Investors sent Credit Suisse shares soaring after the central bank tossed the banking giant a more than CHF50 billion lifeline in a bid to calm global markets.
Thursday, at the opening of the session, Credit Suisse stock rose more than 30% in strong trading volume.
The day before, the action had endured the worst session in its history after a panic movement following statements by its largest shareholder, the Saudi National Bank. The share had reached an all-time low of CHF 1.55.
To curb the panic movement, Credit Suisse, which is part of the very small club of banks deemed so important that they must not go bankrupt, announced in the middle of the night in Europe that it would go to the Swiss To appeal to the central bank to borrow up to 50 billion Swiss francs (50.7 billion euros) to “preventively strengthen” its liquidity.
It will also conduct a series of debt buybacks worth around 3 billion Swiss francs.
Reassuring and belated remarks
Early Wednesday evening, and after a day of astounding silence, the Swiss central bank and the regulator of the Swiss financial markets (Finma) gave assurances that the bank’s finances are sound and meet strict banking regulation criteria.
The central bank responded by saying it was ready to give Credit Suisse access to liquidity “if needed”.
The two regulators also considered “there is no risk of direct contagion between the problems of certain banking institutions in the United States and the Swiss financial market.”
The central bank and Finma stressed that Swiss banks are subject to “strict capital and liquidity requirements” and believed that Credit Suisse “meets” those requirements.
They are higher for banks like Credit Suisse because it is a so-called “systemically important” bank.
Small sentence, big effect
It all started with a statement from the President of the Saudi bank on Wednesday morning. Since the Credit Suisse rescue package in November, the bank has been the largest shareholder with a stake of almost 10%.
Ammar al-Khudairy said his bank had “absolutely no plans” to invest more in Credit Suisse, insisting the burden was mainly regulatory.
Exceeding the 10% threshold would require approval from Finma, the market surveillance authority in Switzerland.
Although he said he was very pleased with Credit Suisse’s restructuring plan, his comments sparked panic over the stock in a market worried about contagion following the bankruptcy of American bank SVB.
The stock lost up to 30% of its value during the session, hitting a new all-time low of 1.55 Swiss francs to finally close down 24.24%. This is the worst session in its history, with the drop even more pronounced than during the turbulent sessions of the 2008 financial crisis.
Beyond the Alps
The fall in the price of Credit Suisse shares on Wednesday caused movement far beyond the Swiss stock market. The Treasury said it was monitoring the situation and in touch with its counterparts in other countries.
“After yesterday’s extreme price volatility, the Swiss authorities have offered their support. This is a strong and important signal,” says Andreas Venditti, analyst at Vontobel, in a market commentary.
“We hope that these measures will calm the markets and stop the negative spiral,” the analyst added.
The stock has lost more than 87% of its value since British financial firm Greensill filed for bankruptcy in March 2021, which marked the start of a series of scandals that have weakened the bank.