The Swiss central bank is ready for Credit Suisse support

  • By Simon Read and Natalie Sherman
  • Business Reporter, BBC News

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Credit Suisse shares have hit a record low

Swiss regulators have said they are ready to help troubled banking giant Credit Suisse “if necessary” as the collapse of Silicon Valley Bank in the US sparks fears of a wider crisis.

The Swiss National Bank’s comments came after shares in Credit Suisse fell 24% to a record low.

Investors are worried about the health of the struggling company and have already been startled by US bank failures.

Concerns spread across equity markets and all major indices fell sharply.

The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority tried to allay fears.

“There is no evidence of a direct risk of contagion for Swiss institutions due to the current turbulence in the US banking market,” they said in a joint statement.

Strict rules apply to Swiss financial institutions to “ensure their stability” and Credit Suisse meets the requirements for systemically important banks, regulators said.

“If necessary, the SNB will provide it [Credit Suisse] with liquidity,” they added.

Earlier, fears of weakness from such a large international player had weighed on bank stocks worldwide, with the Stoxx Europe bank stock index falling 7%.

In the UK, the FTSE 100 fell 3.8%, or 293 points – the biggest one-day drop since the pandemic began in 2020.

Germany’s Dax fell more than 3% and France’s Cac 40 index closed about 3.5%. In Spain, the Ibex 35 closed more than 4% lower.

In the US, stocks of both small and large banks were hit, helping push the Dow down nearly 0.9% while the S&P 500 fell 0.7%. The Nasdaq closed about unchanged for the day.

“The problems at Credit Suisse again raise the question of whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” wrote Andrew Kenningham of Capital Economics.

Troubles in the US banking sector began last week with the collapse of Silicon Valley Bank, the country’s 16th largest bank.

The bank, which specialized in lending to technology companies, was shut down by US regulators on Friday in the largest US bank failure since 2008. SVB’s UK arm was acquired by HSBC for £1.

Following the collapse of SVB, New York-based Signature Bank also went bust, with US regulators guaranteeing all deposits with both.

However, there are fears that other banks may face similar problems and trading in bank stocks was volatile this week.

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A bank run on the Silicon Valley bank ended in its collapse last week

“It’s too early to know how far-reaching the damage is,” wrote Laurence Fink, chief executive officer of investment giant BlackRock, in an annual letter to investors. “Regulatory response has been swift so far, and decisive action has helped stave off risks of contagion. But the markets remain tight.”

Established in 1856, Credit Suisse has faced a number of scandals in recent years, including allegations of money laundering and other issues.

The company lost money in 2021 and again in 2022 — its worst year since the 2008 financial crisis — and has warned it probably won’t be profitable until 2024.

Shares of the company had already been hit hard earlier this week – falling in value by about two-thirds over the past year – as customers withdrew funds, including 110 billion Swiss francs ($120 billion), in the final three months of 2022.

The bank’s disclosure on Tuesday of “material weaknesses” in its financial reporting allayed renewed concerns, leading major investor the Saudi National Bank to say it would not inject any more funds into the Swiss lender.

Credit Suisse insisted its financial position was not a cause for concern, with the chief executive saying its cash reserves were “still very, very strong”.

But shares of the bank ended the day down 24% as other banks rushed to reduce their exposure to the firm and Prime Ministers in Spain and France spoke out to allay fears.

Bloomberg reported that BNP Paribas has stopped accepting certain deals when Credit Suisse is the counterparty.

“This banking crisis came from America. And now you’re watching how the whole thing could also lead to problems in Europe,” said Robert Halver, head of capital markets at the German Baader Bank.

“If a bank had even the remotest problem in the past, if big investors say we don’t want to invest any more and don’t want new money to flow into this bank, then of course a story is told where many investors say we want to get out.”

One of the problems that hit the SVB was that it was forced to sell US Treasury bonds it was holding to raise money.

But the value of those bond holdings had fallen over the past year as the Federal Reserve hiked borrowing costs to curb inflation.

Many other central banks, including the Bank of England, have also hiked interest rates. When interest rates rise, the value of bond portfolios falls.

The dips mean many banks could be sitting on significant potential losses. However, the change in value would not normally be an issue unless other stresses – such as significant outflows of customer funds – force companies to sell the holdings.

“The concern is that banks that are sitting on large unrealized losses in their bond portfolios may not have sufficient buffers if deposits are withdrawn quickly,” said Susannah Streeter, Hargreaves Lansdown’s head of money and markets.

“Although the biggest players are classified as not at risk thanks to the large layer of capital they sit on and the stability of their deposits, the nervousness is palpable.”

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