GENEVA (AP) — Shares in Credit Suisse rose Thursday after the Swiss central bank agreed to lend the bank up to 50 billion francs ($54 billion) to boost confidence in the country’s second-biggest lender. Two American banks.
Credit Suisse announced the deal before the Swiss stock market opened, sending shares up 33% on a 25% gain to 2.13 francs in midday trading. News that the bank’s largest shareholder would not pay more in Credit Suisse sent its shares tumbling 30%, dragging other European banks..
European banking stocks also rose modestly on Thursday.
The Swiss National Bank said on Wednesday it was ready to support Credit Suisse as it meets higher capital and liquidity requirements imposed on “systemically important banks”. Do not pose a “direct risk of infection” to Switzerland.
In short, it is an attempt to build trust.
“Regulators in Switzerland will certainly believe that this is enough,” said Russ Molt, investment director at online investment platform AJ Bell. “They don’t want anyone sitting in a dark room or in a dark cinema to be the person shouting fire because that’s what triggers the rush to get out.”
“So what they’re trying to do is tell depositors, ‘Your money is safe, we’ll back you, we’ll back the bank, we’ll provide liquidity,'” he said. “They’re trying to say, move along. There’s nothing to see here.
Credit Suisse, however, was beset by problems Long before U.S. bank failures, he said on Thursday the central bank’s loans would give it time to complete a restructuring designed to create a “simpler and more focused bank.”
“These actions demonstrate a decisive step to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our customers and other stakeholders,” Chief Executive Ulrich Koerner said in a statement.
Despite the banking turmoil, the European Central Bank It went with a large, half-a-percentage-point increase in interest rates to tackle stubbornly high inflation, with Europe’s banking sector saying it was “resilient” with strong funds.
Higher rates fight inflation But in recent days they have fueled concerns that they may have caused hidden losses on bank balance sheets.
Central banks in the US and Europe have moved quickly to restore confidence in the banking system It was the second largest bank failure in US history, after the collapse of Silicon Valley Bank last week.
US officials said on Sunday that they would guarantee all deposits of California-based Silicon Valley Bank and New York’s smaller Signature Bank, ensuring that people would not be hurt by the banks’ collapse. US Federal Reserve Other banks have announced additional funding to ensure they meet the needs of depositors.
The British government and the Bank of England said on Monday they had facilitated the sale of Silicon Valley Bank’s UK arm to HSBC, one of Europe’s biggest banks, to ensure the bank’s customers have access to their money.
John Give, a former deputy governor of the Bank of England, said the rapid response was different to what happened at the start of the global financial crisis 15 years ago. At that time, US authorities allowed investment banking giant Lehman Brothers to collapse.
“That’s what spooked the markets as a whole, because they didn’t stand behind it,” Kiv told the BBC. “So what we saw overnight was the Swiss central bank saying, ‘No, we’re not going to allow this to go into a disorderly decline.’
“I don’t know what the future holds for Credit Suisse, but so far they’re still standing,” he added. “It looks like the Swiss central bank will make sure it stays put long enough to restructure its affairs for the foreseeable future.”
Banks are under pressure After interest rates rose sharply following a long period of historically low rates.
To maximize returns on their investments, banks have to take on more risk, and some “did it more prudently than others,” said Saska Steffen, a finance professor at the Frankfurt School of Finance & Management.
As a result, some banks now face “liquidity” shortages, meaning they cannot sell assets quickly enough to meet depositor demands.
Shares in Credit Suisse fell to record lows on Wednesday after Saudi National Bank said it would not pay the Swiss lender more money to avoid regulations that kick in if an investor’s stake rises more than 10%.
Credit Suisse said on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls over financial reporting at the end of last year. This has fueled fresh doubts about the bank’s ability to weather the storm.
Its stock has endured a long, sustained decline: now trading at just over 2 francs, the stock peaked at more than 80 francs ($86.71) in 2007.
The Swiss bank is under pressure to raise money from investors and develop a new strategy to tackle a range of problems, including bad bets at hedge funds.A series of shake-ups of its top management and a spy scandal Zurich rival UBS is involved.
Credit Suisse is “a much bigger concern for the global economy” than the collapse of US mid-sized banks, said Andrew Cunningham, chief European economist at Capital Economics.
It has several subsidiaries outside Switzerland and handles trading for hedge funds.
The problems “raise again the question of whether this is the beginning of a global crisis or just another ‘isolated’ case,” Cunningham said in a note. “Credit Suisse is widely seen as the weakest link among Europe’s big banks, but it is not the only bank to have struggled with weak profitability in recent years.”
European finance ministers said this week that their banking system was not directly exposed to US bank failures.
After the global financial crisis that followed the collapse of U.S. investment bank Lehman Brothers in 2008, Europe strengthened its bank safety by transferring oversight of the biggest banks to the central bank, analysts said.
Credit Suisse’s parent bank is not part of EU supervision, but has subsidiaries in several European countries. Credit Suisse is subject to international rules that require it to maintain financial buffers against losses as one of 30 globally systemically important banks, or G-SIPs.
Girga reported from London. AP reporters David McHugh in Frankfurt, Germany, Colin Barry in Milan and Joseph Krause in Ottawa, Ontario contributed.