Credit Suisse said on Thursday it would borrow up to $54 billion from the Swiss central bank to bolster liquidity and investor confidence, after the plunge in its shares heightened fears of a global banking crisis.
The bank’s midnight announcement in Zurich triggered a 24% rise in Credit Suisse shares and helped reverse some of the heavy losses in stock markets caused by investor fears of possible bank runs around the world.
Credit Suisse is the first major global bank to receive a bailout since the 2008 financial crisis, and its difficulties have raised serious questions about central banks’ ability to support their fight against inflation with aggressive interest rate hikes.
Switzerland’s second-largest bank said it would exercise a loan option of up to 50 billion francs ($54 billion) from the central bank.
This followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and could access central bank liquidity if needed.
JP Morgan analysts said the measures would give the Swiss lender time to finalize its restructuring.
“The combination of measures should be sufficient to contain adverse moves in the capital structure as the market has assessed the potential impact of liquidity pressures,” JP Morgan said in a statement on Thursday.
As its shares soared, the cost of holding Credit Suisse’s debt exposure plummeted. Five-year credit default swaps (CDS) fell 128 basis points to 1,016 basis points since Wednesday’s close after hitting record highs that day.
For most of the Asian trading session, equities sank into the red as investors rushed to the safety of gold, bonds and the dollar. While Credit Suisse’s announcement helped curb some losses, trading was volatile and sentiment fragile.
The Credit Suisse loan will be disbursed under a covered credit facility and a short-term liquidity facility, fully backed by high quality assets. The bank also announced offers of senior debt securities for cash of up to CHF 3 billion.
Chief Executive Officer Ulrich Koerner told Credit Suisse staff in a statement they should focus on the facts, promising to move quickly with a plan to streamline operations.
Credit Suisse will continue to focus on transformation from a strong position, citing an improved cash coverage ratio and recent capital increases, Koerner said.
Source: Terra
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