Geneva (AFP) Shares of 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 after the collapse of two US banks..
Credit Suisse announced the agreement before the Swiss stock market opened, sending shares up 33% before settling around a 17% gain, to CHF2 ($2.15), in late afternoon trading. It was a huge turnaround from the day before, when news that the bank’s largest shareholder would not inject more money into Credit Suisse sent its shares down 30%. Lower rates dragged down other European banks and the depth of concerns about the international financial system.
European banking stocks also rose modestly on Thursday.
The Swiss National Bank said on Wednesday it is ready to support Credit Suisse as it meets higher financial requirements imposed on “systemically important banks,” adding that problems at some US banks It does not “pose an immediate risk of infection” for Switzerland.
Regulators are trying to reassure depositors that their money is safe. They “don’t want anyone to be the one to sit in a dark room or movie theater dark and shoot, because that’s what drives the rush for the exits,” said Ross Mold, chief investment officer at online investment platform AJ Bell.
Credit Suisse, which was in trouble Long before American banks failed, he said loans from the central bank would give him time to complete a reorganization designed to create a “simpler, more focused bank.”
“These actions demonstrate decisive actions to strengthen Credit Suisse as we continue our strategic transformation,” CEO Ulrich Korner said in a statement.
Despite the banking turmoil, the European Central Bank He agreed to a large half-percentage-point increase in interest rates in a bid to rein in high inflation, saying Europe’s banking sector was “resilient”, and well-funded.
European Central Bank Vice President Luis de Guindos said in a press conference that European banks’ exposure to Credit Suisse is “very limited”.
Higher rates fight inflation But in recent days it has raised concerns that banks may have caused hidden losses on their balance sheets.
Central banks in the US and Europe moved quickly to restore confidence After the Silicon Valley bank collapse last week, the second largest bank failure in US history.
US authorities moved quickly to guarantee all deposits of the California-based bank and the smaller New York-based Signature Bank. US Federal Reserve He also announced additional financing to ensure that other banks can meet depositors’ needs.
In a similar move, the British government and the Bank of England facilitated the sale of the UK arm of Silicon Valley Bank to HSBC, one of the largest banks in Europe, ensuring that customers get their money back.
The rapid response differs from what happened at the beginning of the global financial crisis 15 years ago, when the US authorities allowed the collapse of investment banking giant Lehman Brothers.
Loans to Credit Suisse “should prevent a Lehman moment, which helps a lot to the relief of markets and investors,” said Victoria Scholar, chief investment officer at online investment service Interactive Investor. “This is a bank that has been around since 1865 and has been instrumental in supporting the growth of the Swiss economy.”
Christine Lagarde, the president of the European Central Bank, said banks were “in a very different position than in 2008” during the financial crisis.
After that crisis, Europe strengthened its banking guarantees by transferring supervision of the largest banks to the Central Bank.
“Crisis is not quite the same,” she said, “but the structure of our banking system, the framework in which it operates, and the supervision that is applied to the banking system, has been greatly improved.”
Banks are under stress Interest rates have risen rapidly after a long period of historically low interest rates.
To boost the return on their investments, banks needed to take more risk and some “did it more wisely than others,” said Sascha Stephen, professor of finance at the Frankfurt School of Finance and Management.
As a result, some banks are now facing a “liquidity” shortage, which means they cannot sell assets fast enough to meet depositor demands.
Credit Suisse shares fell to a record low on Wednesday after Saudi Arabia’s National Bank said it would not place more money in the Swiss bank to avoid regulations that kick in if an investor’s stake rises above 10%.
Credit Suisse also reported that directors had identified “material weaknesses” in the bank’s internal controls over financial reporting up to the end of last year. This raised new doubts about the bank’s ability to weather the storm.
Its stock has suffered a long and persistent decline: it now trades at just over 2 francs ($2.15), and the stock was valued at more than 80 francs ($86.71) in 2007.
The Swiss bank is seeking to raise money from investors and put forward a new strategy to overcome a host of problems, including bad bets on hedge funds.Frequent changes of top management And a spy scandal Including Zurich competitor UPS.
Outside a Credit Suisse branch on Thursday, accountant David Glaus said the Swiss government was unlikely to let such a huge bank fail, if for no other reason than to protect Switzerland’s banking industry.
“It is still a Swiss bank. In the background, there are people who are going to support and protect her because I don’t think it’s in our best interest for her to go bankrupt.
But he believes the country has a back-up to keep up appearances in case the worst occurs.
“We still have chocolate and cheese, anyway, to support our image,” he said.
Kirka reported from London. AP correspondents David McHugh in Frankfurt, Germany, Colin Barry in Milan, and Joseph Krause in Ottawa, Ontario, contributed.
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