Credit Suisse on Thursday said it would borrow up to $54 billion from the Swiss central bank to shore up liquidity and investor confidence after a slump in its shares intensified fears about a global banking crisis.
The Zurich-based bank’s announcement helped reverse some of the heavy share market losses and restored confidence in wider financial markets, which were battered on Wednesday and into Asia trade on Thursday as investors fretted about potential runs on global bank deposits.
In its statement, Credit Suisse said it would exercise an option to borrow from the central bank up to 50 billion Swiss francs ($54 billion). That followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and that it could access central bank liquidity if needed.
Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis and its problems have raised serious doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.
The bank’s shares surged 21 percent in pre-open trade in early European hours. Throughout most of the Asian day, stocks wallowed in the red as investors rushed to gold, bonds and the dollar. While Credit Suisse’s announcement helped trim some early losses, trade was volatile and sentiment fragile.
“It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation — and what is it going to be?” said Damien Boey, chief equity strategist at Barrenjoey in Sydney.
“Do bailouts make things better? On the one hand, you are removing a source of risk to the markets which is a clear and present danger. On the other hand we are feeding into this paradigm of monetary policy bucking within itself.”
Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralized by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.
“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.
Credit Suisse Chief Executive Ulrich Koerner had earlier on Wednesday sought to reassure investors about the lender’s strong liquidity.
“Our capital, our liquidity basis is very, very strong,” Koerner told media. “We fulfil and overshoot basically all regulatory requirements.”
