related to the collapse of a supply chain finance group Greensill Capital, and the collapse of hedge fund management company Archegos Capital. In its annual report, Credit Suisse revealed that customer deposits had fallen by 41% (159.6bn Swiss francs or £142bn) at the end of last year compared to the year before.
In the short term, the news may have a calming effect on investors, as it shows that the Swiss authorities are willing to support a major global bank during a time of uncertainty. This could lead to a reduction in the selling pressure on financial markets, particularly in Asia where the heaviest selling occurred.
However, there is also the potential for the news to create further concerns and uncertainty. It highlights the fragility of the global banking system and the potential for further problems to arise. Investors may become more cautious and risk-averse, leading to a decrease in investment activity and a further reduction in liquidity in financial markets.
In the UK, there could be implications for banks and financial institutions that have links to Credit Suisse, particularly if the bank’s problems were to spread to other parts of the financial system. It may also lead to a closer examination of other banks’ financial reporting processes and liquidity levels, as investors and regulators become more cautious in the wake of the Credit Suisse news.
The news could potentially lead to a decrease in the value of stocks and shares, particularly those of companies with links to Credit Suisse or the wider financial system.
It’s important to note that the overall impact on UK investors will depend on a number of factors, including the extent of their exposure to global financial markets and their investment portfolios. Investors with a diversified portfolio that includes a range of asset classes and sectors may be better positioned to weather any short-term volatility in the markets.
