Credit Suisse asks the Swiss central bank for public support
Credit Suisse asked the Swiss National Bank for public support after its shares fell 31% on Wednesday, dragging stocks down a day after gasping for breath following the collapse of the US Silicon Valley Bank (SVB). The cost of credit default swaps (CDS), which assesses the likelihood of Credit Suisse defaulting, was almost three times higher than the level seen during the 2008 global financial crisis.
Credit Suisse has also sought support from the Swiss financial watchdog, two people with knowledge of the matter told the Financial Times. So far, neither the Central Bank nor Finma have made public statements.
Just hours earlier, Credit Suisse CEO Axel Lehmann had said the bank had a strong balance sheet and there was no need for government bailout. He said this at a financial conference in Saudi Arabia.
Ironically, it was a Saudi shareholder in a Swiss bank that crashed its stock on Wednesday (although Credit Suisse has long been troubled, its shares have fallen 82% in just over two years – and that’s before today’s collapse). The Saudi National Bank, which in 2022 bought a 10% stake in Credit Suisse and helped it raise capital in the amount of CHF 4 billion, ruled out providing additional financial support. After that, the stock fell and the bank’s market value fell below 7 billion francs.
On Tuesday, Credit Suisse said its PwC auditor had found “significant weaknesses” in the bank’s financial reporting checks. It postponed the release of its annual report last week after the U.S. Securities and Exchange Commission requested more information on identified issues.
The cost of an annual CDS (the market’s insurance against the default of an annual bank debt) jumped from less than 200 points to over 800 points on Wednesday. This is more than 14 times the 20-year average. In 2008, the value of these swaps did not exceed 300 points.
Prices of Credit Suisse dollar bonds of various maturities fell to 65-73% of face value.
“The intervention of the Swiss National Bank and giving them financial support seems inevitable,” Opimas analyst Octavio Marenzi told FT. “He and the government are well aware that the collapse of Credit Suisse, and even the loss of depositors, will undermine Switzerland’s reputation as a global financial center.”
The European Central Bank has asked banks in the region to report their involvement in Credit Suisse, a person with knowledge of the matter told the FT. So are the Treasury Department and the US Federal Reserve, a source told Bloomberg.
Credit Suisse’s assets totaled $580 billion at the end of 2022, while SVB’s assets totaled $209 billion in March. The collapse of SVB, which had $175 billion in deposits, was the second largest in US banking history, and Signature Bank, which authorities shut down on Sunday, was third ($110.4 billion in assets and $88.6 in deposits).
The problems of these banks started the collapse of world stock exchanges: shares of banks included in the European Stoxx 600 index fell by 16% over the last week. identity documents Societe Generale, Deutsche Bank, Barclays, ING lost 7-11% on Wednesday. Shares of Citigroup and JPMorgan Chase fell about 5% in US morning trading, while regional First Republic Bank, whose credit rating was downgraded by two agencies the day before, fell 13%.
The collapse of SVB could be the beginning of a “slowly developing crisis” in the US financial system as new banks close, Larry Fink, CEO of BlackRock, the world’s largest management firm, warned in a letter to investors. At the same time, inflation will remain quite high and interest rates will continue to rise, he said. It was their increase that led to a decrease in the value of government bonds in SVB’s portfolio, which caused the bank’s financial problems.