GENEVA (AP) – Shares of Credit Suisse surged 30 percent Thursday after it said it would shore up its finances by borrowing up to nearly $54 billion from the Swiss central bank, bolstering confidence as fears about the system bank they moved to from the United States. Europe.
It was a massive turnaround from a day earlier, when shares in Switzerland’s second-largest commercial bank fell 30% on the SIX exchange after its biggest shareholder said it would no longer invest money in Credit Suisse .
That sent other European banks down after some US banks collapsed, raising concerns about the health of global banks. Shares in France’s Société Générale SA and BNP Paribas, as well as Germany’s Deutsche Bank and Britain’s Barclays Bank rose on Thursday after sharp declines a day earlier.
Credit Suisse, which has been plagued by problems long before the U.S. bank failures, said on Thursday it would exercise an option to borrow up to 50 billion francs ($53.7 billion) from the Swiss National Bank.
“This additional liquidity would support Credit Suisse’s core businesses and customers as Credit Suisse takes the necessary steps to create a simpler, more focused bank built around customer needs,” the bank said.
Banking turmoil cast a shadow over Thursday’s meeting of the European Central Bank. Before the chaos erupted, ECB chief Christine Lagarde said it was “very likely” the bank would make a big half-percentage-point hike in interest rates to tackle stubborn inflation.
After European bank shares tumbled on Wednesday, analysts said the outcome of the meeting was difficult to predict, with some saying the central bank could return to a quarter-point hike. Higher rates are fighting inflation but have fueled fears in recent days that they could cause hidden losses on banks’ balance sheets.
Speaking at a financial conference in the Saudi capital Riyadh on Wednesday, Credit Suisse chairman Axel Lehmann defended the bank, saying: “We have already taken the medicine” to reduce risk.
Asked if he would rule out government assistance in the future, he said: “It’s not an argument. … We are regulated. We have strong capital ratios, a very strong balance sheet. We’re all on deck, so it’s not a problem.”
Fueling fresh fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the US, Credit Suisse’s share price hit an all-time low on Wednesday.
It came after the Saudi National Bank told the media it would not inject more money into the Swiss lender. The Saudi bank is trying to avoid regulations that come into effect with a share of more than 10 percent after investing around 1.5 billion Swiss francs to acquire a stake below that threshold.
The turmoil automatically halted trading in Credit Suisse shares on the Swiss market and sent shares of other European banks down, some by double digits. The stock has suffered a long and sustained decline: it now trades at 2.10 Swiss francs, while in 2007 it was more than 80 francs ($86.71) each.
The Swiss central bank said last night it was ready to act, saying it would support Credit Suisse if needed. Regulators said they believe the bank has enough liquidity to meet its obligations.
Credit Suisse reported earlier this week that executives had identified “significant deficiencies” in the bank’s internal controls over financial reporting since the end of last year. This raised further questions about the bank’s ability to weather the storm.
Credit Suisse is “a much bigger concern for the global economy” than the mid-sized US banks that have failed, said Andrew Kenningham, chief economist at Capital Economics.
It has several branches outside Switzerland and handles trading for hedge funds.
“Credit Suisse is not just a Swiss problem, but a global one,” he said.
He noted, however, that “the bank’s problems were well known, so it’s not a complete shock to either investors or policymakers.”
The problems “once again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a statement. “Credit Suisse has been widely seen as the weakest link among the big European banks, but it is not the only bank to have struggled with weak profitability in recent years.”
Leaving a Credit Suisse branch in Geneva, Fady Rachid said he and his wife were worried about the bank’s health. He planned to transfer some money to UBS.
“I find it hard to believe that Credit Suisse will be able to get out of these problems and overcome them,” said Rachid, a 56-year-old doctor.
Investors were responding to a “broader structural problem” in the banking sector after a long period of low interest rates and “very, very accommodative monetary policies,” said Sascha Steffen, professor of finance at the Frankfurt School of Finance and Management .
In order to achieve a certain rate of return, banks “have had to take more risks, and some banks have done so more cautiously than others.”
European finance ministers said this week that their banking system has no direct exposure to US bank failures.
Europe has strengthened its bank guarantees since the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008, transferring supervision of big banks to the central bank, analysts say.
Parent bank Credit Suisse is not part of EU supervision, but has entities 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 global systemically important banks, or G-SIBs.
The Swiss bank has rushed to raise money from investors and implement a new strategy to overcome a variety of problems, including bad bets on hedge funds, repeated changes to its top management and a spy scandal involving the expansion of rival UBS from Zurich.
In an annual report released on Tuesday, Credit Suisse said customer deposits fell 41 percent, or 159.6 billion francs ($172.1 billion), at the end of last year compared with a year earlier.
McHugh reported from Frankfurt, Germany. Associated Press writers Joseph Krauss in Ottawa, Ontario and Angela Charlton in Paris also contributed.
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