Credit Suisse to borrow up to US$54b as it seeks to calm investor fears

Credit Suisse on Thursday said it was taking "decisive action" to strengthen its liquidity by borrowing up to US$54 billion from the Swiss central bank after a slump in its shares intensified fears about a broader bank deposit crisis.

The Swiss bank's problems have shifted the focus for investors and regulators from the United States to Europe, where Credit Suisse led a selloff in bank shares after its largest investor said it could not provide more financial assistance because of regulatory constraints.

Regulators in the private banking hub on Wednesday had sought to ease investor fears around Credit Suisse, which added to broader worries sparked by last week's collapse of Silicon Valley Bank and Signature Bank, two US mid-size firms.

Asian stocks had extended Wall Street's tumble on Thursday and investors bought gold, bonds and the dollar, leaving markets on edge ahead of a European Central Bank meeting later in the day. The bank's announcement in the early European morning helped trim some of those losses though trade was volatile.

In its statement early Thursday, Credit Suisse said it is exercising its option to borrow from the Swiss National Bank up to 50 billion Swiss francs (US$54 billion).

Investor focus is now on any action by central banks and other regulators in Asia to restore confidence in the banking system as well as any exposure regional businesses may have to Credit Suisse.

In a joint statement on Wednesday, the Swiss financial regulator FINMA and the nation's central bank sought to ease investor fears around Credit Suisse, saying it "meets the capital and liquidity requirements imposed on systemically important banks." They said the bank could access liquidity from the central bank if needed.

Credit Suisse said it welcomed the statement of support from the Swiss National Bank and FINMA.

Credit Suisse would be the first major global bank to be given such a lifeline since the 2008 financial crisis — though central banks have extended liquidity more generally to banks during times of market stress including the coronavirus pandemic.

SVP's demise last week, followed by that of Signature Bank two days later, sent global bank stocks on a roller-coaster ride this week, with investors discounting assurances from US President Joe Biden and emergency steps giving banks access to more funding.

FINMA and the Swiss central bank said there were no indications of a direct risk of contagion for Swiss institutions from US banking market turmoil.

Earlier, Credit Suisse shares led a 7 percent fall in the European banking index SX7P, while five-year credit default swaps (CADS) for the flagship Swiss bank hit a new record high.

The investor exit for the doors prompted fears of a broader threat to the financial system, and two supervisory sources told Reuters that the European Central Bank had contacted banks on its watch to quiz them about their exposures to Credit Suisse.

The US Treasury also said it is monitoring the situation around Credit Suisse and is in touch with global counterparts, a Treasury spokesperson said.

'Flight to safety'

In the United States, large banks have managed their exposure to Credit Suisse in recent months and view risks emanating from the lender as manageable so far, according to three industry sources who declined to be identified because of the sensitivity of the situation.

Rapid rises in interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders who are also worried about a recession.

Traders are now betting that the Federal Reserve, which just last week was expected to accelerate its interest-rate-hike campaign in the face of persistent inflation, may be forced to hit pause and even reverse course.

Bets on a large European Central Bank interest-rate hike at Thursday's meeting also evaporated quickly as the Credit Suisse rout fanned fears about the health of Europe's banking sector. Money market pricing suggested traders now saw less than a 20 percent chance of a 50 basis point rate hike at the ECB meeting.

Unease sparked by SVP's demise has also prompted depositors to seek out new homes for their cash.

Ralph Hammers, CEO of Credit Suisse rival UBS UBS said market turmoil has steered more money its way and Deutsche Bank CEO Christian Sewing said that the German lender has also seen incoming deposits.