Shares of Credit Suisse rebounded Thursday after Swiss National Bank extended a $54 billion lifeline — but investors remained skittish about a potential collapse, with some analysts arguing that a rescue is inevitable.
After news of the Swiss government’s support broke late Wednesday, the European Central Bank hiked interest rates by half a percentage point on Thursday — a move that could add more pressure on Credit Suisse and other lenders.
The embattled bank was trading more than 21% higher as of 9 a.m. ET, but remained lower than it was before a sharp plunge on Wednesday.
Credit Suisse’s stability has been a source of major worry in the US and abroad following the abrupt failures of Silicon Valley Bank and Signature Bank of New York.
Large US banks and smaller regional institutions have been under pressure even after federal regulators stepped in with a controversial bailout of SVB depositors.
“While a liquidity boost relieves some near term pressure, most of the concerns around the stock before the recent events are still valid,” KBW analyst Thomas Hallett said in a note to clients obtained by Reuters.
If the need arises, Credit Suisse could be loaned up to 50 billion francs, or $54 billion, because it “meets the capital and liquidity requirements imposed on systemically important banks,” the Swiss National Bank and the Swiss Financial Market Supervisory Authority said in a joint statement on Wednesday.
As part of the arrangement, Credit Suisse has also pledged to buy back about 3 billion francs’ worth of its own debt.
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” Credit Suisse CEO Ulrich Koerner said in a statement.
The announcement bolstered confidence in Credit Suisse after the Swiss bank’s shares cratered to a record low earlier this week after officials admitted to finding “material weaknesses” in its financial reporting over the last two years.
The Zurich-based firm said the weaknesses amounted to a “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements.”
Even with government support, Credit Suisse’s respite could be short-lived.
Nouriel Roubini, the economist known as “Dr. Doom” due to his penchant for dire predictions, warned the Swiss lender could still collapse if the European Central Bank hiked rates.
“If ECB hikes by 50bps it is possible that CS goes bust over the weekend & then the ECB has to reverse itself by next week,” Roubini tweeted on Wednesday.
“So hopefully it will not repeat the mistake made in 2011 during the EZ crisis when it hiked into that crisis. ECB/SNB need to give CS some liquidity lifeline,” he added.
Credit Suisse is the first major bank to receive an emergency government lifeline since the Great Recession in 2008.
Shares plunged further earlier Wednesday after Credit Suisse’s top shareholder, the Saudi National Bank, said it would not pour any more cash into the firm.
The firm’s struggles occurred as it attempts to navigate a complicated restructuring following multiple scandals – including ties to the 2021 implosion of Archegos Capital Management.
With Post wires
[Written in collaboration with other media outlets with information from the following sources]
