by Stefania Spazzatti and John O’Donnell
LONDON, March 16 (Reuters). , Switzerland’s revolutionary pledge to bankroll Credit Suisse Group AG has given the embattled lender a chance to revive itself from an almost complete collapse in confidence that has roiled global markets.
The move, akin to a blank check from one of the world’s leading central banks, is reminiscent of a promise made by European Central Bank Mario Draghi to support the euro more than a decade ago during the financial crash.
In the years that followed, the ECB and other central banks printed billions of euros, a free-money era that sparked a global rally in asset prices. The reversal of low rates to stem runaway inflation has forced a rethink on risk aversion and exposed the vulnerability of firms such as Credit Suisse.
In a joint statement on Wednesday night, the Swiss National Bank and the country’s financial regulator, FINMA, sought to draw a line between months of speculation about the bank’s future, which culminated in a 30% drop in its share price on Wednesday. Had happened.
“SNB will provide liquidity to CS if necessary,” he said.
He ruled out any threat to the bank, saying the “current turmoil in the US banking market” will not affect Swiss banks.
The central bank’s move to support the group with a pledge of money is designed to address a crisis of confidence in Switzerland’s second-biggest lender that stems from years of scandals and losses.
the fall of Silicon Valley Bank That prompted a broad flight to quality in the US on Friday, which saw large lenders that are considered more solid, including Swiss rival UBS Group AGUBSG.SAttracting deposits, deepening Credit Suisse’s woes.
This is a step short of the outright bailout seen during the financial crisis more than a decade ago.
But it leaves the central bank, which prints the Swiss franc and props up the Alpine nation’s economy, firmly on the hook should the bank resume its spiral. Meanwhile, the bank still needs to move forward with a radical restructuring undertaken in October to restore profitability.
‘Avoid the chaos’
The government rescue followed one of the worst days in the bank’s recent history, an episode that rattled the nerves of politicians and bankers across Europe, even attracting the attention of US Senator Bernie Sanders. Did.
A European government source said before the announcement, “You can only advise Switzerland to quickly organize a rescue package … to restore confidence.” “The aim is to avoid chaos.”
The risk of contagion was so great that at least three major banks in Europe and Britain rushed to hedge their exposure to the Swiss bank, three senior bankers told Reuters.
“Credit Suisse has been on our watch list for some time,” a senior official told Reuters.
Long troubled, the bank’s problems came to a head last year amid a storm of speculation in social media that it could collapse. It has been struggling to recover since customers withdrew about $120 billion in the fourth quarter.
This revolutionary move by the Swiss Central Bank aims to clear such doubts. credit Suisse csgn.s It will be the first globally systemically important bank to receive the pre-reserve lifeline.
But while the funding guarantees the bank’s future, it does little to address the strategic mess at the group nor its inability to convince investors and customers that it can turn the corner.
It is seeking to restore profitability by moving away from investment banking and trading securities to focus on managing wealth for the wealthy.
The plan hinges on Credit Suisse being able to find backers for the investment banking division, while it is able to develop wealth management. Nor is it given.
The bank saw an 88% drop in revenue from trading stocks and bonds in the last three months of 2022 from a year earlier, as customers moved their business elsewhereReuters first reported in March.
Within hours of the rescue, some were expressing doubts.
“Swiss authorities will probably want to keep it on life support because of the national symbolism,” said Thomas Hess, chairman and managing member of New York-based Great Hill Capital.
“They’re going to publicize this thing and pass it around like its alive, but it’ll basically be a zombie bank that’s state controlled.”
A UK-based equity manager said that while the backstop could stem a fall in the bank’s shares, the bank could still be forced to look at the sale of businesses such as its Swiss branch. Other analysts said earlier Wednesday that the bank may require a break-up.
For weary viewers of Bank, the latest episode repeats a familiar pattern.
“It’s been a slow motion train crash for a decade now,” Hayes said.
(Reporting by Noel Illien, John Revill and Oliver Hurt in Zurich and Tom Sims in Frankfurt, Christian Kramer in Berlin, Sinead Cruz in London and Davide Barbuscia in New York; Editing by Elisa Martinuzzi and Stephen Coates)
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