Shares of Credit Suisse rose more than 20% on Thursday after the company secured a lifeline from the Swiss central bank to boost investor confidence, although some analysts said the market’s relief could be of short term.
The Swiss bank’s announcement that it will draw on a $54 billion loan from the Swiss National Bank (SNB) helped quell the heavy sell-off in Asian financial markets on Thursday and sparked a modest rally in European equities.
While many hailed the news, others were cautious. JPMorgan analysts said the SNB’s loan won’t be enough to allay investor concerns and that “the status quo was no longer an option,” leaving the Credit Suisse takeover as the most likely outcome.
The bank has seen a steady stream of withdrawals from wealthy clients, which Luis Arenzana, founder of Shelter Island Capital Management, told Reuters “wasn’t necessarily a panic reaction to recent events in the United States alone.”
“CS has not earned its cost of capital since 2013. Since then, the bank has lost a total of 2.5 francs per share. Nine years,” Arenzana said.
Shares of Credit Suisse surged as much as 32% in the first few minutes of trading on news of the bailout line, and soared 24% on higher volume, reversing some of the losses that wiped out a quarter of its market value on the day previous. The shares traded at a rate of 33.27 million per hour, the fastest on record, according to Refinitiv data.
Shares of the bank fell 24% on Wednesday after its biggest backer said it could not offer further financial assistance due to regulatory reasons.
In its statement Thursday, Credit Suisse said it would exercise a central bank lending option of up to CHF50 billion ($54 billion).
The announcement follows assurances from Swiss authorities on Wednesday that Credit Suisse has met “the capital and liquidity requirements imposed on systemically important banks” and will be able to access central bank liquidity if needed.
“After yesterday’s extreme volatility in equity prices, the Swiss authorities have offered their support. This is a strong and important signal. We expect the measures to calm the markets and break the downward spiral,” said Andreas Venditti, equity Strategist at Bank Vontobel. “However, it will take time to fully regain trust in the institution,” Venditti said. The Swiss franc was up 0.5% against the dollar on Thursday after falling 2.2% on Wednesday, marking its biggest one-day drop since the central bank eased its peg in early 2015.
The value of Credit Suisse bonds has risen sharply. The bank’s additional dollar-denominated Tier 1 bonds rose about 8.4 cents, after falling below 50 cents a day earlier.
Source: Terra
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