Credit Suisse to borrow up to $54bn from Swiss central bank

Credit Suisse to borrow up to $54bn from Swiss central bank

Troubled banking giant Credit Suisse says it will borrow up to 50bn francs ($54bn; £44.5bn) from the Swiss central bank to shore up its finances.

As part of its efforts to become a simpler bank, the lender said it was taking decisive action to strengthen its liquidity.

Credit Suisse shares fell 24% on Wednesday after the company revealed "weakness" in its financial reporting.

This sparked a general sell-off on European markets, as well as fears of a larger financial crisis.

Credit Suisse said its borrowing measures demonstrated "decisive action to strengthen [the bank]".

"My team and I are determined to move quickly to deliver a simpler and more focused bank built around client needs," said Credit Suisse CEO Ulrich Koerner in a statement.

The collapse of Silicon Valley Bank, the country's 16th-largest bank, was followed two days later by the collapse of Signature Bank, exposing problems in the banking sector in the United States.

Following the drop in Credit Suisse shares on Wednesday, a major investor, the Saudi National Bank, stated that it would not inject additional funds into the Swiss lender.

Worries spread throughout financial markets, with all major indexes falling precipitously.

"The problems at Credit Suisse raise the question of whether this is the start of a global crisis or just another 'idiosyncratic' case," Capital Economics' Andrew Kenningham wrote.

The Swiss National Bank, the country's central bank, and the Swiss Financial Market Supervisory Authority attempted to assuage investor concerns by stating that they were ready to assist Credit Suisse if necessary.

Strict rules apply to Swiss financial institutions to "ensure their stability," and Credit Suisse meets the requirements for systemically important banks, according to regulators.

"There are no indications of a direct risk of contagion for Swiss institutions as a result of the current turmoil in the US banking market," they stated jointly.

Credit Suisse, which was founded in 1856, has been embroiled in a series of scandals in recent years, including money laundering allegations and other issues.

It lost money in 2021 and again in 2022, its worst year since the 2008 financial crisis, and has warned that it will not be profitable until 2024.

Shares in the company had already taken a beating before this week, with their value falling by roughly two-thirds last year as customers withdrew funds.

The bank's disclosure of "material weakness" in its financial reporting controls on Tuesday heightened investor concerns.

These were heightened when the chairman of the Saudi National Bank, Credit Suisse's largest shareholder, stated that the Saudi bank would not buy more shares in the Swiss bank due to regulatory concerns.

Credit Suisse insisted at the time that its financial situation was unimportant. However, shares in the lender fell 24% on Wednesday as other banks rushed to reduce their exposure to the firm and prime ministers in Spain and France spoke out to allay fears.

This follows the failure of Silicon Valley Bank (SVB), which specialised in lending to technology companies, by US regulators on Friday, in what was the largest failure of a US bank since 2008. HSBC purchased SVB's UK arm for £1.

Following the failure of SVB, New York-based Signature Bank also failed, with US regulators guaranteeing all deposits at both.

However, fears that other banks may face similar problems have persisted, and trading in bank shares has been volatile this week.

On Wednesday, the Stoxx Europe Banking Index fell 7%.

In the United States, shares in both small and large banks were hit, contributing to a 0.9% drop in the Dow and a 0.7% drop in the S&P 500.

The FTSE 100 in the United Kingdom fell 3.8%, or 293 points, in one day, the largest one-day drop since the early days of the pandemic in 2020.

"This banking crisis originated in the United States. And now people are watching to see if the whole thing will cause problems in Europe "said Robert Halver, head of capital markets at Baader Bank in Germany.

"If a bank has had even the most minor problem in the past, if major investors say we don't want to invest anymore and don't want to let new money flow into this bank, then of course a story is told in which many investors say we want to get out."