Credit Suisse stock rebounds with help from central bank
Investors sent Credit Suisse’s stock price skyrocketing. The lifeline of more than 50 billion francs launched by the central bank to the banking giant reassured the world markets: at the opening of the session, Thursday March 16, the title Credit Suisse jumped by more than 30% in a strong trading volume. At the same time, the European stock markets recovered Thursday morning by 1.43% in Paris, 1.26% in Frankfurt, 1.27% in London and 1.21% in Milan, after their plunge the day before. The Swiss federal government will hold a special meeting on Credit Suisse on Thursday.
Wednesday, Credit Suisse shares suffered the worst session in its history after a movement of panic following the declarations of its first shareholder, the National Bank of Saudi Arabia (SNB). The action had hit a historic low of 1.55 Swiss francs (1.58 euros), to finally close down 24.24%.
To stop the panic movement, Credit Suisse – which is part of the very small club of banks which are considered to play such an important role that they cannot be allowed to go bankrupt – announced in the middle of the night in Europe that it was going to appeal to the Swiss Central Bank to borrow up to 50 billion Swiss francs (50.8 billion euros) in order to “reinforce preventively” its cash. It will also carry out a series of debt buyback operations for approximately 3 billion Swiss francs.
“No risk of direct contagion”
Earlier Wednesday evening and after a day of surprising silence, the Swiss Central Bank (SNB) and the “policeman” of the Swiss financial markets (Finma) assured that the bank’s finances were solid and met strict criteria of banking regulations.
The central bank then said it was ready to let Credit Suisse access liquidity ” if needed “. The two regulators also estimated “that there is no risk of direct contagion between the problems faced by certain banking establishments in the United States and the Swiss financial market”.
The central bank and Finma recalled that Swiss banks are subject to “strict capital and liquidity requirements”considering that Credit Suisse ” satisfied “ these requirements. They are higher for banks like Credit Suisse, as it is a so-called significant bank “systemic”.
It all started on Wednesday morning with a statement from the president of the Saudi bank. The bank has been Credit Suisse’s biggest shareholder, ever since it bailed out in November, with a stake of just under 10%.
Ammar Al-Khudairy said his bank does not count ” absolutely not “ investing more in Credit Suisse, saying the drag was mostly regulatory. Crossing the threshold above 10% would involve obtaining the approval of Finma, the market surveillance authority in Switzerland.
Although he said he was very satisfied with Credit Suisse’s restructuring plan, his remarks triggered panic on the stock in a market very worried about the risks of contagion after the bankruptcy of the American Silicon Valley Bank (SVB).
Movements going beyond the Swiss Stock Exchange
The fall in Credit Suisse’s share price triggered movements far beyond the Swiss stock market on Wednesday. The Treasury Department said it was monitoring the situation and being in contact with its counterparts in other countries.
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“After yesterday’s extreme share price volatility, the Swiss authorities offered their support. This is a strong and important signal.”reacted Andreas Venditti, analyst at Vontobel in a market commentary. “We hope these measures will calm the markets and stop the negative spiral”added the analyst.
The action has lost more than 87% of its value since the bankruptcy, in March 202, of the British financial company Greensill which had marked the beginning of a series of scandals which have weakened the bank.