Credit Suisse: will emergency lifeline calm global bank fears?

Shares in Credit Suisse jumped this morning after Switzerland’s central bank stepped in to shore up investor confidence.

The “troubled” private lender’s stock plummeted by as much as 30% yesterday after one of its top shareholders, Saudi National Bank, ruled out any further investment, said the Financial Times. The sell-off “weighed on bank stocks in Europe and the US”, which were “reeling” from the collapse of Silicon Valley Bank (SVB).

But the announcement that Credit Suisse will borrow up to $54bn (£45bn) from the Swiss National Bank caused shares to rebound. “The move means Credit Suisse will become the first major global bank to be given an emergency lifeline since the 2008 financial crisis,” said The Telegraph.

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What did the papers say?

Switzerland’s second-largest bank has been “plagued by mismanagement for nearly two decades”, said Andrés R. Martínez at The New York Times, but the latest crisis erupted after three US banks – SVB, Silvergate and Signature Bank – collapsed in quick succession. “Their combined fortunes have triggered swings in the markets, pushed Credit Suisse’s shares to a record low and revived fears of a contagion that could lead to a global recession.”

However, the Swiss bank “is largely considered to have brought its troubles upon itself”, according to Quartz.

An “unprecedented” number of its clients had already “voted with their feet” last year following a series of failings, said The Washington Post. These failings included a corporate espionage scandal and a massive leak of client data to the media. Credit Suisse was also convicted by Swiss authorities of failing to prevent money-laundering by an alleged Bulgarian cocaine trafficking gang.

And the bank’s “association with disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management compounded the sense of an institution that didn’t have a firm grip on its affairs”, the paper continued.

A subsequent effort to “woo back nervous clients” appeared to be paying off until the bank was forced to delay its annual report earlier this month, following queries by the US Securities and Exchange Commission. “Panic spread” when SVB collapsed last week, with investors “ditching anything that smelled of banking risk and deposit flight”.

Although the subsequent Swiss National Bank lifeline has provided a “moment of relief for investors”, said CNBC, the “abrupt loss of confidence” has “prompted some to question the ‘true’ worth of Credit Suisse’s stock price”. Fears about the health of the banking system as a whole have also spread from the US to Europe.

“Some Europeans spent the weekend patting themselves on the back that tighter banking regulations would protect them from the fiasco at mid-sized US banks,” said The Wall Street Journal editorial board. “Well, tell that to the Swiss.”

Many hope that the travails of the troubled banks are “idiosyncratic business-model and management failures”, the board added. “But we may not be so lucky.” With the world “witnessing more than one-off management foibles and failures”, we are facing “a global reckoning for years of policy illusions and financial excess”.

Not so, according to Saudi National Bank chair Ammar Al Khudairy. The latest panic was “completely unwarranted, whether it be for Credit Suisse or for the entire market”, he told a CNBC television interviewer.

The Swiss Financial Market Supervisory Authority and Swiss National Bank also put out a statement insisting “the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets” – translated by the FT’s Alphaville as, “Credit Suisse is fine so please chill”.

What next?

The turmoil is likely to “force the hand of central banks, which have been raising interest rates to tame stubbornly high inflation”, said Martínez at The New York Times. He predicted that the European Central Bank would “play a big part in setting the tone for markets” as policymakers met in Frankfurt to set rates today.

But the ECB stuck with its plans to hike rates by half a percentage point, “judging that inflation poses a bigger immediate threat to the economy than turmoil in the banking sector”, said CNN.

Credit Suisse shares were back to $2.35 this morning, up from a low of $1.76 yesterday, but still below the $2.49 price recorded on Tuesday.

The Swiss National Bank response was “good”, an unnamed banking lawyer told Reuters. “It stopped the sort of immediate burning fire, but I don’t get the feeling the whole fire is out. It’s smouldering.”