GENEVA (AP) – Shares of Credit Suisse surged Thursday after the Swiss central bank agreed to lend the bank up to 50 billion francs ($54 billion) to shore up confidence in the country’s second-largest lender and frankly concerns about the international financial system after the collapse. of two US banks.
Credit Suisse announced the deal before the Swiss stock market opened, sending shares up 33% before they settled for a 25% gain, to 2.13 francs, in midday trading. That’s a big turnaround from a day earlier, when news that the bank’s biggest shareholder would not inject more money into Credit Suisse sent its shares tumbling 30%, which is dragging down other European banks..
European banking stocks also rose slightly on Thursday.
The Swiss National Bank said Wednesday that it is ready to back Credit Suisse as it meets higher capital and liquidity requirements imposed on “systemically important banks,” adding that the problems that have hit some banks in the US do not “pose a direct contagion risk” in Switzerland.
It is, in short, an effort to build trust.
“Regulators will certainly hope in Switzerland that this is enough,” said Russ Mould, investment director at AJ Bell, an online investment platform. “They don’t want any person sitting in a dark room or a dark theater and yelling fire, because that’s the reason to rush out.”
“So what they’re trying to do is say to depositors, ‘Your money is safe, we’re going to backstop you, we’re going to backstop the bank, it’s going to provide liquidity,'” he said. “They’re trying to say, move on. There’s nothing to see here.”
Credit Suisse, which has been plagued by problems long before the US bank failed, it said Thursday that loans from the central bank would give time to complete a reorganization designed to create a “simpler and more focused bank.”
“These steps reflect decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” Chief Executive Ulrich Koerner said in a statement. statement.
Despite the banking crisis, the European Central Bank accompanied by a large, half-percentage-point increase in interest rates to tackle high inflation, saying Europe’s banking sector was “resilient,” with strong finances.
Higher rates fight inflation but in recent days have raised concerns that they could cause hidden losses in bank balances.
The US and European central banks moved quickly to restore confidence in the banking system after last week’s collapse of Silicon Valley Bank, the second largest bank failure in US history.
US authorities on Sunday said they would guarantee all deposits at California-based Silicon Valley Bank and the smaller Signature Bank in New York, ensuring that people are not hurt by the banks’ collapse. The US Federal Reserve additional funding was also announced to ensure that other banks can meet the needs of depositors.
The British government and the Bank of England on Monday said they had facilitated the sale of the UK’s Silicon Valley Bank arm to HSBC, one of Europe’s biggest banks, ensuring that the bank’s customers would have access to their money.
John Gieve, former deputy governor of the Bank of England, said the rapid response was different from what happened at the start of the global financial crisis 15 years ago. At that time, the US authorities allowed the collapse of the investment banking giant Lehman Brothers.
“That scared the markets in general, because they didn’t stand behind it,” Gieve told the BBC. “So what we saw overnight was the Swiss central bank saying, ‘No, we’re not going to let this go down.’
“I don’t know what the future holds for a Credit Suisse, but so far they’re still around,” he added. “And it seems that the Swiss central bank will ensure that it stands enough to change its activities for the future.”
Banks are under pressure after interest rates rose rapidly after a long period of historically low rates.
To maximize the return on their investments, banks have to take more risks and some “do it more carefully than others,” said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.
Because of this, some banks are now facing a lack of “liquidity,” which means they cannot sell assets quickly to meet the needs of depositors.
Shares of Credit Suisse fell to a record low on Wednesday after the Saudi National Bank said it would not put more money into the Swiss lender to avoid regulations that kick in if an investor’s stake rises above the 10%
Credit Suisse also reported on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting at the end of last year. That cast fresh doubts about the bank’s ability to weather the storm.
Its stock has suffered a long, continuous decline: Now trading at a little over 2 francs, the stock was valued at more than 80 francs ($86.71) in 2007.
The Swiss bank is pushing to raise money from investors and has launched a new strategy to combat a number of problems, including bad bets by hedge funds.repeatedly shaking up its top management and surveillance scandal involving Zurich rival UBS.
Credit Suisse “is a much bigger concern for the global economy” than the midsize US banks that collapsed, said Andrew Kenningham, chief European economist for Capital Economics.
It has several subsidiaries outside of Switzerland and handles sales for hedge funds.
The unrest “once again raises the question of whether this is the beginning of a global crisis or just an ‘idiosyncratic’ case,” Kenningham said in a note. “Credit Suisse is widely seen as the weakest link among Europe’s major banks, but it is not the only bank struggling with weak profitability in recent years.”
European finance ministers said this week that their banking system has no direct exposure to US bank failures.
Europe has strengthened banking safeguards in the wake of the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 by transferring management of its biggest banks to the central bank, sources said. analyst.
The Credit Suisse parent bank is not part of the EU regime, but it has entities in several European countries that. Credit Suisse is subject to international rules that require it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.
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Kirka reports from London. AP reporters David McHugh in Frankfurt, Germany, Colleen Barry in Milan and Joseph Krauss in Ottawa, Ontario, contributed.