Switzerland's efforts are just a "time-buying" measure for Credit Suisse

In a joint statement on the evening of March 15, the Swiss National Bank (SNB) and Swiss financial regulator FINMA said they would provide liquidity to Credit Suisse after the bank's share price fell more than 30%, hitting an all-time low.

Just hours later, Credit Suisse said it would borrow nearly $54 billion from the SNB in the hope of reassuring investors that it had the cash it needed to stay afloat. The bank also offered to buy back $2.5 billion (in dollars) and €500 million (in euros) of its own bonds early.

Credit Suisse called the move a “decisive action to strengthen the bank’s liquidity.”

"Lifebuoy"

The funding commitment to Credit Suisse has given the troubled lender a chance to revive itself following a near-complete collapse of investor confidence that has roiled global markets.

World - Switzerland's efforts are just a — Credit Suisse's measures demonstrate the bank's decisive action to deliver value to its clients and other stakeholders, Credit Suisse CEO Ulrich Körner said. Photo: Yahoo!News

The support, which amounts to a blank check from one of the world's leading central banks, is reminiscent of European Central Bank (ECB) President Mario Draghi's promise that the ECB would do whatever it took to support the euro during the financial crisis more than a decade ago.

In the years that followed, the ECB and other central banks printed billions of euros, creating an era of free money and a global asset price boom. Raising interest rates to stem rampant inflation exposed the vulnerabilities of financial firms like Credit Suisse.

The move by the SNB and FINMA is aimed at stemming a crisis of confidence in Switzerland’s second-largest lender after years of scandals and losses. Credit Suisse is just a step away from a comprehensive bailout like the one launched during the financial crisis more than a decade ago.

The bank still needs to push through a restructuring process that began last October to restore profitability.

In a joint statement on March 15, the SNB and FINMA said, “the current turmoil in the US banking market will not have any spillover effects on Swiss banks.”

The collapse of Silicon Valley Bank (SVB) in the US on March 10 has sent customers and investors looking to lenders considered more solid, including Swiss rivals such as UBS, putting Credit Suisse in an even more difficult position.

Temporary solution

The state rescue comes after one of the worst days in recent history for Credit Suisse.

The risk of contagion is so great that at least three major European banks have rushed to limit their exposure to Swiss banks, three senior executives at the banks said.

Credit Suisse's troubles came to a head last year, when rumors that the bank might go bankrupt spread on social media.

The “lifeline” that the SNB threw to Credit Suisse to dispel investor doubts was an unprecedented support measure for a systemically important global bank like Credit Suisse.

But while this funding may secure the bank's future, it won't solve the current turmoil, nor convince investors and customers that it can turn things around.

Credit Suisse is looking to restore profitability by shifting away from investment banking and securities trading to focus on managing assets for the wealthy.

The plan forced Credit Suisse to find backers for the investment banking division it wanted to create while boosting its wealth management services, but neither of those goals has been achieved.

In the last three months of 2022, the bank saw its revenue from trading stocks and bonds fall 88% from a year earlier, partly because clients took their business elsewhere. The bank has struggled to recover after clients withdrew about $120 billion during that period.

Within hours of the “rescue,” some expressed skepticism.

“The Swiss authorities probably want to keep the bank alive because it’s a national symbol. They’ll try to prop it up and make it look like it’s still alive, but it’s basically a state-controlled zombie bank,” said Thomas Hayes, president of New York-based investment management firm Great Hill Capital.

While the support could stem volatility in Credit Suisse shares, the bank may be forced to consider selling some businesses such as its Swiss unit, a UK securities regulator said.

Nguyen Tuyet (According to Reuters, CNN, DW)

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