Swiss central bank offers Credit Suisse liquidity backstop

The Swiss central bank said it would provide a liquidity backstop to Credit Suisse after the lender’s shares fell by as much as 30 per cent and sparked a broader sell-off in European and US bank stocks.

In a joint statement with financial regulator Finma on Wednesday evening, the Swiss National Bank said there were “no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market”.

Credit Suisse executives held talks with representatives from the SNB and Finma on Wednesday afternoon after the bank’s equity and bonds plunged in value following the failure of three US banks last week. The Financial Times first reported that Credit Suisse had requested a public statement of support.

“Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks,” the SNB and Finma said. “In addition, the SNB will provide liquidity to the globally active bank if necessary.”

The steep share price decline came after the chair of the Saudi National Bank, which bought a 10 per cent stake in Credit Suisse last year, ruled out providing the Swiss lender with any more financial assistance.

The bank has been hit by a series of scandals in recent years, including the biggest trading loss in its 167-year history following the implosion of Archegos Capital and the closure of $10bn of investment funds linked to collapsed finance firm Greensill.

Credit Suisse shares closed down 24.2 per cent on Wednesday, pushing its market value below SFr7bn ($7.6bn). Shares in the bank, which raised SFr4bn of capital just a few months ago, are down 39 per cent this year and 85 per cent over the past two years.

On a call with several hundred clients on Wednesday, analysts from JPMorgan suggested that the SNB might guarantee Credit Suisse’s deposits and force it to sell its investment bank, according to people who were briefed.

However, the analysts thought the most likely scenario if Credit Suisse’s situation deteriorates is a sale of the lender to local rival UBS, one of the people said. An equity injection by the SNB is also a possibility as is allowing Credit Suisse to try to fix its own problems by selling a minority stake in its retail bank and using the proceeds to restructure the rest of the group.

However, the JPMorgan analysts said it was unlikely that Credit Suisse would be allowed to fail because of its importance to the Swiss economy and Zurich’s status as a global financial centre.

Octavio Marenzi, analyst at Opimas, said: “The [SNB] and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial centre.”

Credit Suisse declined to comment.

Separately, the European Central Bank has asked EU lenders to disclose their exposures to the Swiss lender, a person familiar with the matter told the FT.

The ECB debated making a public statement to try and calm the waters, but as of Wednesday afternoon it had decided against doing so for fear of adding to market panic, the person added.

The US Treasury said it was “monitoring this situation and has been in touch with global counterparts”.

The slide in Credit Suisse’s shares reignited a broader sell-off in bank stocks in Europe and the US, which were already reeling this week from the failure of Silicon Valley Bank.

BNP Paribas, Société Générale, Deutsche Bank, ING and Barclays lost between 9 and 12 per cent. In the US, JPMorgan fell 4.7 per cent and Citigroup declined 5.4 per cent.

Investors said Credit Suisse’s problems were a reminder that Europe’s banks also had large bond portfolios, the paper value of which has been hammered by rising interest rates.

“Credit Suisse is an isolated case,” said Charles-Henry Monchau, chief investment officer at Syz Bank. “But banks in Europe, because of regulatory pressure, had to load up on negative-yielding bonds at the worst time and now they are facing major unrealised losses.”

Asked on Bloomberg TV whether Saudi National Bank would be open to providing capital to Credit Suisse if there was a call for additional equity, SNB chair Ammar Alkhudairy said: “The answer is absolutely not.”

He said owning more than 10 per cent of Credit Suisse would result in unwanted regulatory requirements, though he added he supported the bank’s restructuring plan and did not think it needed more capital.

Credit Suisse revealed on Tuesday that its auditor, PwC, had identified “material weaknesses” in its financial reporting controls. That led to the delay of the publication of its annual report last week after the US Securities and Exchange Commission asked for more clarity on the flaws.

Additional reporting by Katie Martin, Martin Arnold and James Politi