Credit Suisse borrows £44.5 billion from Swiss national bank to halt crisis

Credit: AP

By Daniel Boal, ITV News Multimedia Producer

Credit Suisse said it will borrow up to 50 billion francs (£44.5 billion) from the Swiss central bank after its shares plunged, dragging down other major European lenders and sparking international concern.

In a move to shore up its finances and strengthen its liquidity, the Swiss bank said it is taking the "necessary steps to create a simpler and more focused bank built around client needs".

Reports suggested the Bank of England is holding crisis talks with international counterparts amid concerns of the crisis at Credit Suisse deepening.

Jitters spread through global markets following the collapse of Silicon Valley Bank and the plunge in Credit Suisse shares.

This has led to FTSE 100 suffering its worst day of trading since the start of the Covid pandemic - and left the chancellor’s spring Budget overshadowed by turmoil in the financial markets.

London’s top index sunk by more than 300 points at one point on Wednesday afternoon, marking a bigger single-day decline than in the aftermath of September’s mini-budget and the day that Russia launched a full-scale invasion on Ukraine in February.Other European banks suffered a drop in value after the news broke, with Barclays Bank down by nearly 8% in trading. Two French banks, Societe Generale and BNP Paribas were forced to suspend trading after shares dropped by 12% and 10% respectively.

Jeremy Hunt welcomed efforts to boost the liquidity of Credit Suisse. Credit: PA

Chancellor Jeremy Hunt said he welcomed efforts to boost the liquidity of bank Credit Suisse.

Mr Hunt told Times Radio: “I hope you understand… chancellors never comment on movements in markets for very obvious reasons, so I won’t give a comment on that.

“All I will say is of course I monitor what is going on in the markets, the Bank of England governor monitors carefully what is going on; he keeps me informed.

“I think the news we have heard from the Swiss authorities overnight is welcome.”

The Swiss bank's share prices tanked by nearly a quarter earlier this week after one of its top investors, Saudi National Bank, said it would not increase its stake in the struggling lender.

The turmoil at the bank, which has been described as "not a complete shock", prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits.

It raises "the question about whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” according to Andrew Kenningham, chief Europe economist for Capital Economics.

”Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”

Credit Suisse Chairman Axel Lehmann defended the bank, saying, “we already took the medicine” to reduce risks.

And, after crunch talks with the Swiss National Bank, and the £44.5 billion loan that followed, the bank's share prices have made up some ground on Wall Street.

ITV News Economics Editor Joel Hills said that "something needed to be done to break the negative feedback loop" but questions if intervention from the Swiss National Bank will bring an end to "the sense of panic".

Are the problems at Credit Suisse new?

The challenges being faced at Credit Suisse are “a much bigger concern for the global economy” than midsize US banks collapsing, added Kenningham.

“Credit Suisse is not just a Swiss problem but a global one,” he said.

But they haven't come as a huge surprise to financial experts.

Stock has suffered a long, sustained decline: In 2007, the bank's shares traded at more than 80 francs (£71.82) each.

And, after managers identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year.

New doubts were fanned about the bank’s ability to weather the storm.

Credit Suisse stock dropped about 30%, to about 1.6 Swiss francs (£1.43), before clawing back to a 24% loss at 1.70 francs (£1.52) at the close of trading on the six stock exchange.

At its lowest, the price was down more than 85% from February 2021.

The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market. Credit: AP

The turbulence came a day ahead of a meeting by the European Central Bank.

President Christine Lagarde said last week, before the US failures, that the bank would “very likely” increase interest rates by a half percentage point to fight against inflation.

Markets were watching closely to see if the bank carries through despite the latest turmoil.

European finance ministers said this week that their banking system has no direct exposure to the US bank failures.

Europe strengthened its banking safeguards after the global financial crisis that followed the collapse of US investment bank Lehman Brothers in 2008 by transferring supervision of the biggest banks to the central bank, analysts said.

The Credit Suisse parent bank is not part of EU supervision, but it has entities in several European countries that are.

In an annual report released on Tuesday, Credit Suisse said customer deposits fell 41%, or by 159.6 billion francs (£142.54 billion), at the end of last year compared with a year earlier.

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