This article was first published on March 15th. New Information has been added:
After publicly announcing that they would be there to be help if need be, the Swiss National Bank has now officially provided Credit Suisse with $54 billion to prevent the international bank from facing a liquidity crisis. Credit Suisse is considered a systemically important financial institution (SIFI), or a “too-big-to-fail,” that could cause some serious problems for the economy if it collapses.
Investopedia explains the move in more detail:
Credit Suisse (CS) shares remade much of the ground lost yesterday after the firm said it will borrow CHF 50 billion (about $54 billion) from Swiss National Bank to avert a liquidity crisis.
It announced the plan hours after a show of support from Swiss authorities, and shares jumped 20% after plunging 24% the day prior.
This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs.
The company said.
Credit Suisse has also offered to buy back up to $2.5 billion of dollar-denominated debt and 500 million euros ($530 million) worth of euro-denominated debt.
The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of current trading levels to repurchase debt at attractive prices.
The company said.
The Zurich-based lender admitted to “material weaknesses” in internal controls and financial reporting in its 2022 annual report released Monday. Since then, Credit Suisse shares and its American Depository Receipt listed in the U.S. lost value over liquidity concerns.
Investor confidence took a further beating on Wednesday after Credit Suisse’s largest shareholder, Saudi National Bank, refused to come to its aid. Credit Suisse ADRs closed down 14% in trade.
ORIGINAL POST
The recent American banking earthquake still continues to send shockwaves around the world. One of those affected by this is Credit Suisse, a megabank based out of Switzerland that has a deep influence and investment portfolios around the world.
The WinePress noted that Credit Suisse’s stocks were being hit, in a report discussing how other British banks were being hammered and forced to shutter some of their branches.
From that report:
Swiss giant Credit Suisse stocks have also gotten hammered as well to a new all-time low during early trade in Europe on Tuesday. CNBC wrote: ‘In the Tuesday annual report, Credit Suisse revealed that it had identified “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022. These issues related to a “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements” and various flaws in internal control and communication.’
“A failure to reverse these outflows and to restore our assets under management and deposits could have a material adverse effect on our results of operations and financial condition,” The Credit Suisse report said.
Now the Swiss National Bank has announced that they are ready and willing to offer as much liquidity as needed to make sure the large lender remains stable. Credit Suisse is considered to be a systemically important financial institution (SIFI), according to Investopedia – “a bank, insurance, or other financial institution (FI) that U.S. federal regulators determine would pose a serious risk to the economy if it were to collapse. A SIFI is viewed as “too big to fail” and imposed with extra regulatory burdens to prevent it from going under.”
CNBC has more on the announcement:
The Swiss National Bank said Wednesday that Credit Suisse
is currently well capitalized and that the central bank will provide additional liquidity if necessary, as regulators on both sides of the Atlantic tried to calm fears of a spreading crisis.
A statement from the Swiss Financial Market Supervisory Authority and the SNB said that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks” and that the central bank will step in if the situation changes. The regulators also said that the failure of two U.S. regional banks in the past week does not pose a “direct risk of contagion” to Swiss banks.
The statement comes after the Swiss-listed shares of Credit Suisse fell more than 20% on Wednesday. The bank had previously delayed its annual report and said Tuesday that it found “material weakness” in its financial reporting in prior years.
Additionally, the Saudi National Bank — which is Credit Suisse’s biggest financial backer — said it could not provide additional capital to the company because of a regulatory issue. The Saudi bank’s chairman did say that his group was happy with Credit Suisse’s transformation plan and that the firm’s financial position appeared strong.
The American depositary receipts of Credit Suisse pared their losses after the announcement from regulators to about 14% for the session. European markets had already closed for the day when the statement was released.
The concern over Credit Suisse comes after the collapse of Silicon Valley Bank and Signature Bank over the past week, two of the largest U.S. bank failures in history. U.S. regulators on Sunday announced plans to backstop the deposits at the failed banks and to provide additional liquidity to the financial system.
The drop of Credit Suisse’s stock on Wednesday appeared to renew fear of broader bank issues. Shares of major banks in Europe and the U.S., including Deutsche Bank
and Citigroup, retreated, as did many regional bank stocks.
The cracks in the banking system are appearing after rapid rate hikes by global central banks over the past year to fight inflation.
The announcement from Swiss regulators comes a day before the next monetary policy meeting of the European Central Bank. The U.S. Federal Reserve’s Federal Open Markets Committee is set to meet next week.
AUTHOR COMMENTARY
A man of great wrath shall suffer punishment: for if thou deliver him, yet thou must do it again.
Proverbs 19:19
Though our proverb does not exactly fit the context 100%, the idea that these people – these “too-big-to-fails” – get to basically make garbage investments with people’s deposits will have to be bailed-out and rescued, again and again, since time in immemorial it seems.
As I have covered before, many of these banks and institutions in their near-sighted pride thought the party of basically 0% interest rates in most parts of the world (and some even going negative) would last forever; but now that central banks around the world are all raising rates in concert together, the banks cannot afford the costs it takes hold onto these bonds, treasuries, securities, and other investments that go sour.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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