Panic in the Financial Market: Credit Suisse Borrowing 50 Billion Francs from the Central Bank

There is great concern in the global financial sector since last weekend when the ‘fall’ of Silicon Valley Bank occurred, and currently, Credit Suisse is causing headaches as it plans to borrow up to 50 billion francs, or 51.4 billion euros, from the Swiss central bank to ensure liquidity after its largest shareholder and chairman of the Saudi National Bank Ammar Al Khudairy withdrew support, causing a sharp drop in the bank’s shares by 24 percent.

As reported by Hina, the bank announced in the morning that it is taking decisive action primarily to strengthen liquidity through the planned use of the borrowing option via the secured lending program and short-term liquidity. They also noted that Credit Suisse International has offered to buy back securities in cash with a priority repayment value of three billion francs.

Al Khudairy stated earlier on Wednesday, after the capital increase last autumn, that he would not increase his stake in Credit Suisse, which he also confirmed to the media during a conference in Saudi Arabia.

– The answer is absolutely no, for many reasons. I will state the simplest reason, which is regulatory and legal. We currently own 9.8 percent of the bank, and if we go above 10 percent, all sorts of new rules come into play, whether they are made by our regulator, the European regulator, or the Swiss regulator – Al Khudairy told Bloomberg, adding that they are not inclined to enter a new regulatory regime.

To calm market turmoil, the Swiss central bank and the financial market regulator announced on Wednesday evening that they would intervene and ensure liquidity for Credit Suisse if necessary.

They also emphasized that there are currently no signs of the problem spreading, which caused the collapse of two American banks in three days, to financial firms in Switzerland, and the head of the Swiss banking sector Andre Helfenstein emphasized that Credit Suisse is still well-capitalized.

He added that client deposits are safe, and attributed the market troubles of this bank to difficulties in the American banking sector, alluding to last week’s collapse of Silicon Valley Bank and Signature Bank. The Swiss business is well-positioned and achieving good results, Helfenstein stated, adding that the bank is radically restructuring its operations to improve long-term results. However, as reported by Hina, he admitted that the bank accumulated losses of more than a billion francs in 2022, mainly due to restructuring costs, and ended the year with a loss of 7.3 billion francs.

This is not a Swiss problem, but a global one

However, as foreign media report, Credit Suisse will, along with the loan from the central bank, buy back billions of dollars of its own debt to manage its obligations and interest payment costs. The offer includes 2.5 billion dollars in bonds in US dollars and 500 million euros in bonds in euros.

The prestigious but troubled bank, founded in 1856, is one of the largest financial institutions in the world and is categorized as a ‘global systemically important bank’, along with only 30 others, including JP Morgan Chase, Bank of America, and Bank of China.

Already on the brink after the collapse of Silicon Valley Bank, investors on Wednesday dumped shares of the beleaguered Swiss bank, sending them to a new record low after it seemed that its largest patron had ruled out further financing. In their statement, Swiss authorities said that the problems of ‘certain banks in the US do not pose a direct risk of contagion for Swiss financial markets’.

Once a major player on Wall Street, Credit Suisse has been hit in recent years by a series of missteps and regulatory compliance failures that have harmed its reputation with clients and investors, costing several top executives their jobs.

Clients withdrew 123 billion Swiss francs from the bank last year, mainly in the fourth quarter, and in October, they also started with a ‘radical’ restructuring plan that involves laying off 9,000 full-time jobs, spinning off the investment bank, and focusing on asset management.

The collapse spilled over into other European banking stocks, with French and German banks such as BNP Paribas, Societe Generale, Commerzbank, and Deutsche Bank falling between eight and 12 percent. Italian and British banks also fell.

Reuters learned from anonymous sources that the European Central Bank contacted banks to inquire about their exposure to Credit Suisse, but they declined to comment further.

While the problems at Credit Suisse have been widely known, with assets of around 530 billion Swiss francs, it represents a much larger potential headache as it is globally interconnected and has more branches outside Switzerland, including in the US. Therefore, many believe that this is not a Swiss problem, but a global one.