Following the collapse of Silicon Valley Bank in the United States, more banks are on the verge of collapse. The most recent such bank is Credit Suisse. On Wednesday, the bank’s shares went down by about 30%, forcing it to seek the assistance of the Swiss National Bank.
In a statement released by the Bank on Thursday, Credit Suisse said it would borrow up to 50 billion Swiss francs ($54bn) from the Central Bank to help stabilise the already risky situation.
“Credit Suisse is taking decisive action to pre-emptively strengthen its liquidity by intending to exercise its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralized by high-quality assets,” the Bank said in a statement released on Thursday morning.
The Bank’s CEO, Ulrich Koerner, said: “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.”
Despite the assurances from the bank, traders were still uncertain of what might happen, as anxiety and fear have taken over the global market amid fears of another financial crisis. The financial health of the more than 150-year-old bank has alarmed regulators in the United States and across Europe, as they try to grasp what it could mean for the international market. Some firms are also examining their exposure due to the bank’s poor showing lately.
The downward movement of the bank’s shares also affected those of other banks. Stock for JPMorgan Chase dropped by 4.7%, while that of Wells Fargo went down by 3.2%.
All is well, SNB says
The Swiss National Bank has assured those that might be worried about the health of banks in Switzerland to worry not as the collapse of SVB and Signature Bank in the US will not in any way affect the Swiss financial market.
“The Swiss National Bank SNB and the Swiss Financial Market Supervisory Authority FINMA assert that the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets,” the SNB said in a statement on Wednesday. Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.”
Even the biggest shareholder is scared
As Credit Suisse struggles to sustain the good name it has made in the last 167 years, it is most likely that more would have to be done to convince customers and the public that all is well. On Wednesday, the Bank’s biggest shareholder said he would not increase his stake more than the 9.8% shares he owned.
Ammar Al Khudairy, the chairman of Saudi National Bank, who doubled as the highest shareholder in Credit Suisse, told Bloomberg in Saudi Arabia that there was no intention to acquire more than 10% of the Bank.
“We now own 9.8% of the bank — if we go above 10% all kinds of new rules kick in, whether be it by our regulator or the European regulator or the Swiss regulator,” Al Khudairy said. “We are not inclined to get into a new regulatory regime.”
Why worry about Credit Suisse
Credit Suisse was established in 1856 and it is one of the biggest financial institutions in the world. It is the second-largest bank in Switzerland, regarded as a “globally systematically important bank.” It ranks almost at the same level as JP Morgan Chase, Bank of America and the Bank of China.
Although it is more prominent in Switzerland, it is globally interconnected with subsidiaries in the United and other European countries. It is arguably the most trusted bank in the world.
However, the trusted bank seems to have had a lot of controversies surrounding it in the past few years.
Last year, customers withdrew a whooping 123 billion Swiss francs from the bank. Most of the withdrawal was done in the last quarter of the year, forcing the bank to report a loss of about 7.3 billion Swiss francs. It was the highest loss recorded by Credit Suisse since the global financial crisis of 2008.
In 2021, US hedge fund Archegos Capital Management, a client of Credit Suisse, collapsed. The collapse of the company cost the bank approximately $5.5 billion. An external auditor confirmed that there was negligence on the part of the bank.
The once-most trusted bank has been hit by several scandals in recent years, forcing the COO and CEO to resign. The bank’s reputation is at stake and a lot depends on how it handles the current distressing situation.