16th March 2023 – (New York) Credit Suisse, a Swiss-based global banking giant, has secured a US$54 billion lifeline from the Swiss National Bank to shore up liquidity and investor confidence, following a slump in its shares that intensified fears about a global banking crisis. The bank’s announcement helped reverse some of the heavy share market losses and restored confidence in wider financial markets, which were battered as investors fretted about potential runs on global bank deposits.
Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis. Credit Suisse’s shares have experienced a significant surge in value following the Swiss National Bank’s offer of a US$54 billion loan to the bank. The shares shot up by 32% at the opening of trading on Thursday, with the U.S. -listed shares rising 6.9% to US$2.31 before pulling back to around 2.13 Swiss francs (US$2.29). The recovery follows a turbulent period for the global banking sector, which saw Silicon Valley Bank, Signature Bank, and Silvergate Capital all fold in recent days.
Credit Suisse’s shares had previously plummeted by 14% on Wednesday, with declines of over 20% in US-listed shares, after its biggest shareholder, the Saudi National Bank, declared it would provide no more financial support to the lender. The SNB loan is expected to help the bank pre-emptively strengthen its liquidity, with the fresh cash injection aiding its core business and clients.
The European Central Bank (ECB) announced a further interest rate hike of 50 basis points today, signalling its readiness to provide liquidity to banks amid recent turmoil in the banking sector. The move follows weeks of signalling from the bank that it would raise rates at its March meeting, as inflation across the 20-member region remains sharply above the targeted level. In February, preliminary data indicated a headline inflation of 8.5%, well above the central bank’s target of 2%.
Despite recent shocks in the banking sector, including the insolvency of Silicon Valley Bank’s international subsidiaries, the ECB has remained committed to its decision to raise rates. In a statement, the bank highlighted that inflation is projected to remain too high for too long, and therefore it had decided to increase the three key ECB interest rates by 50 basis points, bringing the bank’s main rate to 3%.
The ECB also revised its inflation expectations, now predicting headline inflation to average 5.3% this year, followed by 2.9% in 2024. In December, the bank had projected a 6.3% inflation figure for 2023 and a 3.4% rate in 2024.
While some market players had questioned whether President Christine Lagarde would still proceed with the rate hike given recent banking sector turmoil, European officials stressed that the situation in Europe is different from that in the United States. The European banking sector is said to be resilient, with strong capital and liquidity positions, and less deposit concentration. Furthermore, European banks are well capitalised due to regulatory transformations implemented after the global financial crisis.
Meanwhile, renowned economist Nouriel Roubini, also known as “Dr. Doom,” has issued a warning earlier about Credit Suisse, saying that the bank could go bankrupt if ECB implements a 50-basis point rate hike. Roubini has warned that a 50 basis point interest rate hike by the ECB could push Credit Suisse into bankruptcy over the weekend. Roubini tweeted on Wednesday that the ECB must avoid making the same mistake it did in 2011 during the Eurozone (EZ) crisis, when it raised interest rates, causing a loss of confidence in the European banking system. In response to the warning, the Swiss National Bank (SNB) has agreed to provide a lifeline to Credit Suisse, lending the bank US$54 billion to strengthen its liquidity. Despite the initial tumble in shares on Wednesday, Credit Suisse’s stocks have reversed some of the losses, with its shares in Zurich trading 25% higher, and its U.S.-listed stock up 5% in premarket trading.