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Banking giant Credit Suisse said it will borrow $54 billion from Switzerland’s central bank, the latest move by authorities to ease fears of a global banking crisis even as signs of instability among U.S. regional banks persist.
Credit Suisse — Switzerland’s second-largest commercial lender — saw its stock soar around 20% Thursday following the announcement, reversing a steep decline Wednesday as part of a broader selloff, with investors signaling widespread concerns around the stability of the financial sector in the wake of two major U.S. banks failures.
Shares of First Republic were trading sharply lower when U.S. markets opened, among the handful of midsize and regional bank stocks that remain under pressure since the collapses of Silicon Valley Bank and Signature Bank.
First Republic, whose stock was downgraded to junk status this week by two credit rating agencies, was trading 35% lower on Thursday morning. PacWest lost 17% and Western Alliance was down nearly 11%.
The Dow Jones Industrial Average was down nearly 200 points early Thursday, signaling continuing unease on Wall Street.
The ongoing jitters come as Treasury Secretary Janet Yellen is set to testify before the Senate Finance Committee on the Biden administration’s budget proposal, though she is also expected to address the recent banking turmoil, saying that the American financial system “remains sound,” according to prepared remarks.
Investors and analysts welcomed Credit Suisse’s loan announcement, though underlying concerns about its financial health remain.
“What we’ve seen overnight is the Swiss central bank saying, ‘No, we will not let this get into a disorderly collapse,’” John Gieve, a former deputy governor of the Bank of England, told BBC News.
“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 in a statement.
The deal comes after Credit Suisse led a selloff in bank shares as its share price hit a record low Wednesday, fueling fears about the health of global banks following the collapse of Silicon Valley Bank and Signature Bank in the United States.
Credit Suisse’s long-standing problems were compounded when its largest investor, the Saudi National Bank, said it would not provide more financial assistance because it was wary of regulatory checks that would kick in.
On Thursday, the Saudi bank’s chairman, Ammar Al Khudairy, said that the market turmoil in shares of the Swiss lender was “unwarranted.”
“If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses,” Al Khudairy told CNBC’s Hadley Gamble. “It’s panic, a little bit of panic — I believe completely unwarranted, whether it be for Credit Suisse or for the entire market.”
Thursday’s Credit Suisse action is the first major international bank to be given such a lifeline since the 2008 financial crisis, and the move could raise questions over how banks will navigate rising inflation across the world. Last month, Credit Suisse reported its largest annual loss since that crisis.
Problems at the bank, founded in 1856 and one of the biggest in the world, has shifted the finance world’s gaze from the U.S. to Europe.
SVB, the U.S. tech sector’s favorite lender, was shut down last week by regulators, and federal authorities moved quickly thereafter to guarantee all its deposits, including those exceeding the $250,000 insurance limit. Two days later, New York regulators shut down Signature Bank, a big lender in the cryptocurrency industry.
While Credit Suisse has had its own issues distinct from the problems that felled SVB and Signature, analysts said higher interest rates in the U.S. and abroad have put pressure on the value of assets held by lenders around the world.
The Swiss bank, which has struggled with weak profitability in recent years, warned Tuesday that a recent stream of customers pulling their money out had slowed down but “not yet reversed.” The acknowledgment coincided with the disclosure that Credit Suisse had found “material weaknesses” in its financial reporting for 2021 and last year.
The bank has faced one scandal after another in recent years. It was convicted in connection with a money laundering plot involving a drug ring last summer. And it has had substantial entanglements with a collapsed hedge fund and a bankrupt British lender.
Rob Wile, Reuters and Associated Press contributed.
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