Financial Results

Credit Suisse Takes "Decisive Action" To Bolster Liquidity; Shares Surge

Tom Burroughes Group Editor 16 March 2023

Credit Suisse Takes

Shares in the bank fell sharply yesterday but bounced after authorities said they were backing the firm and as it announced moves to bolster liquidity. The events come amid considerable strains in financial markets.

(Updates and recasts story, adds latest bank statement on liquidity move.)

Today, Credit Suisse said it is “taking decisive action” to pre-emptively strengthen its liquidity by intending to exercise its option to borrow from the Swiss National Bank up to SFr50 billion ($53.9 billion) under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralised by high quality assets. 

The bank also announced offers by Credit Suisse International to buy back certain “OpCo” senior debt securities for cash of up to about SFr3 billion. 

Shares in Switzerland's second-largest lender, which had slumped by more than 20 per cent yesterday, were up 18.6 per cent on the SIX stock market in Switzerland, at SFr2.35 per share. Yesterday, the share price slump sparked fears of the bank's financial health. 

The bank has suffered scandals and mishaps and booked losses in its 2022 results. As a result, it has sought to restructure its business lines, pivot to wealth management, and cut risk exposures and slash costs.

“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said. 

The group is also making a cash tender offer in relation to ten US-dollar denominated senior debt securities for up to $2.5 billion in total. It is also announcing a separate cash tender offer in relation to four euro-denominated senior debt securities for an aggregate consideration of up to €500 million. 

The offers will expire on 22 March, subject to the terms and conditions, it said in a statement today. 

“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” CEO Ulrich Koerner said. “We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.” 

Late yesterday, the Swiss financial regulator and Swiss National Bank attempted to ease investor fears around Credit Suisse. They said the Zurich-listed bank "meets the capital and liquidity requirements imposed on systemically important banks."

The bodies said the bank could access liquidity from the central bank if needed.

"FINMA and the SNB are pointing out in this joint statement that there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market," the organisations said in a statement. "Credit Suisse’s stock exchange value and the value of its debt securities have been particularly affected by market reactions in recent days. FINMA is in very close contact with the bank and has access to all information relevant to supervisory law. Against this background, FINMA confirms that Credit Suisse meets the higher capital and liquidity requirements applicable to systemically important banks. In addition, the SNB will provide liquidity to the globally active bank if necessary. FINMA and the SNB are following developments very closely and are in close contact with the Federal Department of Finance to ensure financial stability."

Trading in the bank’s shares was suspended yesterday in the Swiss stock market. Shares were also suspended for a period in a number of other European banks, such as BNP Paribas, Societe Generale, and UniCredit.

Elsewhere in today's statement, Credit Suisse said: "As a global systemically important bank, Credit Suisse, like its global peers, is subject to high standards for capital, funding, liquidity and leverage requirements. As of the end of 2022, Credit Suisse had a CET1 ratio [capital ratio] of 14.1 per cent and an average liquidity coverage ratio1 (LCR) of 144 per cent, which has since improved to approximately 150 per cent (as of 14 March).

"The use of the Covered Loan Facility of SFr39 billion will further strengthen the LCR with immediate effect. Credit Suisse is conservatively positioned against interest rate risks. The volume of duration fixed income securities is not material compared to the overall HQLA (high quality liquid assets) portfolio and, in addition, is fully hedged for moves in interest rates. Moreover, the loan book is highly collateralized at almost 90 per cent, with more than 60 per cent in Switzerland and an average provision for credit loss ratio of 8 bps across Wealth Management and the Swiss Bank."

"Following the Group’s strategy announcement on 27 October 2022, Credit Suisse has made significant progress toward this transformation and on an accelerated schedule to build the foundation for the new Credit Suisse. Its strategy includes decisive actions to radically restructure the Investment Bank, including the substantial exit from the Securitized Products Group where the bank has already achieved more than 70 per cent of the targeted asset reduction. The bank has also accelerated its cost transformation and is well on track to deliver [about] SFr2.5 billion of cost base reductions by 2025, including [about] SFr1.2 billion in 2023," it said,

Investors are anxious about banks in general because of the fractures they see exposed by the collapse late last week by Silicon Valley Bank, the 16th largest bank in the US. While the causes are various, the woes of SVB and Credit Suisse have raised awareness of how rising interest rates after a long period of ultra-low rates around the world has caught up with financial organisations. Ironically, the move by Switzerland away from negative official rates was in some ways welcome, because they bit into the interest rate margins that banks make between borrowing and savings rates.

The steep share price declines came in the wake of the collapse of Silicon Valley Bank in the US and 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.

Earlier this week, Credit Suisse issued its delayed annual report for 2022. The document identified "material weaknesses" in its internal controls over financial reporting. The Swiss bank it had not yet stemmed customer outflows. Last week, the lender, which operates in jurisdictions around the world, jolted investors by saying it was delaying release of the annual report following a call with US regulators. 

These measures follow a series of problems for the bank, such as its losses to New York-based hedge fund/family office Archegos, and the UK-based supply chain finance business Greensill, among others. To see its latest financial results, click here.

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