Credit Suisse borrows $54 billion from the Swiss central bank

Geneva — Swiss bank Credit Suisse said on Thursday it would shore up its finances and take a $54 billion loan from the central bank after its shares tumbled, dragging down other major European lenders in the wake of the U.S. bank failure.

Credit Suisse said it would exercise an option to borrow up to 50 billion francs ($53.7 billion) from the central bank.

“This additional liquidity would support Credit Suisse’s core business and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said.

Shares in Credit Suisse lost more than a quarter of their value at one point on Wednesday amid renewed fears about the health of financial institutions following the recent collapse of US Silicon Valley Bank and Signature Bank.

The stock fell to a record low after the bank’s largest shareholder, the National Bank of Saudi Arabia, said it would not put more money into the Swiss lender, which has been plagued by problems since long before the collapse of the US banks. The Saudi bank is seeking to avoid regulations that kick in with stakes above 10% after investing about 1.5 billion Swiss francs to acquire a stake below that threshold.

The turmoil prompted an automatic trading halt in Credit Suisse shares on the Swiss market, and shares of other European banks also fell, some by double digits.

Credit Suisse Chairman Axel Lehmann defended the bank at a financial conference in the Saudi capital Riyadh on Wednesday, saying: “We have already taken the medicine” to reduce risks.

Asked if he would rule out state aid in the future, he said: “That is not an issue. … We are regulated. Our capital ratio is strong, our balance sheet is very strong. We’re all on board, so it’s not an issue at all.”

The Swiss National Bank announced late on Wednesday that it was ready to act, saying it would support Credit Suisse if necessary. The bank’s statement did not reveal whether the support will be in the form of cash, loans, or other assistance. Regulators said they believe the bank has enough money to meet its obligations.

A day earlier, Credit Suisse reported that executives had identified “material deficiencies” in the bank’s internal controls over financial reporting at the end of last year. This raised further doubts about the bank’s ability to weather the storm.

Shares in Credit Suisse fell about 30% to about 1.6 Swiss francs ($1.73) before closing down 24% at 1.70 francs ($1.83) on the SIX exchange. At its lowest point, the price is down more than 85% from February 2021.

After the joint announcement by the Swiss National Bank and the Swiss financial market regulator, shares gained ground on Wall Street as well.

The stock suffered a long, sustained decline: in 2007, the bank’s shares traded at more than 80 francs ($86.71) each.

Concerns about the possibility of more hidden problems in the banking system caused investors to quickly sell bank stocks.

France’s Societe Generale SA fell 12% at one point. France’s BNP Paribas fell more than 10%. Germany’s Deutsche Bank fell 8% and Britain’s Barclays Bank nearly 8%. Trading in the two French banks was briefly suspended.

The STOXX Banks index of 21 leading European lenders fell 8.4% after Tuesday’s relatively calm market.

Shares on the American markets were mixed on Wednesday, the Nasdaq composite rose by 0.1%, while the S.The &P 500 fell 0.7%. The Dow Jones Industrial Average ended down 0.9% after posting bigger losses earlier in the session.

Japanese banks fell again, with Resona Holdings, the country’s No. 5 bank, down 5%, while other major banks fell more than 3%.

The turbulence occurred a day before the meeting of the European Central Bank. President Christine Lagarde said last week, ahead of the US setbacks, that the bank was “highly likely” to raise interest rates by half a percentage point to fight inflation. Markets were watching closely to see if the bank would deliver despite the recent turmoil.

Andrew Kenningham, chief European economist at Capital Economics, said Credit Suisse was “a much bigger problem for the global economy” than the mid-sized US banks that collapsed.

It has several subsidiaries outside Switzerland and trades in hedge funds.

“Credit Suisse is not just a Swiss problem, it’s a global problem,” he said.

He noted, however, that the bank’s problems were well known, so they did not come as a complete shock to either investors or decision-makers.

The troubles “reraise the question of whether this is the beginning of a global crisis or just another ‘special’ case,” Kenningham said in a statement. “Credit Suisse was widely seen as the weakest link among Europe’s big banks, but it is not the only bank that has struggled with weak profitability in recent years.”

Leaving the Credit Suisse branch in Geneva, Fady Rachid said he and his wife were worried about the bank’s health. He planned to transfer money to UBS.

“I find it hard to believe that Credit Suisse will be able to get rid of these problems and get over it,” said Rachid, a 56-year-old doctor.

Sascha Steffen, professor of finance at the Frankfurt School of Finance, said investors were reacting to a “broader structural problem” in the banking sector after a period of low interest rates and “very, very loose monetary policy”. & Management.

To achieve returns, banks “had to take on more risk, and some banks did so more prudently than others.”

European finance ministers said this week that their banking system was not directly exposed to a US bank failure.

Europe has strengthened its banking safeguards after the global financial crisis following the collapse of US investment bank Lehman Brothers in 2008 by transferring supervision of the largest banks to the central bank, analysts said.

The parent bank Credit Suisse is not part of EU supervision, but it has organizations in several European countries that are. 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.

The Swiss bank is seeking to raise money from investors and develop a new strategy to overcome a range of problems, including bad bets on hedge funds, repeated shakeups in top management and a spy scandal involving Zurich rival UBS.

Credit Suisse’s annual report released Tuesday showed that customer deposits fell 41% to 159.6 billion francs ($172.1 billion) at the end of last year compared to a year earlier.

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McHugh reported from Frankfurt, Germany. Associated Press writers Joseph Krauss in Ottawa, Ontario, and Angela Charlton in Paris also contributed.