The turmoil of last week’s US banks moved across the Atlantic this week, as Credit Suisse announced that it will borrow $54 billion from the Swiss Central Bank to shore up its liquidity.
The turmoil of last week’s US banks moved across the Atlantic this week, as Credit Suisse announced that it will borrow $54 billion from the Swiss Central Bank to shore up its liquidity.
Although Credit Suisse, the bank that was founded in 1856, has gone through crises recently, they have not been that severe. The bank’s announcement of borrowing money did not come until after a violent financial storm that lasted only about twenty-four hours, which led to a sharp decline in its share price.
Credit Suisse’s business largely boils down to managing funds and creating investment products for its wealthy clients around the world. However, the bank recorded a net loss of 7.4 billion euros in 2022, which was the largest loss since the financial crisis in 2008.
What is the reason for the bank crisis?
Since the collapse of the Silicon Valley bank in the US last week, investors have feared this contagion could reach banks around the world. This led to the sale of shares in banks in all countries of the world, including Credit Suisse.
However, the participation that the bank faced intensified when the National Bank of Saudi Arabia announced, last Wednesday, that it was not considering increasing its investments in the Swiss bank due to the regulatory rules. The National Bank of Saudi Arabia owns about 9.9% of the shares in Credit Suisse.
How did the investors react?
The Saudi announcement came at the worst possible time. Investors in Credit Suisse were already worried about the US contagion to Europe and the possibility of vulnerabilities in the global banking system.
And when the National Bank of Saudi Arabia announced what it announced, the concerns of the investors in Credit Suisse were strengthened, and it raised a terrifying hypothesis that the bank might be forced to benefit from and seek the help of shareholders and investors to secure liquidity.
Therefore, investors immediately sought to protect themselves, and in parallel, the shares of the Swiss lender fell, It lost more than 30 percent of its value on Wednesdaywhich is the largest drop recorded in the bank’s history in one day.
On the other hand, other dealers with the bank closely monitored its situation and some of them stopped commercial operations with it, according to the American Wall Street Journal.
Is Credit Suisse different from Silicon Valley Bank?
The Swiss bank manages the capitals and businesses of the wealthy who own millions and sometimes billions and want to invest in them. In addition to the rich, there are several sovereign wealth funds that deal with him.
Credit Suisse ranks second in Switzerland in terms of assets and is considered a major bank in the global system, unlike SVB, which is considered a local bank and mainly caters to start-ups.
And while Credit Suisse approved a package of measures to protect the institution from high interest rates, Silicon Valley Bank said that it did not have any financial reserves that could help it in its crisis that resulted in high interest rates.
However, despite the fundamental difference between the two banks, Credit Suisse shares fell by about 7% in Switzerland on Friday, which means that the stock lost a fifth of its value this week.
government actions
After the sharp and unprecedented decline in the value of the bank’s shares, the European Central Bank contacted the banks that it supervises, and deals with Credit Suisse, to determine the extent of the risks that they may be exposed to.
French Prime Minister Elisabeth Born called on the Swiss authorities to intervene and “settle” the problem last Wednesday. The Swiss response came quickly on Thursday, as Credit Suisse announced that it had borrowed about $54 billion from the Central Bank of Switzerland, with the aim of enhancing its cash liquidity. Since Wednesday, several statements have been made by European officials with the aim of reassuring investors.
and friday, The Governor of the French Central Bank, François Vilorois de Gallau, said that French and European banks are “very strong”. Referring to administrative and organizational differences between European and American banks.
On Thursday, the European stock exchanges rose again after the message of confidence that the European Central Bank sent to the banking sector, and the bank raised its main interest rate by half a point, confirming its readiness to intervene when needed in order to “maintain financial stability” in the euro area.
