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Credit Suisse is Switzerland’s second-largest bank after UBS Group, with assets of around $580 billion at the end of 2022, more than twice the size of Silicon Valley Bank (SBV), which failed last week. Over the last few days, Credit Suisse shares and bonds have lost massive value because of nasty rumors. The bank announced it would borrow up to 50 billion Swiss francs ($53.7 billion) from the Swiss National Bank (SNB) to shore up its liquidity.
The news about the state-provided lifeline came only hours after Credit Suisse Chairman Axel Lehmann declined to comment on whether his firm would need any government assistance. CEO Ulrich Koerner sought to calm nerves earlier, saying the bank’s liquidity was strong. However, the market did not believe him. This is what other bank executives told the public before they collapsed.
The Sudden Deaths of two U.S. banks, Silicon Valley Bank (SVB) and Signature Bank, have sparked fears that this could result in a global wave of bank failures. As a result, U.S. regulators announced over the weekend a bail-out program to ensure that bank customers’ deposits are protected. This is intended to prevent a bank run. Now Credit Suisse, the world’s first system-critical bank, apparently needs government assistance.
Credit Suisse would be the first globally systemically important bank to receive a state-provided lifeline, compared with liquidity (easy money) generally offered by central banks to the financial sector.
The troubled Credit Suisse is amid a major overhaul, cutting costs and jobs and creating a separate business for its investment bank. In a joint statement, the SNB and supervisor FINMA announced the provision of the lifeline. Still, they insisted that Credit Suisse was sound and “meets the capital and liquidity requirements imposed on systemically important banks.“
The Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank SNB assert that the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets.
SNB and FINMA press release
The bank announced it would repurchase $3 billion worth of senior debt. Prices on Credit Suisse bail-in bonds fell sharply. Bid prices on the 2027 bonds slid to 31 cents on the dollar from 72 cents the day before.