Credit Suisse borrows $80bn from central bank

Credit Suisse has announced its intention to “pre-emptively” strengthen its liquidity by exercising an option to leverage a covered loan facility and a short-term liquidity facility offered by the Swiss National Bank (SNB).

The “fully collateralised” facilities are valued at approximately $81 billion. Separately, Credit Suisse has offered to repurchase 10 US dollar-denominated senior debt securities via a tender offer, valued at up to USD$2.5 billion ($3.7 billion), while also launching a cash tender offer for four euro-denominated senior debt securities at an aggregate consideration of up to €500 million ($798 million).

Both offers, which expire on Wednesday, 22 March 2023, would help manage Credit Suisse’s “overall liability composition”, while also “optimising interest expense” and allowing the bank to “take advantage of current trading levels to repurchase debt at attractive prices”.

Credit Suisse CEO Ulrich Körner said the troubled bank is taking “decisive action” to fund strategic transformation.

“My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” he said.

Credit Suisse’s announcement comes amid ongoing concerns over the strength of the bank’s balance sheet, which was undermined by “significantly higher withdrawals” of cash deposits and the non-renewal of maturing time deposits over the fourth quarter of 2022.

These outflows “substantially exceeded” the rates experienced in the previous quarter, up from $21 billion to $180 billion.

Investor sentiment has since worsened off the back of three banking collapses in the US, attributed to poor capital management exposed by aggressive monetary policy tightening.

But the Swiss regulators have sought to allay fears, stressing that “strict capital and liquidity requirements” imposed on local banks have built healthy buffers to absorb shocks.

“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the regulators noted.

As at 31 December, 2023, Credit Suisse had a Common Equity Tier 1 (CET1) ratio of 14.1 per cent. and an average liquidity coverage ratio (LCR) of 144 per cent (since rising to 150 per cent as at 14 March).

The Swiss regulators also distanced the local banking system from the fallout associated with the collapse of US banks, including Silvergate Capital, Signature Bank, and most notably, Silicon Valley Bank (SVB).

“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 Swiss regulators noted.

Credit Suisse added that, unlike these US banks, it 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,” the bank noted in its latest public statement.

Credit Suisse also touted the quality of its loan book, which it said is “highly collateralised” at almost 90 per cent, with more than 60 per cent in Switzerland.

These latest developments come just days after the release of Credit Suisse’s 2022 annual report, detailing the findings of an external review of its internal control mechanisms, aimed at assessing whether the bank has provided “reasonable assurance” regarding the reliability of its financial reporting.

The review found that as at 31 December 2022, the bank’s internal processes were “not effective”, given that it did not “design and maintain an effective risk assessment process” used to identify and analyse the risk of “material misstatements”.

Credit Suisse’s board of directors acknowledged “material weakness”, which may have resulted in misstatements of account balances or disclosures.

Further, the report noted observations from global consultancy firm PricewaterhouseCoopers (PwC), which found that Credit Suisse “did not design and maintain an effective risk assessment process”.

However, after acknowledging these gaps, Credit Suisse stressed that its financial statements as at 31 December 2022 complied with Swiss law.

The bank is reportedly developing a remediation plan to address shortcomings.

But assurances of the bank’s stability have not been enough to prevent a sell-off in the share market, with its share price plunging 35.3 per cent over the past five days and closing trading on Wednesday (15 March) at CHF 1.70 ($2.76).

Credit Suisse is not the only major bank to take a significant hit on the stock exchange, with an Oxford Economics analysis revealing US bank share prices fell 17.6 per cent over the five days following the collapse of California-based Silicon Valley Bank — the country’s 16th largest bank.

Across advanced economies, bank equity prices fell 10 per cent, compared to just 1.5 per cent in emerging markets.

[Related: ‘First domino to fall’: Blackrock mulls banking crisis]